Argentina Soy Hoarders Bet on More Peso Depreciation

Argentine farmers are betting the peso’s biggest slump in 12 years isn’t over by holding on to an estimated $4 billion of stockpiled soybeans in a measure that may deepen the country’s financial crisis.

Growers in the South American country, the world’s biggest producer of the oilseed after the U.S. and Brazil, may also withhold the next crop harvested in March to May, according to the Rural Society, Argentina’s biggest farming group.

The government of President Cristina Fernandez de Kirchner needs the revenue from farming, the country’s biggest export, as she seeks to shore up a faltering economy and stem inflation that soared to 28 percent last year. Fernandez today scrapped some currency controls a day after the peso fell the most in more than a decade. The government gets 35 percent tax on soy.

“Nobody knows if the devaluation is over,” Ernesto Ambrosetti, chief economist of the Rural Society said in a telephone interview. “Farmers know the best way to preserve the value of their soybeans are the soybeans themselves, so they will continue hoarding and selling when they need cash.”

The peso dropped 1.5 percent to 8.0014 per dollar in Buenos Aires today, extending its plunge this week to 18 percent, the worst selloff since a devaluation that followed the country’s record sovereign default in 2001. A further depreciation means farmers would get more pesos for crops valued in U.S. dollars if they wait.

Inflation Hedge

Argentine farmers store grains to hedge against inflation as they are paid in pesos at a dollar value by exporters such as Cargill Inc., Bunge Ltd. and Archer-Daniels-Midland Co. Modern silo bag technology allows them to store their harvests on their farms for several months or sell small amounts of the crop. The stockpiled oilseed is worth $4 billion, Economy Minister Axel Kicillof said in a radio interview today

“Holding on to his old-crop beans has been the Argentine producer’s hedge against the economic mess,” Tom Fritz a partner at EFG Group in Chicago, said.

There are about 7 million metric tons of soybeans left over from the 2012-2013 crop, Guillermo Rossi, an analyst at the Rosario Grains Exchange, said in an interview from the city in eastern Argentina. Farmers may sell 4 million tons of that by the end of March, when the 2013-2014 harvest begins, he said.

Fernandez and her predecessor and late husband Nestor Kirchner have clashed with farmers in their decade-long rule of Argentina. Farmers went on strike for four months in 2008, withholding their harvests and blocking highways to protest against higher grain taxes.

‘Wait to See’

“I will wait to see if the devaluation has finished,” Adrian Radnic, who grows wheat and corn on 3,000 hectares (7,413 acres) of farmland near Buenos Aires, said by telephone from the beach resort of Punta del Este in Uruguay.

Soybean shipments declined 70 percent in the second half of 2013, compared with a year earlier, because of grain hoarding, according to a cargo report issued by the Bahia Blanca Cereals Exchange.

Argentina is the world’s largest exporter of soybean meal used in animal feed and soybean oil used in everything from tofu to margarine, as well as the third-biggest soybean exporter.

Soybeans for March delivery dropped 2.3 percent this week to $12.85 a bushel at today’s close on the Chicago Board of Trade. Prices, which fell 13 percent in the past eight months, are expected to drop $9.50 during the next 12 months, as record crops in South America and increased U.S. planting boost global inventories, Goldman Sachs Group Inc. said in a Jan. 12 report.

‘Not Over’

“I don’t think the devaluation is over,” Ricardo Negri, soybean farmer, said in a telephone interview from his Buenos Aires province ranch. “Theoretically, the devaluation is positive. But I do not trust this government.”

The government may exert pressure on farmers to release their harvests after the peso devaluation, Richard Feltes, vice president of research for R.J. O’Brien & Associates in Chicago, said in a phone interview. “This uncertainty will reduce the confidence of major overseas buyers in the reliability of Argentina to deliver soybeans.”

To be sure, the prospect of a bumper global soybean crop this year may tempt farmers to the marketplace, said Julio Calzada, director of economic studies at Rosario Grains Exchange.

Argentina’s 2013-2014 soybean crop will increase 7.5 percent to 53 million metric tons, the Buenos Aires Grains Exchange said yesterday in its first forecast.

“There will be plenty of soybeans in April, so farmers may be tempted to sell now,” Maximiliano Zavala, an analyst at the Buenos Aires Grains Exchange, said in a telephone interview. “However, most of them will prefer to hold onto them because soybeans have become a currency.”