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ECONOMY | 15-07-2022 13:07

Inflation at 64% has Argentine soy farmers hoarding all they can

In Argentina, the top exporter of soybean products, farmers are hanging on to more of their crops than normal to defend against rampant inflation in yet another blow to global food supplies.

In Argentina, the top exporter of soybean products, farmers are hanging on to more of their crops than normal to defend against rampant inflation in yet another blow to global food supplies.

Growers have long used hoarding to shield against Argentina’s notoriously volatile economy, especially gyrations in currency and export taxes. But this year, spiraling inflation is exacerbating the dynamic. They’ve sold just 46 percent of the soy harvest, compared with 57 percent at the same stage last year, an analysis of government and grain exchange data shows.

The bigger-than-normal stockpiles of soybeans, often held on fields in giant sausage-shaped silobags, speak to farmers’ battle with rates of inflation that are among the highest in the world – consumer prices rose 64 percent in June from a year earlier, with increases forecast to quicken. 

More hoarding signals slower shipments of soy oil and soy meal at a time when food supply chains are already heavily disrupted by the lingering impact of the pandemic and the war in Ukraine. It also curtails hard currency flows to Argentine coffers, exacerbating debt woes.

Prices for everything are soaring – from diesel and tires for tractors, to wages for farmhands and rates charged by truckers. But a depreciation of the official exchange rate at which crop revenues are converted from dollars to pesos hasn’t been keeping pace. So rather than selling soy to exporters now, it’s better to wait for a devaluation or to avoid pesos altogether by bartering beans for inputs.

“In Argentina they tend to hold onto grain as long as possible, treating it like money in the bank,” said Arlan Suderman, chief commodities economist at StoneX. “It’s to the point where they’d barter to buy a new pickup truck with grain rather than pesos.”

Bartering soybeans amid high inflation and currency swings isn’t for the faint-hearted.  

Ariel Striglio, a farmer in Santa Fe Province, took advantage of high international prices, trading enough soy to exchange for inputs and pay off debt while storing away about half of his harvest. But he recently saw two deals collapse, such is the pace of price moves. 

After negotiating a loan for a new seeder, Striglio had to cancel after the bank hiked the rate by 15 percentage points. Suppliers also pulled the plug on a sale of fertilisers that he needs for corn and sunflower planting in just a few weeks after parallel exchange rates for the peso spiked.

“It should be a simple equation of selling for more than your costs, but these days getting it right is like scoring a goal from the halfway line,” Striglio said.

Greater uncertainty means farmers go into wait-and-see mode and definitely don’t look to expand, said Eugenio Irazuegui, head of research at grains brokerage Enrique Zeni in Rosario.

Francisco Perkins, a farmer in Buenos Aires Province, has also kept back about half of his soy harvest as cost increases accelerate. “Whenever inflation is faster than currency depreciation, I lose competitiveness because I need more crop dollars to cover peso payments,” he said.

Perkins highlighted out-of-step increases charged by fieldwork contractors, who do the bulk of planting and harvesting in Argentina, and by suppliers who are struggling to replenish stocks because of import restrictions designed to protect the Central Bank’s dollar reserves.

One recent ordeal for Perkins involved a quest to get hold of tractor tires – then forking out about five times what he would have paid a year ago.

“We used to have a spreadsheet of values to help come to an agreement with harvesters, but now we have to negotiate from zero,” he said. “Relative prices have been destroyed.”

by Jonathan Gilbert & Andrea Bossi, Bloomberg

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