Soybeans – Argentina's effect on the Agribusiness

Soybeans – Argentina's effect on the Agribusiness

Last week, there was a strong focus on Argentina because of the presidential elections. The winner was Mauricio Macri, candidate of the conservative - liberal electoral alliance Cambiemos. And the promises he made have the potential to shake up the Agribusiness as he intends to implement several changes.

Among other things, he plans to remove existing export quotas on wheat and corn currently in place and to eliminate export taxes on these agricultural products. Additionally, it is rumored that Soybean export taxes will be eliminated the first 90 days and gradually reduced thereafter. Should these measures actually be implemented it can be expected that the acreage in use in Argentina will massively be expanded and, consequently, exports will skyrocket. With an output of about 60 million metric tons (MMT) per year, Argentina is already the third largest producer of soybeans globally - only the US and Brazil are larger. If the new plans come into force, Argentina could also empty its silos, which are estimated to store 20-30 MMT, in a relatively short time and hereby satisfy the high demand from China. To put this into perspective - the estimated world production in the harvest season 2014/2015 was about 319 MMT.

While the sowing season for soybeans in Brazil is already nearing completion, Argentina is only half way through and it usually lasts until the end of December. If Macri comes into power on December 10th and puts all of the mentioned agricultural policies in place the farmers would still have enough time to expand their production. Additionally, after a rather dry period in South America the weather conditions have reached ideal levels for the growth of crops now – this could lead to a higher than anticipated production.

Although the price of soybean contracts traded on CBOT could recover from the six and a half year low it had reached on Monday we should see some more downside pressure in the medium term because of the reasons mentioned above. Support can be found at the 2008/2009 lows at 843 USc and at 776 USc. A technical countermovement could go up to 920 Usc.

Source: Bloomberg

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