WASHINGTON, Feb. 24, 2016 - In December, Mauricio Macri was sworn in as Argentina’s president, ushering in changes that could be felt around the world, especially in agriculture, where his country was already among the top rivals of the U.S. in world export markets.
Macri made good on a campaign promise and slashed export taxes and quotas on many of the commodities grown in the South American country and began a phased reduction of the export tax on soybeans. That tax – which was previously at 35 percent – dropped by 5 percent this year and will continue to do so until it hits zero.
The changes came a little late to have much of an impact on this year’s planting decisions, but that could change in the future. Last week, U.S. Grains Council officials presented a report at their annual meeting projecting that land sown with wheat and corn is expected to jump 41 and 38 percent, respectively, in the 2016-2017 planting season, while hectares planted to soybeans are expected to experience a slight 1 percent drop.
Long-term, expectations are even more bullish. For corn, production is anticipated to increase from a five-year average of 25.36 million metric tons to 33.7 million tons in 2025. Soybeans are forecast for an even bigger jump from their current 48.3 million-ton five-year average to a whopping 72.4 million tons in 2025.
Marri Carrow, U.S. Grains Council’s regional director for the Western Hemisphere, said the policies under the new administration are “definitely going to increase competition” for U.S. producers looking to get their grain to export markets.
“It’s great news for Argentina that they have a government
that’s incentivizing foreign investment and is reducing tax systems,” she said.
“That’s really great for their country and the future of their economy, but for
grain producers in the United States, this is a game changer.
“If they get their logistics system down and now have reduced export taxes and
export systems, we’re looking at a real competitor here,” Carrow added.
However, the U.S. Soybean Export Council sees things a little differently. In an interview with Agri-Pulse, USSEC CEO Jim Sutter said the more gradual reduction of the soybean export tax could lead to a more typical crop rotation system that will result in skyrocketing corn and wheat hectares, but not necessarily more land planted with soybeans.
“I think the farmer will have now finally have the confidence, because the quotas won’t be there, that he’ll be able to export corn and other crops,” Sutter said. “He has the financial and economic incentive to grow those crops because the tax rate has been lowered so the price that he will receive for those other crops will be higher relative to soybeans.”
Crop rotations went by the wayside in many fields in Argentina in part because a common land-use model called for single-year leases. Producers needed to maximize their profit, so they grew the crop with the greatest profit potential, which in many cases was soybeans due to export taxes and quotas. In some cases, producers knew growing crops would be a losing game, so some fields were just left empty to avoid losses from the inputs required to grow a crop.
As good as things are looking at the moment, there are still many things the Argentine grain market will have to deal with in the very near future. Next month, some labor unions are expected to ask for raises of at least 40 percent, and interest rates for financing can be astronomical – as high as 70 percent in some areas – on top of already expensive transportation and fuel costs.
Martín Fragío, executive director of MAIZAR, a trade organization promoting Argentine corn, sorghum and other grain exports, also pointed to the lack of any solid free trade agreement promoting grain exports, saying that the country “has been trying to isolate itself from the world economy and world trade for the last 12 years at least.” While Argentine producers are feeling optimistic for the first time in quite a while, it will still be some time before the benefits of the changes can be realized, he said.
“We think that it will take the whole four years of this presidency, that is not something that we’ll see in months,” he said. “If they do everything right, maybe in two years we’ll see the initial results in competitiveness.”
USDA predicts that Argentina will be the third biggest exporter of corn and soybeans in the 2015-2016 marketing year. For corn, the country is expected to ship 17 million metric tons, behind about 42 million from the U.S. and 28 million from Brazil. Argentine soybean exports are pegged at 11.8 million tons, behind about 46 million from the U.S. and 57 million tons from Brazil.
#30
For more news, go to: www.Agri-Pulse.com
