Argentina elected Mauricio Macri as its new president Sunday, a victory that will likely mark a major change in farm policy and the release of soybean stocks onto the market.
On Sunday, the center-right mayor of Buenos Aires won 51.4% of the vote, beating Daniel Scioli, the government-backed candidate, on a platform of free-market reforms and a clean break from the populist, interventionist policies of outgoing president, Cristina Fernandez, and her late husband and predecessor, Nestor Kirchner.
The country’s grain sector heavily backed Macri, who has committed to roll back export controls and taxes when he takes over on Dec. 10.
Macri has repeatedly said that he will scrap the 23% tax and quotas on wheat shipments and lift controls on corn.
However, the big question is what he will do on soy, as farmers are currently holding around 15 million metric tons (551.2 million bushels) of soybeans in silo bags across Argentina, according to the Argentine Rural Society. Those stocks could flood the international market.
During the election, Macri committed to cut the 35% soybean export tax by five percentage points in December and then by another five points in each subsequent year.
There are rumors that he may cut deeper initially in December to stimulate nearby shipments and thus generate revenue. However, the soybean export tax covers around a third of government spending, and a big cut would spell lost revenues at a time when government coffers are bare.
On Monday, Macri would not comment on the issue, telling a press conference that his economic team is assessing its options.
However, perhaps more important to Argentine farmers is when, and by how much, the Argentine peso is devalued.
The principal reason farmers have been holding soybeans is the expectation that the government would allow the peso to float after the election.
Argentine farmers currently must convert soybean export dollars to pesos at the official rate, which traded Monday at $1 = AR$9.64, while the black (floating) market rate stood at $1 = AR$15.10.
Macri has pledged to dismantle the controls on foreign exchange dealings from day one, which would necessarily mean the peso goes south.
That’s the electoral rhetoric. In reality, Macri inherits a precarious economic situation where inflation is running at double-digits, foreign reserves are negligible and the country is shut out of international markets.
By clearing away all capital controls in one go, Macri runs the risk of triggering a full-on economic crisis. On the other hand, by using an incremental approach, he risks seeing inflation eat away at the benefits and politics derail the process in the middle.
It’s a tough call to make.
Certainly, if the peso floats or there is a significant cut in the soy export tax, there is likely to be a significant flow of Argentine soy onto international markets.
Argentine grain prices have risen over the last week in anticipation of changes.
AN END OF DISTORTIONS
Whatever happens in the short term, the farm sector will be relieved to see the exit of Fernandez, with whom it has battled over the last eight years.
The president used quotas and export taxes on wheat, corn and beef as a means of controlling runaway inflation.
Those controls limited liquidity for corn and wheat at key times of year and depressed prices. This pushed farmers toward planting soybeans, the area for which exploded in the last decade.
The end of the Fernandez regime will likely lead to more balanced rotations with wheat and corn area growing at the expense of soy, which currently accounts for over 60% of planted area. As a result, corn and wheat exports will inevitably grow and soy shipments subside, although the better rotations will boost yields for the oilseed.
Meanwhile, Argentina’s world-famous beef can be expected to make a comeback.