Liquidation of Argentine soybean stocks
Because of Argentina’s 30% inflation rate and 25% export tax on soybean, farmers there have chosen to store an inordinately large share of their production, mostly in silage bags.
The USDA estimates that Argentina’s farmers will have 14.59 million tonnes (536 million bushels) of soybean on hand at the end of March 2016; the country’s ending stocks in the past have normally been less than 4 million tonnes (145 million bushels).
Argentine farmers are retaining their stocks as they expect the government will devalue the peso in the next few weeks or months and are hoping President-elect Mauricio Macri will sharply reduce the export tax on soybean as he promised after taking office on Dec 10, 2015. Both of these actions would boost the number of pesos farmers would earn from selling their soybean and encourage them to sell more.
If Argentina’s farmers do sell a large share of their soybean in a relatively short period of time, there could be a strong drop in global prices. Most of the soybean likely will be sold to the country’s soybean processors to crush for export. Thus, most of the impact would be on global prices of soybean meal and soybean oil.
However, soybean prices also could be substantially affected. The likelihood is that most of the stock liquidation will occur in the first quarter of 2016. US farmers should be very leery of having large amounts of unsold soybean supplies when Argentina’s farmers begin to sell their holdings.
Indian soybean importsIndia has seen its soybean meal consumption surge from 1.02 million tonnes in 2006/07 to an estimated 5.22 million tonnes in 2015/16. The result of this and declining soybean production has been a drop in its soybean meal exports from a high of 5.29 million tonnes in 2007/08 to a projected 700,000 tonnes in 2015/16.
Domestic soybean meal consumption is expected to continue to grow rapidly in the future as a result of rising income and increasing consumer demand for poultry meat and farm-raised fish, which are fed with soybean meal.
It will be very difficult for India to substantially boost its soybean production due to lack of land and competition for farmland from other crops. Therefore, it is certain that India must soon import additional soybean or soybean meal to supply its growing domestic demand.
Reportedly, Indian firms have already contracted to import some soybean meal this year from the Ukraine and China. As it stands now, the Indian government does not allow the importation of biotech crops or their derived products. Therefore, importers can import only non-biotech soybean meal, which is far more expensive than that made from biotech soybean.
The Indian government will likely change its policy sometime in 2016 to allow the importation of biotech soybean meal and possibly biotech soybean for processing. Prime Minister Narendra Modi has spoken very positively about biotech crops. The government also is being advised by a wide array of scientists to embrace these crops, including permitting their domestic cultivation. Therefore, it makes sense for it to now allow biotech imports as a first step toward sanctioning actual production of such items in India, in order to better supply the market with commodities like corn and soybean.
Of course many unanticipated events likely will occur that will have a major impact on the markets for soybean and its products, although they are simply unknown at this point. That is what makes the future interesting.
John Baize
AG Review December 2015,
This is an edited version of the article.
