Taxes, crusher's woes fog Argentina's soybean meal, oil markets

2019 was a tough year for the Argentinian agricultural market.

One of the reasons for that was that it was an election year, which clouded the market with uncertainties. The soy complex is living under those uncertainties.

As Argentina has been facing economic problems for some time and has a large debt with the International Monetary Fund, many expect the government to seek a way to raise cash soon.

"The easiest way to that is through export taxes," a broker in Argentina said.

Export taxes already increased to 30% for the soy complex December 14, from the previous 25% more or less. Then December 21, Congress approved a bill allowing the taxes to increase to 33% for the complex, with the backing of the center-left candidate who won October's presidential election, Alberto Fernandez.

To understand the election anxieties, it's necessary to go back a few years. When Mauricio Macri became president in 2015, the nation expected the economy to turn around. That did not happen, however, and Argentinians were dissatisfied as his term came to an end.

Then, in 2019, voters turned to Fernandez, whose vice president, Cristina Kirchner, was Macri's predecessor as president. During Kirchner's presidency, the rise of export taxes left its mark on the agricultural market. And then, when Fernandez won the presidential election, many were sure he would back a higher export tax.

Soybean crush margins were not great during the year, and there were times when they were negative. Despite that, the April-to-October crush was the second largest in the past five years. The continuation of the trade dispute between US and China throughout 2019 increased soybean prices in South America. There was no big demand push for the crushing products, on the other hand, thus margins were compressed.

In the past, soybean meal and soybean oil had lower export taxes than beans, which helped crushing plants in the country. So far, this is not expected to happen with the increase in taxes, so crush margins will not be aided by it.

CRUSHING GIANT'S TROUBLES

Another main theme in the year ahead: crushing giant Vicentin's financial situation. The company faced financial stress in the beginning of December, right before the government shift, and it is unclear as to how and when this will be solved.

Several news portals reported that Vicentin's debt is $350 million, and it does not have the means to escape that burden. Vicentin has sold part of its share of the Renova plant to Glencore, its partner in that joint venture. Before the deal, each company owned half the plant. Now Vicentin owns a third. This was negotiated before Vicentin's problems came to light.

If the issue persists, the company might not be able to crush soybeans in 2020, and that would affect the crush figures for 2020, sources say.

A soymeal broker in Argentina said the company crushes 6 million to 7 million mt of beans a year.

"Crushing will not be reduced by that amount, as other crushers will increase their rate," the broker said. "It might decrease a little, though not by that much."

WEATHER FACTORS

Weather conditions until harvest season also will play an important role in 2020's forecast.

Soybean seeding was delayed for the 2019-20 crop because of dry weather, and some regions are facing soil moisture stress.

"The Buenos Aires zone needs rains for the crop to develop well," a source in Argentina said.

According to December's World Agricultural Supply and Demand report from the US Department of Agriculture, Argentina's 2019-20 soybean crop production was forecast at 53 million mt, 2.3 million mt lower than the 2018-19 crop.

-- Dayane Stringhini, dayane.stringhini@spglobal.com

-- Edited by Bill Montgomery, newsdesk@spglobal.com