Argentina’s meal market remains slow despite export tax cut

One week after coming into effect, Argentina's cut in export tariffs on agricultural products has not yet boosted activity in the local soybean meal export market, a commodity in which the country is a global leader in shipments.

According to market sources, the pace of farmer selling remains slow, while crushers assess how they will finance the payments stipulated by the measure from the government of Javier Milei.

"The system that the government set up for the reduction of 'retenciones' includes an obligation to liquidate foreign currency that does not work for some exporters," said a trader from the Argentine soybean meal market.

According to Casa Rosada's decree, export tariffs on soybeans will be reduced from 33% to 26% until the end of June, while the so-called "retenciones" applied to external sales of soybean meal and oil will decrease to 24.5% from 31%.

The measure has been in effect since Jan. 27 and also includes cuts in export tariffs for wheat, corn, and sunflower.

The decree specifies that exporters must liquidate at least 95% of the foreign currency for these goods linked to the registrations of Export Commitments (DJVE) within 15 business days of making the declaration.

"It is anticipated that offers and bids will experience a transitional phase before any substantial impacts are observed," analysts from S&P Global Commodity Insights said in the Weekly Soybean Complex report published Jan. 31. "Macroeconomic indicators support these changes and are likely to benefit the competitiveness of soybean complex in global markets."

Indeed, few offers and bids were indicated for prompt FOB Up River shipments from Jan. 27-31, that is, during the first week with the new export tariffs in effect, according to monitoring by Platts, part of Commodity Insights.

Farmer selling

The Argentine government's measure aimed, among other objectives, to stimulate the sales of grains and oilseeds by rural producers, especially from the old crop.

"Lower export taxes translate into better domestic prices for farmers," a source commented. "With higher prices, farmers are likely to sell more, which could lead to a decrease in FOB premiums."

However, the pace of farmer selling in Argentina has not yet gained traction, according to market talks.

Therefore, in the week ending Jan. 22, before Argentina's tax measures, cumulative farmer sales for the 2024-25 marketing year (April-March) were at 3.96 million mt, more than 20% slower than the same time last year regarding MY 2023-24, according to the latest data from the Ministry of Economy.

"From here on out, the final effect on the pace of commitments will depend on multiple variables such as price, margins, trade expectations, and production based on rainfall, among others," analysts from the Rosario Grain Exchange, or BCR, said in an article published Jan. 31.

According to BCR estimates, sales from Argentine rural producers, considering soybeans, corn, and wheat, could total 54 million mt between Jan. 27 and June 30, based on the average pace of commitments observed over the last decade.

Low prices

While considerations regarding the cut in Argentine "retenciones" continue, soybean meal prices remain pressured. This reflects the global surplus resulting from high crushing rates for soybean oil production directed at biofuels.

On Jan. 31, Platts assessed the price of soybean meal FOB Up River at $327.49/mt, a drop of 24% year-on-year.

In the 2024-25 crop year, which has just finished planting, Argentina should produce 49.50 million mt of soybeans, with meal output and exports pegged at 34.37 million mt and 30 million mt, respectively, according to estimates from Commodity Insights.

Concerns regarding this year's cycle, moreover, also explain the caution of Argentine farmers regarding fresh sales.

Hot and dry weather conditions since December have been impacting the country's crops, and the Buenos Aires Grain Exchange recently cut its estimate for the 2024-25 soybean harvest by 1 million mt, to 49.6 million mt.

For now, Commodity Insights still projects a harvest of 49.5 million mt, but its analysts warn that around 2 million mt could be susceptible to losses due to unfavorable weather.