Will Argentine Default Squeeze the Farmer More?
Jul 31, 2014
The news of the Argentine default has certainly rattled the macro markets but what kind of ripple effects could we see in the grain markets? This is the second time in 12 years that the country has gone through this process and this time around, does it have the potential to dictate sizable shifts and changes in Agriculture in Argentina? There has always been government involvement with tariffs and taxes, to the tune of $76 million over the past ten years, with very little of those funds left in the bank. But with the economy so heavily weighted to the ag sector, will they need to rely more on the local farmers who have been pinched with rising inputs and lower prices? Will China come to the rescue, and at what expense? What will happen with the already high grain export duties and tariffs? Will the government be forced to raise them even further and will producers be able to take the hit? How will the farmers respond? What will happen with the Argentine currency and in return what will happen with the price of agricultural inputs inside Argentina? In fact, recent data indicates there is now 30,000 fewer farms in Argentina than there were 10-years ago, while planted acreage has increased almost 30% and their national harvest has risen by close to 50%, with total exports soaring from $15 to now over $45 billion. Moral of the story, the Argentine government appears to be in a major financial pinch and their only real assets or major cash-flow seems to continually point back towards agriculture. How they will squeeze the agricultural sector this time around is currently a bit of a mystery and something we need to closely monitor? I just hope this isn't a blue-print for other nations in the years ahead (squeezing their ag sector) as the global debt burden continues to rise. If this scenario plays out, will the local Argentine growers hold bean bushels, as hedge against their currency, as we have seen in the past?