Argentina’s soybean dollar program and impact on global supply

By Guil Signorini, Department of Horticulture and Crop Science | The Ohio State University

The macroeconomic policy in Argentina and their government’s strategy to improve the central bank’s financial reserves have crossed paths with agribusinesses and the production of commodities. The country has been grappling with high inflation rates and a weakening exchange rate of the Peso against the United States Dollar for several years, but the situation has worsened more recently.

Most countries around the globe were affected by inflation following the pandemic years as a collateral effect of social stimulus plans and disrupted supply chains. Currencies of developing countries devalued consistently against the Dollar and investors left to seek stable markets. Yet, Argentina’s economy has taken a darker turn than most. Its currency continues to depreciate at unprecedented rates. On Jan. 10, 2023, one U.S. Dollar was equal to 180 Pesos, compared to 60 Pesos per Dollar in January 2020 — a threefold depreciation in three years. Their economic problem result from monetary and fiscal decisions and require a solid fiscal anchor and restructuring policy reforms. In comparison to the U.S. macroeconomic conditions, the situation in Argentina is much worse.

Argentina has struggled for so long with its macroeconomic policies that the government finds itself focusing on short-term problems instead of reforming long-term goals. The country can no longer count on international lenders to assist in reorganizing its fiscal accounts due to high defaulting risk and the absence of restructuring reforms. In that agonizing situation, the Minister of the Economy Sergio Massa is attempting to rebuild the public coffers using the strength of the agribusiness sector.

Massa has created the so-called “soybean dollar” program, an exclusive exchange rate Peso-Dollar to incentivize soybean growers to export their crops. While the program represented one more layer of the government’s inadvisable involvement in market matters, it was Massa’s attempt to rebuild reserves and reduce the primary deficit. The program became effective in September 2022 when grain growers were offered an exclusive exchange rate of 200 Pesos per Dollar to sell their production internationally. At that time, the official exchange rate was 165 Pesos per 1 Dollar. A second round of the program was effective from Nov. 28, 2022, to Jan. 6, 2023, and raised the special exchange rate to 230 Pesos per 1 Dollar.

In light of so much uncertainty, Argentinian growers did not feel privileged with the soybean dollar program. Those who engaged in exports during the program’s first round were left with a bitter taste after learning about the second round and a more generous exchange rate. The agribusiness sector in general was skeptical of the program because it seemed short-lived. Inflation continues to torment, and the national currency depreciates daily. From the government’s perspective, the program was successful at encouraging exports. The Secretary of Agriculture Juan Jose Bahillo mentioned on Jan. 3, 2022 that 78.9% of the 2021/22 soybean harvest had been traded, though, falling slightly behind the 80% mark observed in the same period last year.

Besides the macroeconomic turmoil, Argentinian growers face weather-related challenges. As pointed out in the South American Crop Update of Nov. 15, 2022, the La Niña effect has started to show its impact. Weather and trade analysts forecast severe dry conditions in key grain production regions of the country: Buenos Aires, Cordoba, Santa Fe, and Santiago del Estero. Together these regions account for 84% of the soybean production and are expected to develop with 25% or less rainfall until the end of January. It is too early to say that the current crop season will be catastrophic for Argentinian growers as the planting season continues to unfold. Until Jan. 6, 85% of the intended production area has been sowed. The current seeding pace is 10 percentage points behind the 5-year average for the period.

However, it is safe to say that both economic and weather conditions introduce enormous challenges for Argentina — the world’s largest soybean meal exporter and the third-largest soybean grain exporter. In the neighboring country Brazil, weather conditions in most production regions are normal or slightly wet. Parts of Northern Brazil have started harvesting and some growers are wrapping up seeding in the extreme South. Analysts forecast a 30 million tons increase of soybean production if current projections hold for Brazil, a nearly 25% volume increase versus last season and approximately 65% of the 2021/22 Argentina’s production. To put it in perspective: while soybean growers face economic and weather-related challenges in Argentina, most Brazilian growers should experience a favorable season, evening the South American supply.

The takeaway for American growers is to focus on defending the upcoming season’s income from soybeans. Future soybean prices at CME are $14.97 per bushel for May 2023, roughly $3.10 above the 5-year average for this time of the year. The scenario may change one way or another before it is our time to empty storage facilities and prepare them for the upcoming season. But considering the current circumstances in South America, one may plausibly suggest that Brazil’s expected production growth will offset eventual reductions in Argentina’s exports, keeping the global supply stable. It remains to be seen what will happen to demand once the world flips the page of the COVID-19 chapter.