Global Markets: Oilseeds – Argentina Soybean Stocks – Looking at the Big Picture

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This month, USDA’s production estimate for Argentina’s 2017/18 soybean crop was reduced 7.0 million metric tons, with accompanying reductions in trade, crush, and stocks. However, USDA forecasts soybean carry-in stocks on April 1 to reach a record 18.4 million tons, which will limit the impact of the lower crop forecast. Ending stocks for March 31, 2019 are lowered 2.4 million tons to 13.5 million.

Dissenting opinions from USDA’s estimate of Argentina’s soybean stock have suggested the beginning stock estimate is overly optimistic. However, with final and reported data on trade and crush, and using publicly available production estimates, the balance sheet is left with little flexibility in adjusting stocks lower than the current level.

While anectodal evidence has suggested a higher domestic use or inflated trade numbers, which would lead to a lower stock estimate, these reports are unverifiable and have not been incorporated in USDA official estimates.

There also exists economic incentives for Argentine soybean stocks to grow. Past economic and agricultural policies in Argentina have culminated in rising soybean production and stockbuilding.

Macroeconomic conditions such as high inflation, policy uncertainty, and an artificially strong peso had discouraged farmers from actively engaging in the global market. As a hedge in such an environment, tradeable commodities have been held on-farm, especially by small- and medium-sized growers.

These dynamics provide support to USDA’s estimate of Argentina soybean stocks, which are currently forecast at 34 percent of 2017/18 disappearance. In percent of disappearance with a current carry-over into 2018 of less than 1.0 percent.

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For further analysis, the following soybean balance sheet (see full report) groups all significant South American producers such as Paraguay, Uruguay, and Bolivia, as well as Brazil and Argentina, in aggregate.

In the big picture, South American producer stocks average approximately 7 percent of distribution from 2009 to 2016, comparable to a 5 percent level in the United States. The gradual rise in total South American stocks as a percentage of disappearance between 2012 and 2016 supports the notion of stock building in Argentina.

In conclusion, this cumulative approach suggests that an excess of 10 million tons of soybeans could be stored in Argentina, which could cover crop losses in 2017/18, given similar levels of exports and processing of the previous year. Uncertainty remains in both the final harvest volume and available stocks in Argentina, as well as the price incentives needed for producers to sell given the ever-changing economic landscape.

Full report.

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