July 22, 2012

Billions of dollars in new revenue for Argentina are expected to be created by record soy prices due to a punishing drought in the US.

Prices for soy for August delivery gained US$0.5025, or 3%, to end at $17.3375 a bushel. Corn also beat its all-time high of a year ago, with September deliveries rising US$0.1275 to finish at US$8.0775 per bushel. September wheat also rose a sharp US$0.3175 to close at US$9.35 per bushel on the Chicago Board of Trade, its highest prices since 2008.

A US drought has reduced supplies of the very grains Argentina grows in abundance - mostly to China, which buys 80% of Argentina's soy. Global grain supplies also are under pressure from lowered estimates in Russia and an "underperforming Indian monsoon" season, Barclays Capital said in its commodities briefing on Thursday (July 19). Meanwhile, Chinese demand remains strong, so supplies will likely remain tight until the next South American harvest, the report said.

Argentine soy producers still have nearly a third of their last harvest in silos and expect windfall profits now that they can sell at record highs. Since Argentina's latest budget was based on soy selling at US$440 a tonne, the government also expects major new revenues from its 35% stake in export taxes.

Rural Society President Hugo Biolcati accused the government Thursday (July 19) of strangling the country's booming farm sector.

"These huge taxes add up to a suffocating burden on farming, with clearly confiscatory effects, forcing this resource to subsidise unbalanced national, provincial and municipal budgets," Biolcati complained at the industry's annual trade fair.