October 15, 2008

Falling prices, high costs threaten Argentina soy planting

"With these prices, it doesn't make sense to plant, so either prices have to rise or costs fall ...(or) we will stop producing," Argentina's so-called "Soy King," Gustavo Grobocopatel, said in an interview with Radio 10.

However, Grobocopatel said that he expects input costs to fall due to declining oil prices.

With oil prices falling sharply from the peaks hit earlier this year, the cost to produce fertilizers and prices for transportation are likely to drop off, he said.

But for now, farmers are expected to pull back from earlier plans to expand their soy output.

If the balance between sale price and production cost doesn't come back into line, "planting is sure to fall, production will be down and prices will then tend to rise, although we don't know if this is going to happen in two months or two years," Grobocopatel said.

"Farmers are going to just break even this season, but they don't have any alternative" other than soy, the president of the soy growers association ACSOJA, Rodolfo Rossi, said in a recent interview.

Now, with potential profits thin, farmers are facing the new planting season with anything but optimism. Wheat planting is done and areas fell sharply due to drought and rising costs. Sunflower seed area is expected to fall short of initial expectations due to the early drought and lower prices. The drought also delayed corn planting, and soaring input costs are expected to lead a major shift away from the crop. That leaves farmers with few options.

The decreased wheat, corn and sunflower seed area was expected to cause an additional 1 million hectares going to soy this season, shattering last year's record 16.6 million hectares, but that increase is now in doubt, Rossi said.

"Those planting soy now are doing it because its either that or just not working," Rossi said.

Soy dominates Argentina's agricultural output and prices have been in free fall over the past months.

In early March, farmers looked forward to a boom year. But later that month, the government implemented a new sliding-scale export tax regime that sharply raised the duty on soybean shipments.

After months of crippling strikes by farmers which pushed the Senate to vote down the tax scheme, the government was forced to roll back the taxes on soy to a fixed 35 percent.

But the farmers' celebration was short-lived as soaring input costs and plunging grain values saw the expected boom rapidly evaporate.

The farmers launched another six-day strike this month to protest the export taxes, limits on farm exports, and other government intervention in the market designed to keep down domestic food prices.

Faced with the reality of (low) international prices, tax pressure and regulations, many agricultural companies have seen their prospects diminish, Roagro brokerage analyst Carlos Boglioli wrote an e-mail note Tuesday.