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Corn+Soybean Digest

Argentina's Up In The Air

A shoeshine guy in Buenos Aires put it this way, before all the confusion began in the Argentine streets: The old president, Carlos Menem, was a thief but got things done. His successor, Fernando de la Rua, was honest enough but couldn't seem to get anything done.

As a result, the country suffered its third year of recession — and deflation — in 2001. The effects were clear to see and uncertainty and confusion have swept the country. At the end of last year, then-President de la Rua resigned — and so did his four successors, in rapid-fire sequence — as mobs of middle-class Argentines took to the streets.

Argentina was in its worst crisis ever, said one citizen, even counting the Great Depression. And, in fact, events spun out of control until finally, in early January, the guy who lost the last election to de la Rua, Eduardo Duhalde, assumed the remaining two years of the current presidential term.

At this writing, Duhalde announced a controlled devaluation of the peso, which had been pegged for nearly 11 years at parity with the U.S. dollar. When banks re-open, the government plans to hold the value of the peso at 1.4 to each dollar, a 40% cut in the value of the currency. Some time after that, analysts believe the peso will be allowed to float freely.

Duhalde quickly nominated several cabinet ministers, including Miguel Angel Paulon, as agriculture secretary. The 53-year-old Paulon is most worried about huge debts in the agriculture sector. However, he suggests the currency devaluation should help Argentine farmers compete.

“The devaluation will have a positive impact because, even if it increases the value of some inputs, the result will be more favorable on (farm) incomes, which will cover the costs and will serve to “oxygenate” regional economies tied to the (agriculture) sector.”

In short, the relative cost of fuel, fertilizer and chemicals may increase as a result of the devaluation.

But Argentine farmers, traders and others who work with soybeans should come out all right, because they will get more pesos for their soybeans. Soybean prices worldwide are based on the dollar prices set in Chicago.

So far, nobody has sold any beans since December 21, when a bank holiday was declared. As of this writing, the banks still have not opened.

However, some analysts like Pablo Adreani, of the AgriPac consultancy, have hazarded a rough and preliminary analysis of the effects of the country's new economic policies. Adreani says it could cost Argentine farmers as much as $7.62/acre more in soybean production costs.

In spite of such guesses, what will happen next is an open question. Stay tuned.

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