Soy farmers bet against peso just as Argentina needs cash

Decades of political and financial turmoil have turned Argentine soybean growers into shrewd currency traders. Right now, they're betting the farm on a weaker peso.

Farmers' sales of soy have slowed to a crawl because they see the currency as overvalued. Growing stockpiles are unnerving buyers such as Glencore and Bunge that crush the beans and ship out meal and oil for livestock feed and cooking. Hoarding also deprives the government of exports just as it battles to reach a $65 billion debt-restructuring deal.

This isn't the first time. Nearly every season, farmers on the vast Pampas crop belt hold on to soy for as long as possible, betting -- with great success -- against the peso, which has been falling for years. The longer they wait, the more pesos they receive for their harvests priced in U.S. dollars.

Hoarding takes two forms: physically, in sausage-shaped silo bags and grain elevators; or virtually, by handing them over to exporters under contracts that allow farmers to fix prices later.

This year, the dynamic is becoming extreme. That's because if growers sell beans now, they'd only receive about 45 pesos a dollar (the official, controlled exchange rate minus 33% of export taxes). Meanwhile there's a free-floating exchange rate, accessed through a popular bond operation, trading closer to 120 pesos a dollar.

So farmers are waiting for the gap to narrow, especially with the central bank's crawling peg steadily depreciating the official rate.

"With this gap in the foreign exchange rates, farmers won't sell even a kilo of soy," Pablo Adreani, an agribusiness consultant in Buenos Aires, wrote in a May 1 tweet.

The latest government data through May 13, with most soy harvested, shows farmers have sold and priced 12.7 million metric tons of beans, or 25% of the crop. That's actually six percentage points more than at the same stage last year.

But the data hides the trend of recent weeks, with hoarding taking a grip at the worst possible time for the government. If talks with creditors for $65 billion in debt don't succeed in the next couple of days, Argentina will default and risk a painful court battle if bondholders decide there's little chance of an agreement.

Whatever happens, the nation desperately needs soy export revenues -- worth $17.9 billion last season -- to protect dollar reserves, fund covid-19 stimulus spending and pay back loans.

This season, farmers traded a lot of soybeans early on, during planting, because they were sure Alberto Fernandez -- who emerged as Argentina's likely next leader and went on to become president-elect -- would hike export taxes.

Between August, when Fernandez trounced incumbent Mauricio Macri in a primary vote, and mid-December, when he took office and first increased levies, farmers sold and priced 6.9 million tons. Since then, only 4.4 million tons have been handed over.

"Anticipated selling is the driver" behind the slowness now, said Agustin Tejeda, chief economist at the Buenos Aires Grain Exchange.

Whether sales are poor because of the early-season rush or currency speculation, the world's largest agricultural trading firms are taking notice. All of them except Archer-Daniels Midland Co. process beans in Argentina.

Argentine farmers "have really stopped selling," Greg Heckman, chief executive officer of Bunge, said on a May 6 earnings call. "And that -- just the overall difficulties there -- we don't see that changing."

The government seems to share Heckman's view. In a controversial measure last week designed to secure soybean dollar revenues, the central bank said farmers who hold on to more than 5% of their crop can't access soft loans. Since soy harvests in Argentina have become, in essence, dollar savings accounts, in return the bank is offering the next best thing: peso term deposits tied to bean prices.