AgriCensus Report

Argentina farmers face agriculture policy overhaul after Peronist victory

Sunday’s election that swept the Peronist parties back into government in Argentina after a four-year hiatus has prompted traders and farmers to brace for a return of export taxes as the country scrambles for foreign currency reserves.

In a result that was widely expected, Alberto Fernandez of Frente de Todos (Front for All) trounced the incumbent centre-right president, Mauricio Macri, in the polls, winning 48% of the vote versus 40.5% with the remaining 6.2% picked up by independent candidate Roberto Lavagne.

By attracting more than 45% of the vote, the result means Fernandez will avoid a run-off between the top two candidates and will take office in the Casa Rosada on December 10.

However, his support was lower than the 15-percentage point lead the opinion polls pointed to.

And while he attracted support in Buenos Aires province, which is the largest province in terms of agriculture production, Fernandez got fewer votes than Macri in other key agriculture provinces such as Cordoba, Santa Fe and Entre Rios.

To prop up the battered peso, which has lost 50% of its value this year, the Argentina Central Bank on Monday limited the purchase of dollars by citizens to $200 per month.

While this does not impact foreign trade, the trading community is already fearing a potential return to the restrictive export and interventionist policies in the agriculture market that were widely adopted by Peronists from 2008 through to 2015.

While a return to higher export taxes is seen as a given, a bigger fear is the imposition of export quotas or even limits on land ownership to appease a voter base that advocated redistribution of wealth.

Indeed, earlier this year lawmaker Felipe Sola of Frente de Todos had called for interventionist measures in the domestic wheat market to regulate the domestic price of bread.

And Juan Grabois, a social leader with very close ties with the Frente de Todos coalition recently suggested that the next government should limit land ownership to 5,000 hectares.

With inflation running at 55% this year, and given the need to attract foreign reserves, few analysts expect quotas and land restrictions this early in the government.

Meanwhile, the prospect of a dual exchange rate will almost certainly become increasingly apparent, with one for financial markets and a lower rate for trade to ensure farmers are competitive.

Tax hike

“The new government is prone to increasing tax exports. Nobody in the world will give them even a coin as a loan, so they’ll have to look for a way to get money to finance the public expenditure. I think they´ll rise tax exports on cereals and oilseeds,” said one market source.

Current taxes on cereals stand at 4 pesos per goods exported – around 7%.

But in addition, exports of soybeans, soyoil and soymeal, attract an 18% flat rate taking the total to 25%.

Some market participants now expect those rates to rise to 20% for cereals and 30% for oilseeds and their derivatives – close to the 23% and 20% that was in place at the end of the last Peronist government.

Although others are less pessimistic, expecting a less onerous increase on grains at around 10%.

If taxes reach the higher end of those estimates, analysts at the Buenos Aires Grain Exchange anticipate that grain production will fall by 5.6% with exports slumping 14.4%.

That compares with overall grain production in the 2019/20 estimated at 131.7 million mt, down 3% compared with the previous year’s volume.

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SNAP ANALYSIS: Does China need another 10m mt of US soybeans?

On Tuesday, news emerged that Chinese authorities were poised to exempt 10 million mt of US soybeans from additional import tariffs arising from the trade war with the US, taking the total that can be imported without the 30% levy to 30 million mt.

The announcement comes ahead of a next round of trade talks expected to make headway in Santiago, Chile next month.

It is part of a long running saga that has seen the US hold off on escalating the trade war by raising tariffs on Chinese goods, providing China continues to purchase US agricultural goods.

However, it’s likely for two reasons that this quota may not be fully used.

Firstly, Chinese demand for beans is expected to fall by 10-15% this year compared to 2017 due to the ongoing outbreak of African swine fever.

China’s ministry of agriculture estimates that soybean imports will fall in the 2019/20 marketing year to 84 million mt from 94 million mt two years earlier, although private estimates are as low as 81 million mt.

And trade sources estimate that following yesterday’s buying spree of November cargoes from Brazil, just 7 million mt of Chinese demand is still open before yet another mammoth Brazilian harvest hits in February.

Secondly, Brazil soybeans are simply much cheaper from February onwards.

According to Agricensus data, from February onwards delivered Brazilian soybeans into North China are 40-60 c/bu cheaper than the US oilseed on a like-for-like basis.

That means in the absence of Chinese government stockpiling, the quota of 10 million mt is unlikely to be used.

“It is interesting… As the Chinese government releases quota, some parts of it have to be fulfilled, but there might not be profits in those purchases. US margins cannot compete with Brazil’s,” said one soybean trader at an international crusher.

With offers in the US Gulf for January shipment at 50 c/bu over futures, for US farmers to be competitive, they would have to offer soybeans at ports at parity to futures contract – a dynamic that rarely happens.

“US beans [crush] margins are pretty bad,” a second trader said, responding to the news that some Chinese crushers could be seeking December shipment out of the US Gulf on Tuesday.

It boils down to this, given China has said any purchases will be in line with market competitiveness, this will not be a blank cheque for US farmers.

And US soybean exports to China will still hit a six-year low in 2019, and largely because of a decline in demand rather than any trade war impact.

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China confirms trade agreement with US, more agricultural purchases to come

The Chinese government officially confirmed that a tentative trade deal has been reached between China and the US with additional Chinese purchases of US agricultural products likely occuring later this year.

China’s Ministry of Foreign Affairs stated on Tuesday that the US’ announcement of a partial trade deal between the world’s two largest economies are true.

“What the US said was the real situation, and was consistent with the situation we know,” said Geng Shuang, the spokesperson for the ministry during a press conference.

“The two sides are also unanimous in the issue of reaching an economic and trade agreement. There is no difference,” Geng added.

This was the first time that China has officially responded since US President Donald Trump announced a “substantial phase one deal” shortly following the conclusion of trade talks last Friday.

Meanwhile, the ministry confirmed that Chinese companies have imported large volume of US agricultural products since the beginning of this year and will purchase more, although declined to give details.

The ministry said Chinese companies had already purchased 20 million mt of soybeans, 700,000 mt of pork, 700,000 mt of sorghum, 230,000 mt of wheat as well as 320,000 mt of cotton.

The amount of soybeans bought by China in 2019 so far is similar to the country’s total import of 22.15 million mt from the US in 2018, but remains sharply lower than the 32.85 million mt it imported in 2017.

That contrasts with US pork imports, which at 700,000 mt this year is five times higher than before the trade war started in 2018.

China’s total import of pork in the first nine months of 2019 reached 1.33 million mt, up nearly 44% year-on-year.

The total imports in 2018 was only 1.19 million mt.

Regarding wheat imports, China only bought 361,292 mt from US in 2018.

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After four years of de-stocking, China is to end 2019 corn auctions

China’s national grain trade centre (NGTC) has announced that state-held auctions for corn reserves in the 2019 calendar year will conclude by the end of next week, which would mark an end to four years of auctions.

“After the research and decision from concerned departments, the auctions for national temporary corn reserves will be suspended as of October 18, 2019,” said NGTC in a statement published on its official website.

NGTC did not specify the reason for ending corn auctions next week.

China also concluded corn auctions in October last year as the new harvest of corn crops normally enters the market at this time each year.

Although there are still two more rounds of corn auctions to be held this Thursday and next Thursday, with each offering nearly 3.5 million mt, the country has already sold nearly 22 million mt of corn reserves in 2019 through 19 rounds of weekly auctions since late May this year.

However, the pace was much slower compared to the sales volume of more than 100 million mt in 2018.

China has been offering to sell between 3.5-4 million mt of corn reserves during every week’s auction this year, but weekly sales volumes plunged from more than 3 million mt in late May to as low as 105,000 mt two weeks ago.

The overall clearance rate of corn auctions this year was below 30%, out of a cumulative offer of more than 73.5 million mt, reflecting poor demand in the world’s number one feed consumer.

China has been cutting down its massive corn reserves through state auctions since 2016 and has been aiming to transform the domestic corn market from a policy-dictated system to a market-driven one.

Earlier this year, officials from China’s Ministry of Agriculture and Rural Affairs (MARA) said “2019 is likely to see the last round of destocking in China,” meaning that the country could end state auctions after four consecutive years.

The market expects China to still have around 56 million mt of corn reserves by the end of this year’s auctions.

China’s corn production this year is expected to reach more than 255 million mt of which 174 million mt will be used in animal feed and 84.5 million mt is expected to be consumed by industry including ethanol producers, according to recent estimates from MARA.

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Chinese crushers seek another 1-2m mt of US soybeans after 3rd tariff exemption

Chinese authorities gave seven companies a third exemption from paying stiff import taxes on buying US soybeans on Monday, three market sources said, raising the prospect that another 1-2 million mt could be contracted this week.

The well-placed sources confirmed that five privately-owned crushers and two state-owned companies received permission on Monday to import an undisclosed volume of soybeans from US suppliers without having to pay a 30% levy.

The total volume is thought to be in the range of 1-2 million mt, although none of the sources would confirm the exact figure.

“[The volume] is said to be similar to the last round,” one soybean trader from an international trading house told Agricensus.

“This is a new quota,” said a soybean broker who works directly with the Chinese market.

Several sources confirmed that Chinese buyers were seeking offers from US trading houses on Monday for November and December shipments following the exemption.

In the past two rounds of quotas, Chinese crushers are thought to have bought 2-3 million mt of soybeans, and in the last round (since mid-September) an estimated 1-1.5 million mt was said to have been contracted for Q4 shipment.

Since December 1, China has pledged to buy 20 million mt of soybeans in a bid to smooth negotiations during a trade war with the US.

Of that total Chinese companies have either imported or contracted at least 16.5 million mt, according to USDA data.

Market sources claim that figure is as high as 18 million mt.

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Chinese crushers snap up US soybeans after quota exemption meeting

Chinese private and state-owned crushers bought between 800,000 and 1.5 million mt of US soybeans on Monday, market sources told Agricensus, after a meeting in which the Chinese government said it would exempt about 1.5-1.6 million mt of imports from a 30% import tariff.

According to several market sources, purchasing managers at least six crushers met with officials from China’s commerce ministry on Monday, in which it was agreed to exempt the tariff for Q4 shipments.

“I heard several people who are in charge of [US soybean] quotas at private crushers were summoned to Beijing for meetings,” said one market participant who declined to be named.

“Yes, I heard that as well. They were summoned separately. Heard it was about a quota,” a second source said.

Market rumours suggest another 800,000-1.5 million mt was contracted – equivalent to 10-15 cargoes, with prices around 140 c/bu over November futures for November shipment.

Cargoes were also purchased for October and December loading.

Companies that were said to have received a quota include Cofco, Jiusan, Wilmar and Sinograin.

This week’s purchases come on top of about 1 million mt of US soybeans that crushers have made in the past fornight, with rumours suggesting a total of 5 million mt may be exempt from the tax, providing they are bought for shipment in the next five months and contracted in the next month.

The so-called “good-will” exemptions come as Chinese and US officials re-engaged in trade talks last week in a bid to resolve a trade dispute that has seen more than $500 billion worth of goods hit with import taxes.

The latest round of negotiations finished last Friday amid pessimism that little had been achieved after Chinese officials cancelled a field trip to see US crops.

Soybean futures on CME rallied 1.5% on the rumours to hit a six-day high of $8.99/bu.

US soybeans are offered on a delivered basis ex-PNW for delivery into North China at around 141 c/bu over November futures for October shipment CFR China.

That equates to around 64 c/bu ($23.5/mt) cheaper than Brazilian soybeans.

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Latest US soybean sales to China push week’s total to 720,000 mt

China picked up an additional 260,000 mt of US soybeans overnight to take total volumes booked since Thursday to 720,000 mt – equivalent to 11 full cargoes – according to reports on Tuesday from the USDA.

China removed import tariffs on an unspecified quota of US beans for a handful of private and state crushers last week as relations in the trade war between Beijing and Washington calmed, paving the way for new purchases.

The most recent purchases were likely lifted from the PNW for delivery in the fourth quarter, according to market sources, with purchased values on a CFR basis currently unknown.

It comes after Chinese importers booked seven cargoes – 204,000 mt on Thursday and 256,000 mt on Friday – at 148 c/bu over November futures out of the PNW on a CFR China basis.

With allocated tariff-free quotas estimated at 2-2.2 million mt by the market, more purchasing of US soybeans could be expected.

But with falling crush margins in China, this quota might not be filled as quickly as had been previously anticipated, despite US soybeans now being the most cost competitive at origin if shipped out of the PNW.

On Thursday, trade estimates had highlighted that up to 15 cargoes were concluded on that day alone.

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Germany to ban glyphosate herbicide by end of 2023

Germany will begin phasing out the use of the controversial herbicide glyphosate from next year and completely ban it from 2023 as part of measures rolled out by the country’s environment ministry on Wednesday to protect insects.

In July, neighbouring Austria was the first EU member state to ban the use of the chemical, despite current European legislation that licenses the use of glyphosate in the 28-country bloc until the end of 2022.

“The federal government will significantly reduce the use of glyphosate-containing plant protection products by a systematic reduction strategy from 2020 … and will completely end the use of glyphosate-containing plant protection products by 2023,” Germany’s environment ministry said in a statement.

It added that the widespread use of the chemical “eliminates plants that many insect species rely on as food sources”.

The action plan includes a wide range of measures such as an additional €100 million to spent on insect protection as well as new binding specifications for fertilisers, herbicides and pesticides.

Germany consumes around 5,000 mt of glyphosate a year, behind the EU’s number one consumer France, which uses 7,000 mt.

The move piles additional pressure on Germany’s Bayer, which bought glyphosate maker Monsanto last year for $63 billion and has been embroiled in multiple US lawsuits that claim the chemical causes non-Hodgkin’s lymphoma, a type of cancer. The company denies the claims.

The German pharmaceutical and chemicals conglomerate said in response to Wednesday’s announcement that “such a ban would ignore the overwhelming scientific assessments of competent authorities around the world that have determined for more than 40 years that glyphosate can be used safely”.

Bayer is appealing against three judgments in the US that awarded damages totalling tens of millions of dollars, and faces another 18,400 cases in the US.

The renewal process for the EU license will start at the end of 2019, well before the 2022 expiry, with the review process led by the Netherlands, France, Hungary, and Sweden.

Germany was strongly criticised by some EU member states after it played a crucial role in extending a five-year licence for the herbicide in November 2017.

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China says using ASF vaccine could spread disease

China’s government said Monday that pig-breeders or farm industries that use vaccines against African swine fever could be responsible for spreading the disease further, as the country seeks to crack down on the dissemination of the drugs.

China’s ministry of agriculture and rural affairs said in a statement that it had yet to approve any vaccine and that the makers of the drugs would be banned from producing any vaccine in China if caught.

“As of now, countries around the world including China have not yet approved an African swine fever vaccine to be sold in the market. They are all illegal vaccines,” the ministry added.

The world’s largest pig-producing country is attempting to develop a vaccine to combat African swine fever, a disease that has caused the size of China’s pig herd to fall nearly 33% in July this year compared to the same month last year.

However, over the past few months several vaccines have reportedly been found in the Chinese market, raising fears that they could lead to further oubtreaks of the disease.

Activities involving producing, selling and using one of those vaccines is “serious illegal conduct” and individuals or companies who were involved in such activities will be “banned for life”, the ministry said.

China has reported more than 140 outbreaks of ASF disease across all provinces in the country since August last year.

The development of ASF has been closely watched by both the animal feed and meat industry in China, as a large part of China’s total soybean imports are crushed into soymeal to feed the country’s massive pig industry.

Pork prices in China have risen to an all-time high this month as pork supply has shrunk in the country.

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Brazil-US soybean spread hits nine-month as trade war heats up

The difference in price between Brazilian and US soybeans loading out of the US Gulf has hit its highest level since November as the bilateral trade war between the US and China heats up in the wake of new Chinese US soybean import tariff announcements.

The price of soybeans loaded out of the Brazilian port of Santos for October shipment hit $374.50/mt on Friday compared with $327.50/mt from the US Gulf, according to Agricensus data.

The spread, which stands at $47/mt, is the highest level since November 12 last year as China’s announcement that it would increase soybean import tariffs to 30% from the current 25% starting September 1 weighed heavily on both the futures and US cash markets Friday.

Cash premium offers for loading out of the US Gulf in October slumped by 7 c/bu as sellers eyed little prospect of renewed Chinese demand anytime soon and bids remained scarce.

Flat prices fell by more than 2% on the day as a result, from $335.50/mt on Thursday.

Yet Brazilian premiums soared with offers up by 12 c/bu as exporters anticipated an increased of Chinese purchases both on a FOB and CFR basis which outweighed a weaker board and kept flat prices just $1.50/mt weaker on Thursday’s value to settle at $374.50/mt.

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