(Agrimoney) – The Spanish word “peso” translates as “weight”.
Which is apt, given that the Argentine peso is expected to tumble like a particularly dense and heavy stone when it begins later to trade on foreign exchange markets freed of its peg to the dollar.
A question for ag investors is not so much how far the peso will fall, although this will determine the extent to which Argentine exports gain a competitive boost, but then the decline will finish, and fire a starting gun for an expected mass of grain and oilseed exports.
Big stocks to shift?
After all, as broker Benson Quinn Commodities noted, Argentina is believed to be “holding nearly 30% of worldsoybean reserves”, with producers estimated to have 12m-15m tonnes tucked away, hoarded as a dollar-denominated hedge against a falling peso.
For soymeal, “1.5m tonnes plus of Argentine [supply] is ready to move following devaluation”, said Richard Feltes at RJ O’Brien, with a drop in export taxes on soybeans and products also a help, of course.
For corn and wheat, for which export taxes have been ditched altogether, there are believed to be inventories ready to ship as well, with market talk of 2m tonnes plus of the latter.
And an impetus for all these shipments, real or imagined, will be some idea that the peso has stopped declining, meaning that farmers have little to gain from a currency hedging perspective from hoarding crop.
‘Dismal outlook’
Of course, it could actually takes some weeks, months or years before producers regain sufficient confidence in the peso to avoid seeing their crops as an alternative currency.
But that did not stop investors from keeping up sell pressure on Chicago soybean futures, which fell by 0.6% to $8.58 ¾ a bushel for January delivery as of 09:45 UK time (03:45 Chicago time), back within range of a six-year low for a spot contract.
“The depreciation of the peso is expected to induce farmers to bring stored grain to market,” Terry Reilly at Futures International said.
“In just short of one week, the fresh Argentine administration has managed to cut export taxes on most farm products, eliminate currency controls, cut personal income taxes and implement new figureheads in key positions.”
Mr Reilly added that the reforms of the administration of Mauricio Macri, inaugurated last Thursday, have spurred fears of a “dismal US export programme for its grains and other commodities that compete with Argentina on a global market”.
Blenders vs producers
As for soymeal, it dropped by 0.7% to $268.10 a short ton for January delivery, earlier hitting a five-year low for a spot contract of $277.20 a short ton.
RJ O’Brien’s Richard Feltes flagged an extra setback to soymeal in that “500,000 tonnes of unshipped US soymeal to Philippines was snagged in Wednesday’s Supreme Court ban on imported GMOs”, ie ag commodities from genetically modified stock.
Meanwhile, soyoil, the other main soybean processing product, dropped 0.8% to 30.13 cents a pound for January, hurt by the technical setback of in the last session surrendering its 200-day moving average, besides a US decision to keep a biodiesel tax credit with blenders rather than producers, for 2016 as well as 2015.
That means it applies to biodiesel (made from vegetable oils such as soyoil) imported, largely from Argentina as it happens, rather than just that produced in the US itself, and so is not so supportive for Chicago prices.
‘Trashy global market’
Soyoil futures were “already under pressure” from industry data earlier in the week indicating that US consumption last month was “less than expected” – given a lower-than-expected soybean crush but larger-than-anticipated stocks of the vegetable oil nonetheless, Futures International’s Terry Reilly noted.
And all this before getting to worries about the dollar(which actually traded little changed, after a rise in the last session when US interest rates were raised) and oil., which returned to the back foot, with Brent crude down 0.6% at $37.17 a barrel.
Indeed, there remain the worries about the fall, like a tumbling peso, of commodities in general out of fashion.
“Every commodity wire we read is focused on the poor performance of this broad commodity index,” grain trader Nidera Australia said.
“The overall trashy global commodities market continues to have a negative influence on grain and oilseed markets.
“It will be difficult for grains and oilseed prices to firm in the absence of new bullish news specific these commodities.”
Price lows not in yet?
Indeed, wheat futures fell by 0.3% to $4.82 a bushel in Chicago for March, back below their 20-day moving average, with the market also “unnerved” by results on Wednesday of a Tunisian tender, said Tobin Gorey at Commonwealth Bank of Australia.
“One trader won the tender with a price of $196.50 a tonne, which is substantially below where futures started the day on both sides of the Atlantic,” Mr Gorey said.
“That calls into question the idea that we’ve seen season lows” in wheat futures.
In fact, Paris wheat for March did close the last session, at E175.00 a tonne, at its weakest in nearly three months, with the market particularly sensitive to North African trade news, given that the region is a big buyer from France.
Data later
Still, back in Chicago, corn futures were trading a little higher, up 0.3% at $3.70 ¾ a bushel, if only gaining support from a technical perspective after its 1.7% drop in the last session took it near the low end of its recent trading range.
As to whether gains can stick, that may depend largely on, besides Argentine news, US weekly export sales data, expected for corn to come in at 700.000-950,000 tonnes, down from the 1.10m tonnes last time.
For wheat, export sales last week are expected to show an improvement from 225,127 tonnes to 250,000-450,000 tonnes.
And soybean export sales are forecast at 900,000-1.30m tonnes, a drop from the 1.45m tonnes the week previous, but a decent figure nonetheless.
“Weekly sales need to average 340,000 tonnes a week to reach the USDA export forecast of 1.715bn bushels” for the whole of 2015-16, Benson Quinn Commodities said.
