Argentina’s Peronist government has decided to take its foot off the neck of the goose laying golden eggs - it has cut export taxes on soybean, soymeal and soyoil by 3%, to 30%; but only for three months, until the end of the year.

In December 2019 the government raised taxes on soybean and soy derivatives from 25% to 30%, followed by a further hike - of 3%, to 33% - in March this year.

This reprieve is not because soybean farmers have suddenly become favoured citizens, but is entirely due to the desperate fiscal position of the government. With annual inflation likely to rise to 50% Argentina is headed for its third successive annual recession, with a fiscal deficit - expenditure exceeding revenues - of some 7% by the end of this year. The south American country, pressured by high incidences of Covid-19, restructured $65bn of foreign debt at the end of August but its sovereign bonds are already trading at distressed levels.

Argentine governments have a long history of relying on export taxes; in the 1980s agricultural export taxes acounted for almost 30% of federal tax revenues.

Tax impacts soybean exports

Has the additional 8% export tax since last December interrupted Argentine soy product sales so far this year? It appears so.

Last year Argentine exports of soybeans and their derivatives earned the country $15.7bn. As of today Argentine farmers have so far this year (when international prices for soy products have been relatively high) sold 32.2m tonnes of soybeans from the 2019-20 season, just 60% of the total harvest, and 4.4m tonnes less than registered at the same point in the previous season.

Later this month farmers should start planting the 2020-21 soybean crop, although they may wait until November in hope of more rainfall and opt for more (later-planted) corn than soy.

The Rosario grains exchange has estimated that Argentina will see 17.3m hectares planted to soy in the 2020-21 season, just 100,000 hectares more year-on-year, despite soybean prices topping $10 per bushel last month for the first time in two years.

World’s biggest soymeal exporter

Argentina is the world’s leading exporter of soymeal, largely used as an animal feed. For 2020-21 estimates are that the country will produce as much as 53.5m tonnes of soybeans, but those pre-La Nina estimates could be too high given the dryness that is already affecting the country, and uncertainties over government policies.

The muddle that Argentina’s policymakers are in concerning the country’s vital agricultural sector is evidenced by the failed attempt to nationalise the country’s biggest soymeal company, Vicentin, which is still mired in bankruptcy proceedings having gone broke last year. Vicentin currently owes about $350m to local grain suppliers and has overall debts of some $1.5bn.

A devalued currency

The Argentine peso has lost almost 30% against the US dollar so far this year, and forecasts are that it will slide a further 40% by this time next year.

Argentine soymeal exporters thus have a strong export incentive. The three-month window of opportunity that the suspension of the 3% tax opens will encourage some speeded-up selling of 2019-20’s stocks.

But the promise of its re-imposition by the end of the year, plus La Nina dryness, could well dislodge early estimates of the country’s 2020-21 soybean production and hence support prices.