Argentina’s woes look to add to prospects for soybean crush margins elsewhere, said Archer Daniels Midland chief executive Juan Luciano, noting a knock-on boost to US soymeal exports, besides strong demand for vegetable oils.
Mr Luciano, who was born and brought up in Argentina, said that farmers in the South American country had “taken a very defensive position” in anticipation of increases to crop export taxes being implemented by the country’s new president, Alberto Fernandez, in a drive to boost government finances.
Facing “$100bn debt, higher levels of poverty inflation, and the government has very little room to manoeuvre,” Mr Luciano said, while farmers “need to hold” grain stocks as a dollar-denominated hedge against devaluation in the peso.
“They’re going to be a reluctant seller for the rest of the year.”
“So you’re going to see and we’re seeing right now the impact of that of Argentina being less of exporter of meal,” Mr Luciano told investors.
And with Argentina - historically the top exporter of soymeal, and of soyoil, the other main soybean processing product – sidelined, that presented opportunities to rival origins.
From the US, where ADM is based, “we’ve seen record weekly soybean meal exports recently to Spain Germany and the Philippines, and that will be supportive of crush margins here”, Mr Luciano said.
In Europe itself, “soy margins have firmed in recent weeks”, to some $30-40 a tonne, “a little bit on the Argentine not being that aggressive into Europe”, although rapeseed crush profitability remains “under pressure” after another poor harvest in the region last year.
“We have very good margins in Brazil” too, he added, noting support to meal demand from a domestic protein industry expanding to meet demand from China, whose own meat output has been undermined by African swine fever (ASF).
“With ASF, we’ve seen all those slaughterhouses exporting a lot to China.”
‘Demand outpacing production’
Mr Luciano also said that ADM was “very positive” about demand this year for vegetable oils, such as palm oil, rapeseed oil, soyoil and sunflowerseed oil, given that “demand was outpacing… production” for most of them.
He flagged support from the biodiesel market, a big demand source for vegetable oils, from the renewal in the US of the blender’s tax credit, and from rising biodiesel blending mandates “around the world.
“We are also seeing good demand for food oils. And we’re seeing a decline in the production of palm oil due to weather and fertilizer application.
“So I think that the oil story will support crush [margins] going into 2020.”
The comments came as Mr Luciano also revealed a sanguine outlook on demand for US corn, reported earlier by Agrimoney, and followed the release by ADM of forecast-beating results for the October-to-December period, which spurred a 4.9% gain in the group’s shares.
While many markets and companies remain overshadowed by the coronavirus outbreak, he downplayed the threat, saying that “we don’t expect a significant impact in our business.
“How could that impact ADM in general? We are in a very fundamental business, which is the business of food.
“I think that we will be impacted to the extent that GDP, the global GDP will be impacted.”
While the virus may have in China curtailed out-of-home festivities for the lunar new year, meaning that “maybe bulk consumer products could be impacted in demand… people will have to eat,” at home.
“So in that sense, more the packaged goods will probably pick up a little bit.”