Argentine farmers have defied expectations by failing to sell down their 12m-tonne soybean hoard, the head of Archer Daniels Midland said, as he revealed the agricultural trading giant was investigating "options" for ethanol assets.
Argentine growers have, since Maurico Macri became president in December and ushered in a more ag-friendly regime, proven willing to sell grain inventories, Juan Luciano, the ADM chief executive, said.
"We saw a little bit more [Argentine] farmers' selling of corn and wheat," said Mr Luciano, who was born in the South American country, echoing comments last week from US-based Ingredion, a rival in the corn processing market.
However, they have been reluctant to sell down soybean stocks which were, like grain inventories, built up during the time of the previous regime largely as a dollar-denominated hedge against a tumbling peso.
One of Mr Macri's first moves as president was free up trading in the Argentine currency, which tumbled by more than one-third against the dollar in one day, and has been on a more gentle decline since, standing on Tuesday at 14.117 to $1.
Mr Luciano - estimating Argentine growers' soybean hoard at "12m tonnes, something in that range" - said that "farmers' selling in soybeans has been disappointing for what everybody was expecting".
He attributed the reluctance he potentially to Mr Macri's reduction of only 5 points to 30% in export taxes on soybeans, so keeping pressure on farmers' returns from shipments, in contrast to the scrapping of levies on corn and wheat.
"The farmer maybe was not that happy with that reduction in [soybean] export retentions," he said.
The impact of the continued hoarding has been to keep Argentine soybean crushers operating at levels well below the highs that were expected after Mr Macri took charge.
While Argentine processing are crushing "about 3m tonnes per month, capacity is maybe 4.5m tonnes", Mr Luciano said.
"We haven't seen the explosion" in volumes that was forecast.
However, crushers abroad, in countries such as the US, have struggled to exploit the shortfall as buyers of products are proving keen to await the release of supplies from Argentina – the top soyoil and soymeal exporter, and one whose competitiveness has been enhanced by the falling peso.
Mr Luciano flagged an "expectation in a lot of the buyers that maybe Argentina will increase crush and will become a bigger player in meal worldwide, and maybe it was wise to wait a little bit and wait for all that to come to market".
US exporters of soy products have "lost that ability to sell aggressively to non-traditional destinations" that they were able to when Argentina was not viewed as such a promising origin.
He made the comments following ADM's release of below-forecast results which sent its shares down 8.7% to close at $32.36 in New York on Tuesday.
Mr Luciano also revealed that ADM was "undertaking a study of the strategic options" of its corn dry mills, which process the grain into ethanol and distillers' grains, a high protein feed ingredient.
ADM has hired an unnamed advisor to help "run through the different scenarios" for the plants, which have struggling against "pricing pressures" stemming from weak crude oil values and elevated US output levels of the biofuel.
"Production in the industry has kept this industry margins very, very low and we are really surprised by that," Mr Luciano told investors.
"We continue to be implementing our cost reductions in the dry mills… but margin continues to be historically low,"
"And even with our improvements in cost, we are concerned about the long term."
One potential fillip for the US industry could come from exports, which Mr Luciano saw being enhanced on environmental grounds.
"In terms of growing exports, we do see places like India and China that are dealing with environmental issues, due to smog, that how they are increasing the use of ethanol to fight their… air issues, air pollution issues. We see that demand growing.
"We see how demand has grown in China. And we expect for next year to be even bigger."
For the US, net exports for 2016 will come in "between 50m-100m gallons higher than what they were in 2015, driven by all these two main markets".
By Mike Verdin