Argentine farmers say they will stockpile soybeans in the second half of the year if the government is unable to cut a deal with debt investors to stave off a new sovereign default, and the increased hoarding will likely push world food prices higher.
Many producers are already holding soy back from the market as a hedge against high inflation and say they will be even more cautious as negotiations between the government and "holdout" bond investors go down to the wire.
The holdouts want full repayment on bonds that Argentina defaulted on in 2002 and they have won a string of victories in U.S. courts that put the country on the brink of a new default.
"Considering what's going on with Argentina's debt, we are holding onto what we've harvested this year, to see what happens," said Carlos Novecourt, who runs a small farm in the town of Carlos Casares, in Buenos Aires province.
The resulting cut in Argentine oilseed supply would put upward pressure on world soybean and soymeal prices at a time of rising demand, particularly from China.
Argentina is the world's No.3 soybean exporter and top supplier of soymeal needed in countries where diets are shifting away from rice and toward meal-fed beef, pork and poultry.
Signs of the supply uncertainty are already emerging in the global market as soymeal exports from the United States, the world's No.3 supplier, are shattering records.
Argentina is expected to harvest 55.5 million tonnes of beans this season, according to the Buenos Aires Grains Exchange, which said on Thursday that growers had collected 95 percent of the harvest so far.
Over the next two months, Argentine growers will sell beans to raise cash needed to pay off the loans that financed planting. Once the bank loans are paid, however, growers will have even more reason pile up grain reserves on the farm.
"After late August, Argentine farmers will hold onto 23.25 million tonnes of soy, with a market value of $12 billion. Under normal circumstances, which is to say without the debt restructuring problem, that amount would be 18 million tonnes, worth $9.3 billion," farm analyst Pablo Adreani said.
China, which buys two of every three soybeans traded on the global market, is expected to lean more heavily on Brazil for supplies in the near-term before shifting in the last quarter of 2014 to the United States, where farmers are expected to harvest a record-large crop.
The cost of immediate soybean export shipments from Argentina have jumped 5.6 percent in the past week while shipments from Brazil's Paranagua port are up 5.2 percent, according to Reuters data. That has outpaced the 2.7 percent gains in benchmark Chicago Board of Trade futures and the 3 percent rise in export costs at the U.S. Gulf Coast.
BLOCKED BOND PAYMENT
If Argentina's government cannot by the end of July reach a deal with the creditors who declined to participate in restructurings held in 2005 and 2010, it will default again.
The next coupon payment on Argentina's restructured debt is due on Monday. The government on Thursday tried to transfer the payment to bondholders. But the transfer was blocked by a U.S. judge until Argentina hashes out a deal with the holdout creditors, giving it just a 30-day grace period to settle.
The Argentine peso fell 1.62 percent to 12.35 per U.S. dollar in black market trade on Friday after U.S. District Court Judge Thomas Griesa chastised the government for trying to pay the holders of restructured bonds without first settling with the holdouts.
"The peso is not stable, it does not make sense to sell much of what we produce because you cannot buy anything worthwhile with the money," Novecourt said. "If we can trade grain for fertilizer or agro-chemicals or whatever, that's what we do."
Argentine growers are paid in local currency for their crops, and are kept from converting their pesos into U.S. dollars by government-imposed currency controls.
A sovereign default could increase interest rates, pressuring farmers already ailing from 30 percent annual inflation and interventionist government trade policies that make doing business difficult.
The peso would likely weaken in a debt crisis so, rather than hold onto pesos, growers are opting to hold onto soybeans as a more stable unit of savings and a barter currency.
Ernesto Ambrosetti, an economist with the Argentine Rural Society which represents big farms, said hoarding will be driven by fears that the government would respond to a default by increasing import barriers, raising the cost of imported farm machinery and crop inputs.
"Stockpiling the harvest is the main way for growers to cover themselves," he said, predicting an increase in the use of white plastic bags that are used as makeshift silos and have come to dot the Pampas farm belt over recent years. Most of the vacuum-packed bags are 75 meters long and fit 250 tonnes of soy.
Sales from farms are expected to remain strong this month and next as growers raise cash to repay loans, said Leandro Pierbattisti, an analyst with Argentina's grains warehousing chamber.
"But the financial uncertainty associated with the increasing risk of default reinforces the tendency of farmers holding onto as much of their harvest as possible, and using soy as a unit of savings that is preferable to the peso," he said.
