Argentina is “back in style” in soybean crushing, said the head of agribusiness giant Bunge, with volumes in the first three month of 2016 headed for record levels.
The boom has been triggered by a change in government policy, following the election of new president Mauricio Macri.
“Short-term, the freeing up of whatever 12m-15m tonnes of soybeans that have been trapped in Argentina for a while has led to a first quarter Argentine crush that I think will be an all-time record.”
Mr Macri’s government has bought in a slew of new measures aimed at boosting agricultural exports.
And with tariffs on meal and soybean oil removed completely, incentives for domestic crushing have increased.
“Given the new government’s policies and the peso devaluation, Argentina should significantly increase volumes,” Bunge chief financial officer Drew Burke said.
Pressure on US margins
“In terms of crush, it’s clear that Argentina is back in style,” said Bunge’s chief executive Soren Schroder.
This “avalanche” of export soymeal and oil will put “very sudden pressure” on crushing margins elsewhere, particularly the US, he added.
The US, the world’s top meal and oil exporter, has seen its currency strengthen, making product less competitive.
“Near-term, US margins and export volumes will be under pressure from South American competition, but the new harvest should bring improvement,” said Mr Burke.
First half effect
But Mr Schroder said the effect would be short lived noting that even before the reforms, Argentine crushing was running at near capacity, limiting the potential growth in volumes.
“So it’s really a first-half effect,” Mr Schroder said.
“The US will pick up, I believe, again in the second half or the fourth quarter as demands switches back there,” said Mr Schroder.
Brazilian volumes stay strong
Brazilian soybean crushing should remain strong, despite the competition from Argentina.
“Brazil still looks like it’s going to be a very favourable crushing season,” said Mr Schroder “Strong domestic demand, and a lot of the beans have already been bought and priced for crush.”
“Brazil will benefit from large crops, strong domestic meal demand, and a competitive global cost structure following the decline in the value of the real,” said Mr Burke.
Meanwhile Chinese margins should be weaker, despite strong demand “as excess crushing capacity exists,” said Mr Burke.
(Source – http://www.agrimoney.com/news/argentina-back-in-style-in-soybean-crushing–9297.html)