Argentina restarts soy dollar program until year-end, China to buy 1 mil-1.5 mil mt

Argentina announced late Nov. 25 a preferential exchange rate for US dollars brought into the country via the export of soy and its derivatives effective Nov. 28 until the end of 2022 in an effort to encourage year-end exports and to strengthen central bank reserves. This could spur Chinese buyers to extend open demand for December and January shipments in the coming weeks.

Argentina's Minister of Economy announced on Nov. 25 that starting Nov. 28, the country will begin a preferentially exchange rate of Argentine Peso 230 per US dollar for soybeans and their derivatives. Coined the "soy dollar", the latest implementation of this policy, after its successful run in September, is expected to encourage soybean sales to domestic crushers and the export market. The official exchange rate currently stands at about Peso 166 per US dollar.

Soybean farmers in Argentina have been holding their soybeans in storage instead of selling them as a hedge against inflation, in anticipation of further depreciation of the Argentine peso, according to market sources. In September, the Argentine government had implemented the same policy at a preferential exchange rate for soy sales at Peso 200 to the dollar when the official exchange rate stood at Peso 150 to the dollar.

The Chinese market is still digesting the impact of the "soy dollar" program and any trades overnight would be based on the price ideas of both buyers and sellers, a market participant said.

"Domestic Chinese crushers have been well prepared for the second round of implementation. However, the policy this time is more in favor of the local Argentine crushers," a Chinese trader said. With this latest policy, market participants do not expect much of an impact on domestic soybean meal prices; putting the impact at about 2%.

China is expected to buy 1 million-1.5 million mt of soybeans from Argentina during the validity of the "soy dollar" program in a bid to extend their coverage for nearby December-January shipments, Chinese traders and crushers said, but does not expect an upward revision in demand. China's open demand for January shipment stood at 5.8 million mt and is currently about 30% covered, sources added.

While smaller crushers were unable to buy Argentinian soybeans due to the lower protein quality, they could still benefit from this policy as it could give headwind to the prices of soybeans in the US and Brazil for nearby shipments. The export of US soybeans have been slow in the 2022-23 marketing year (September-August) due to the Mississippi River's low water levels earlier in October. Furthermore, the "soy dollar" narrows the window of price competitiveness for US soybeans before origination switching begins from February to Brazil new crop, traders said.

Platts assessed first month soybeans CFR China at $625.38/mt Nov. 25, unchanged from the previous session, S&P Global Commodity Insights data showed.