Argentina's Disarray Has U.S. Corn Implications

January 8, 2002

Argentina's economic and political upheaval could have significant implications for the U.S. corn industry. The government and economy of Argentina, a major competitor in global grain and soybean markets, has had five presidents in two weeks. Over the weekend the Argentine Congress and Senate voted to devalue the peso.

It was decided to re-establish the dollar:peso ratio from 1:1 to approximately 1:1.29. For example, 100 pesos that could buy $100 worth of goods now can buy roughly $71. National Corn Growers Association (NCGA) Director of Production and Marketing Paul Bertels said there could be some significant changes in the short-term.

"Since the mid 1990s, soybean production has expanded dramatically, driven by an upsurge in crushing capacity," he said. "With devaluation, Argentine commodities would be cheaper relative to U.S. commodities. This should depress U.S. prices this spring following the South American harvest."

Bertels continued, "This will probably be short-lived, though. Argentine farmers will likely return to their old practice of selling at harvest and then buying next year's inputs. They did this largely as an anti-inflationary hedge. A likely outcome is fewer corn acres and higher soybean acres and you may see more wheat acreage as double crop with soybeans."

Bertels went on to say the situation in Argentina already has led to an immediate mark-up in products in Argentinian stores; inventory bought under the 1:1 rate must now be marked up to cover the reduced value of the peso. "Likewise, savings accounts of money borrowed in dollars are also devalued," he concluded. "Economists speculate that this will likely lead to another inflationary period, further precipitating devaluation.