The grain market and the input market continue to provide distorted signals, adding further “seasoning” to the situation. The war in Ukraine and the pandemic closure of Chinese cities (with ships and containers held up in ports) have amplified commercial noise, helped sustain high commodity prices, made freight more expensive, pushed up values unprecedented fertilizers and backing the price of agrochemicals at double or triple the usual.
“Very difficult to make predictions, but everything indicates that in the short term (2022-2023 agricultural season) this scenario tends to hold up, being aware of the volatility we will have to face”, says the Agr Engineer. and consultant, Teo Zorraquin.
Selling grain, buying inputs, or waiting (either way) are the two big issues of the moment. Sure, some of these questions answer themselves when there are economic restrictions (I need the money so I’m selling) or biological (I need the input now so I’m buying) conditioning them, but what’s the best thing to have freedom? The expert shares some reflections and actions that arise in the farms that he recommends from his consultant.
Grain
With a scenario where cereals appear to remain in a high ‘range’, there appears to be no urgency to sell. “It is advisable to hedge options or fix prices in the future to reduce downside risks. Waiting may have the speculative advantage that the government is accelerating the devaluation of the exchange rate, which will tend to improve the price in pesos,” he indicates.
A good reason to sell can be associated with having a good destination for using the pesos you generate. It basically buys “things” that are dollarized, such as rent advances that aren’t in the value of grain, purchases of inputs, spare parts, or machinery, or MEPs dollars if there’s capacity to save in the medium term.
“The alternative of speculating by selling grain and generating pesos to invest in fixed term or investment funds at 45% per annum or more, thinking that this rate will exceed the devaluation rate, we see as part of a logical strategy for targeting funds,” he admits.
Supplies
As regards the convenience of buying the inputs, it is necessary to differentiate what the respective products are.
In the case of sunflower seeds and, to a lesser extent, corn, Zorraquin points out that it could be convenient to speed up the purchase in the event of possible shortages, even if the values seem high (especially in sunflower).
In the case of agrochemicals, beyond a possible shortage of specific brands, “it seems that current prices will remain high, but will not continue to rise, which makes it possible to adapt the purchasing strategy to the decision to sell the grain.” or possible excess liquidity.” In addition to the fact that agricultural companies and papers keep financing at “reasonable” rates or at least below expected inflation, which creates an attractive alternative.
Meanwhile, fertilizers are a special case. As he analyzes, there are “sky-high values, threat of shortages, lack of finance, and short-term obligation to receive it (sellers generally offer no deposit after purchase) make for a tricky combination.” And he adds: “The strategy of exchanging available grain for fertilizer today seems like the best alternative, but it’s difficult to make a general recommendation.”
Finally there is the problem of diesel which began to run short until the price rose and it appeared. “It’s either price-adjusted or it’s quantity-adjusted, a fundamental principle of economics,” he explains. For the specialist, “the impact on the cost of freight is already being felt”, which in some cases is changing the logistics strategy, bagging more than expected in the fields to avoid short freight and then negotiating the long one.
