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ECONOMY | 09-06-2020 17:48

Traders size up the making of a state soybean giant in Argentina

Inside the crop-trading houses of Rosario, fears grow that Vicentin will be afforded unfair advantages over rivals or distort the market by overpaying farmers.

The shock waves from Argentina’s surprise seizure of soybean powerhouse Vicentin SAIC are being felt strongest in the crop-trading houses of Rosario.

It’s still unclear how exactly the nationalisation will play out. But in Argentina’s grains hub on the Paraná River there are already fears that by becoming a major state-run player, Vicentin will be afforded unfair advantages over rivals like Bunge Ltd and Cargill Inc, or will distort the market by overpaying farmers.

“We have to see which way it goes,” said Mariano Grassi, who heads Rosario brokerage house Grassi SA.

After Vicentin defaulted on about US$1.5 billion in debt last year, Grassi, the exporter’s second-biggest commercial creditor, formed a negotiating group that includes cooperative ACA to try to reach an agreement on repayments.

“Will the new Vicentin have a professional board and efficient inner workings but with state oversight through its equity stake? Or will it be a purely political tool that uses government policy to keep a competitive advantage and increase control of dollar revenues?” Grassi said. “That’s the fear.”

One hope, Grassi said, is the figure of Gabriel Delgado, an experienced farm technocrat who’s well respected in Argentine agriculture circles. Delgado was appointed by President Alberto Fernandez to lead the expropriation.

For now though, “uncertainty rules,” said Mateo Reschini, an analyst at brokerage LBO in Rosario.

“This still needs congressional approval and then we’d have to see how Vicentin would operate,” Reschini said. “Is this going to be simply a rescue, with the company working largely as it used to, or will the government accept running it at a loss as a price to pay for a bigger state footprint in the grain and currency markets?”

Argentina’s currency struggles are a backdrop that can’t be ignored. The Central Bank has been ramping up intervention to protect its dollars that back the peso. The soy meal and oil that Vicentin ships are a key source of hard currency.

In an interview, Production Minister Matías Kulfas – outlining a “21st century statist vision” for Argentina – said the government wants to have a larger role in grain and currency markets.

“This will help to have more stability and avoid cyclical economics,” he said.

“There is a straight path between an unsustainable FX framework and the nationalisation of Vicentin,” Juan Manuel Pazos, chief economist at TPCG Valores, said in a note. “In our view, the government plans on using Vicentin to increase USD supply in the FX market to crush depreciation expectations in the short-term, trying to force producers into selling their stocks of grain.”

There are also concerns for investors in state-run oil company YPF SA, which would absorb Vicentin into its grain-trading arm.

That could work out badly for YPF as it branches out into non-core businesses that risk “being left aside and run poorly,” as well as increasing the debt load, said Fernando Valle, a Bloomberg Intelligence analyst in New York who covers the company. Valle said the addition of Vicentin would recall the expansion of Brazil’s Petrobras SA in the mid-2000s.

Kulfas said the management of YPF’s agriculture department is top class and will win the confidence of producers.

Another question is what the government will do with Vicentin assets, such as its remaining stake in a processing joint venture with Switzerland-based Glencore Plc.

Known as Renova, the venture includes one of the world’s biggest soy-crushing plants. Fernandez said it was too soon to say how a new state partnership with Glencore would work.

Argentina is the largest exporter of soy meal for animal feed and soy cooking oil, and in recent years Vicentin has fended off multinationals to have the top share of those shipments.

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by Jonathan Gilbert, Bloomberg

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