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 News

29/11/2017 0:00 - Agricultural Commodities Market
JULIO CALZADA - JUAN IGNACIO CALIVARI
How is grain production financed in Argentina?

An important issue in Argentina is related to agricultural financing. We have estimated the sources of finance for the planting of the six main crops in the 2016/2017 MY (wheat, soy, corn, sunflower, barley and sorghum). The producers may have needed for the 2016/2017 MY about 10,450 million dollars. 30% of these expenditures would have been covered with own funds (US$3.130 billion) and 70% with third-party-financing (US$7.320 billion). Relevant third-party-financing sources are banks, grain brokers, grain handlers, cooperatives, input suppliers and traders.

In this note we have proceeded to estimate the financing-sources for the planting of the six main crops in Argentina in the 2016/2017 marketing year (wheat, soy, corn, sunflower, barley and sorghum). The average investment in U$S/ha that farmers and agricultural companies would have to face to pay the following exploitation costs was estimated: sowing, pulverization and inputs. The study shows that farmers and agricultural companies in Argentina may have needed for the 2016/2017 marketing year about US$10.45 billion. It is important to note that the present study was based on data and estimates from the 2016/2017 MY, considering that costs change in each season, as well as the source of financing to face them: own funds or third-party-financing.

It is estimated that about 30% of these expenditures would have been covered by the producers and agricultural companies themselves with their own funds (US$3.130 billion), while the third-parties-financing could amount to US$ 7.320 billion (70% of the total). Banks would have contributed nearly US$2.200 billion, while grain brokers, grain handlers and cooperatives borrowed nearly US$2.300 billion. Inputs suppliers and traders borrowed around US$2.600 billion while mutual societies lent up to US$250 million. All of this figures comes from estimated data in the absence of official and private statistics.

The total money to cover the whole marketing year costs is already known (sum of expenditures in sowing, pulverization and supplies), but it is not the same with income. This uncertainty operates as a key factor when managing farmer risk, consequently affecting access to credit and the cost of such financing, which is necessary for producing crops. Financing has a multiplicity of alternatives and sources which agricultural producers can access, but there is always the question about the global participation of each of these alternatives in agricultural financing in Argentina.

In this note we have tried to quantify these shares by consulting different private sources in the sector, both those that operate on the demand side and the supply of credit. We’ve tried to outline a pattern that shows, as a rough outline and in an approximate form, which sources of financing are those which agricultural producers are directed to, their magnitudes and what share each one represents.

Below we detail the assumptions we have adopted in this work and the conclusions we have arrived at:

a) For the 2016/2017 MY, only the six main crops sown in Argentina were computed: wheat, soy, corn, sunflower, barley and sorghum. The area that would have been planted for each of them in that campaign was imputed according to information provided by our Strategic Agricultural Guide Department (GEA-BCR) (Table No. 1).

b) For each crop, we have estimated the average investment in US$ per hectare that farmers and agricultural companies would have had to face when they sowed. Also, we have recognized the average expected expenditures in sowing, spraying and inputs (seeds, fertilizers and agrochemicals). We adopted average values ​​of costs, since it is not the same to plant in North of Argentina than to do it in the heartland or in the Southeast of the Province of Buenos Aires.

c) Table No. 1 concludes that agricultural producers and firms in Argentina may have needed around US$10.450 billion to cover the costs of plating the six crops for the 2016/2017 MY. These estimated figures try to approach the reality of crop financing.

d) To evaluate the financing sources and their share, we proceeded to make informal surveys and requests for opinions to various economic agents taking part in the activity: agricultural producers, agricultural firms, grain brokers, grains handlers, cooperatives, input suppliers, banks, capital market participants, etc.

e) Different agents said in average that 30% of the exploitation costs of 2016/2017 MY would have been carried out by the producers and agricultural firms with internal financing. Consequently, approximately US$3.130 billion would have been contributed by the producers and agricultural companies themselves.

f) It is presumed that the third-parties-financing to agricultural producers and firms could amount to US$7.300 billion within the 2016/2017 MY. This would represent 70% of the total estimated expenditures for producing crops that we quantified in US$10.450 billion.

 
 

g) Of the US$ 7,300 million that would have been the total third-party-financing for agricultural producers, the amount of loans granted by the banking system could be US$ 2,200 million. Considering this figure, it is deduced that 30% of the financing granted by third parties is financing from banking entities (See Table N° 2).

h) According to banking sources we consulted, the total bank financing could be distributed -in average- in the following way:

• Credit cards for agriculture: 17% of the total. It would imply an estimated credit allocation of 373 million USD.

• Financing in US$ per forward assignments: 16% of the total estimated in 2,200 million USD. This credit line would imply an estimated total of US $ 351 million of loans granted to the sector.

• Discount of values: 15% of the total. Approximately 329 million U $ S.

• Other lines of credit granted by Banks: estimated at 1,142 million US $. It would represent about 52% of total bank financing.

i) In this way and according to our estimates, the commercial credit could be representing 70% of the financing granted by third parties, that is to say, 5,124 million U$S. This segment could be distributed as follows:

• Financing of corridors, stock and cooperatives: 45% of the total. Estimated at 2,300 million U $ S. Private collectors, brokerage and cooperatives are considered part of this category.

• Inputs suppliers and traders: 50% of the total. Approximately 2,560 million U$S. It would be in this category companies of the sector suppliers of inputs and traders that provide seeds, fertilizers, etc. (Case AGD, Cargill, Bunge, Louis Dreyfus, among others).

• Mutual societies financing: it could possibly be 5% of the total. Approximately the mutual societies could be lending to the producers about 256 million USD. Here various operations such as discount checks, loans with mortgage guarantees, etc. are grouped.

j) It should be noted that another source of finance for the agricultural sector is the Capital Market, which, through different instruments (corporate bonds, short-term securities, deferred payment checks, promissory notes and financial trusts) provides credit to the sector, both with direct financing to producers, and allowing the securitization or discount of the titles that have those who finance the production.

k) As mentioned in the preceding point, as both direct financing for agricultural production and financing for the discount of securities coexist in the Capital Market, the Capital Market in Table No. 2 is not included to avoid errors. by duplicating the estimates.

l) An interesting fact emerges from the analysis of the system of Reciprocal Guarantee Companies, from which it appears that around 35% of the guarantees that they grant are for companies in the agricultural sector. Considering that the amount that entered into the Capital Market of deferred payment checks guaranteed for trading in 2016 is approximately US $ 800 million, the amount of these securities linked to the sector would be about US $ 280 million.

We would appreciate taking the figures in this report with caution and care for the assumptions adopted. We try to give a glimpse of what could be the reality of agricultural financing in Argentina for these six crops in the absence of estimates and statistical data, both official and private.

 

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