All the chips are on the steer, the soybeans will have to wait

All the expectations of the agricultural sector are focused on the speech President Javier Milei will give this Saturday at the opening of the Palermo Rural Exposition. While it had been reported during the week that there might be an announcement regarding export taxes, the government has been busy trying to dampen any hope of reducing export duties on grains . This is the most important issue among the agricultural woes.

What would be proposed is an elimination of withholding taxes on beef (currently at 6.75%), which, while not having a major impact on the macroeconomic situation (totaling around $100 million ), would represent a significant stimulus for livestock production. The Rural Fair is predominantly a livestock exhibition , and an announcement to this effect would cap off a week marked by multiple meetings between the government and industry leaders.

What we would expect, if the announcement materializes, is an improvement in the terms of reference between inputs for beef production and the price of steers , which should translate into a better margin for fattening. This could lead to an increase in slaughter weight , since as animals gain weight, the feed conversion rate worsens. More kilos of corn are needed to produce one kilo of beef. With a more attractive ratio, it would be advisable to "add more kilos" by lengthening the fattening cycle.

Increasing slaughter weights is a long-standing aspiration of the meatpacking industry. But it would also improve the national cattle harvesting rate , where the two drawbacks are the low weaning rate (calves produced per total number of cows in production) and the slaughter of small animals. Processing a 350-kilo steer costs the same as one that weighed 450 kilos. If this is achieved, industrial costs would drop, and there would also be more meat on the market .

This would help allay fears of a shift from the higher price for live cattle to the price of meat on the shelves . There would be more meat for export at a time of global shortage, and it is well known that the higher the slaughter for export, the more roasts and other cuts are not shipped to the domestic market . On the other hand, the notable expansion of domestic pork consumption (that of chicken remains more stable) thanks to its higher relative price, dissipates the negative effect on "Argentinean food."

An improvement in the fattening and industrial equation will translate into greater demand for calves, and this will ultimately lead to a boost in breeding . Thus, the effect of a measure that seems insignificant would have a strong "diffusion effect" on the entire livestock and meat supply chain.

Let's now turn to the grain issue. Soybean export duties returned to 33% in July. They had been lowered to 26% with the aim of promoting rapid crop sales. The government needed to anticipate the inflow of foreign currency, and this objective was achieved . What is noteworthy is that the domestic price of soybeans did not fall pari passu with the increase in the tax, even though Chicago maintained its downward trend. This was a consequence of the fact that exporters, who are the ones who liquidate the dollars, needed to acquire the merchandise for processing and shipping. In other words, they passed on to the market the "benefit" of having settled the transactions recorded during the 26% tax period .

During the week, it became known that the government had moved forward with the idea of implementing a compensation mechanism for grain withholdings. It would involve granting BOPREAL bonds for 50% of export duties , a measure in line with what we have proposed in this column for years as "the second best," given the impossibility of sacrificing a $10 billion tax revenue. But the rejection by the ruralist leadership quickly led the government to shelve the idea. So for now, the poncho will remain nowhere to be seen.