Argentina In Economic Turmoil

Grain and soybean traders will be keeping an eye on last-ditch efforts by Argentina to secure another emergency bailout loan from the International Monetary Fund.

Argentina’s economy is teetering on the brink of collapse, with economists warning that without international help, there is little hope of the country avoiding the worst sovereign debt default in history.

Argentina's Economy Minister Domingo Cavallo flew to Washington, D.C., on Friday for negotations with the IMF after the organization said it opposed an immediate $1.3 billion bailout loan. The IMF has already given Argentina $20 billion in loans this year, with little result.

The government announced strict limits on bank withdrawals last weekend and Thursday was poised to seize private pension fund money. But even with the seizure, Argentina might be unable to make payments on its $132 billion in public debt within a few weeks.

Devaluation of the Argentine peso or adoption of the U.S. dollar as the local currency to install confidence now looks more likely than another loan, analysts told Reuters News Service Thursday.

Cavallo on Thursday called devaluation "unthinkable," but an effective devaluation of the peso has already begun in the Argentine market place. Foreign exchange houses were offering up to 1.07 pesos per dollar.

The potential impact of Argentina’s troubles on world grain and soybean markets is unclear. A devaluation of the peso could put further competitive pressure on U.S. soybeans in the world market. The market is very aware of how Brazil's currency devaluation has boosted its soybean exports.

But increased economic chaos could also disrupt shipments out of Argentina, causing buyers to switch to U.S. and Brazilian soybeans in the near term. Economic uncertainty nearly froze the local Argentine grain market Thursday, traders said.

Editors note: Richard Brock, Soybean Digest's Marketing Editor, is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report.

To see more market perspectives, visit Brock's Web site at www.brockreport.com.