We Grow Fuel Here: Fighting the Oil Slump by Bartering for Grain
(Bloomberg) -- Rather than sell his soybeans for pesos that are worth less by the day because of rampant inflation, Argentine farmer Gustavo Tione figured he’d get a better deal trading the crop for something he can actually use: more fuel to run his tractors.
Last month, he exchanged 30 metric tons of soy for about 8,000 liters of diesel from the state-run oil company, YPF SA. Tione got the fuel at a discount and avoided storage fees and sales taxes. But YPF also benefited. With low crude prices eroding profit, the company is using such deals to expand into a vibrant local farm industry and gain access to dollar-based export markets for grain.
Barter arrangements are on the rise in Argentina as commodities hold their value better than cash. While the country remains one of the world’s top grain and oilseed growers, easing Argentines off a decade of energy subsidies is fueling an inflation rate of around 24 percent. With YPF eager to swap more fuel for crops, the energy company has emerged as a major agricultural trader, competing with domestic cooperatives and international exporters like Cargill Inc. and Louis Dreyfus Co.
“Farmers now see us as one of them,” said Marcos Capdepont, a former executive in YPF’s liquefied natural gas unit who has been head of agribusiness since 2010.
YPF is generating about $1.4 billion in annual revenue from agriculture, just as Argentina’s farm industry is being encouraged to crank up production. Since President Mauricio Macri took office in December 2015, he has scrapped export taxes and eased shipping permits after years of stifling protectionist policies discouraged growers under his predecessor, Cristina Fernandez de Kirchner.
Argentina is harvesting a record 40 million tons of corn this year, and the soy crop is the second-largest ever at 57.8 million tons, U.S. Department of Agriculture data show. Grain exports and shipments of soy-based vegetable oil and animal feed are forecast at all-time highs. Aided by cheap credit for machinery and better yields with more widespread use of fertilizers, farmers are enjoying their best prospects in a decade.
As domestic agriculture grows, a bear market in crude has eroded profit from oil and gas at YPF. The company is also struggling to lure partners to a massive shale deposit in Patagonia. To make up the gap, YPF is expanding outside of energy into industries such as agriculture, mining and electricity, which are expected to benefit from Macri’s market-oriented policies.
West Texas Intermediate crude oil has slumped 18 percent this year to $44.21 barrel in New York. Benchmark soybean futures on the Chicago Board of Trade are up less than 1 percent during the period to $10.085 a bushel. YPF’s American depositary receipts dropped 0.3 percent to $21.98 at 10:55 a.m. in New York.
This year, YPF is on track to trade 1.5 millions tons of corn, soybeans and wheat, up from 1.2 million tons in 2016, and the goal is to get to 3 million tons by 2020, Capdepont said.
Argentina is the world’s biggest exporter of soy-based vegetable oil and animal feed, and YPF is tapping into that market with the crops it collects from farmers. The company pays processors including Cargill, Louis Dreyfus and Glencore Plc to crush its soybeans, and then sells the products overseas. YPF is collecting so much that it may build its own port, which could cost $100 million, Capdepont said.
About 10 percent of YPF revenue comes from agriculture, either in the form of grain shipments or sales of diesel, fertilizer and other farm products to growers. A growing part of that business is barter trades, many of which are occurring at more than 100 YPF Directo stores around the country, some on the sites of former grain silos. The company plans to add 12 more retail outlets this year.
Gabriel Martinatto, 46, runs one of the YPF Directo stores in Arroyito, Cordoba, the province that accounts for about a quarter of Argentina’s soy production and a third of its corn. Martinatto traded 5,000 tons of grain with farmers last year, mainly for diesel. He also pushed YPF-branded products, including agricultural chemicals made by Rizobacter SA and seeds from Don Mario SA, and sometimes sweetened deals with a free drone, silo bag or laptop. Martinatto said he expects revenue to grow by 8 percent this year.
For growers like Gustavo Tione, such transactions are preferable to cash. On the day of his trade last month, soybeans were fetching about 3,800 pesos a ton, valuing the shipment at around 114,000 pesos, which would have been enough to buy about 7,350 liters of diesel. He said he got more than 8,000 liters that day from YPF, which will be used to power machinery during the wheat-planting season. He also won’t have to wait months for the government rebate he gets on cash sales or worry about silo commissions.
“I like the grain barter because it’s more agile,” Tione said at an agricultural fair in Santa Fe province, the heart of Argentina’s fertile Pampas region, where YPF salesmen were making trades. Tione’s farm is in Maciel.
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