Ingredion underlined the success of Argentine currency and export reforms in prompting farmers to unlock hoarded corn, as the sweeteners-to -ingredients group unveiled results which sent its shares higher.
Jack Fortnum, chief financial officer at Ingredion, which relied on South America for 18% of its sales last year, said that corn was “moving very well through the system” in Argentina, “both domestically and on an export basis” after the moves to free up currency and crop trading.
The government of Mauricio Macri, who last month took over as Argentine president, in one of its first moves, ditched or lowered export taxes and quotas on crops, including corn, besides liberalising the peso, sparking a 40% depreciation against the dollar.
The moves met two key concerns of farmers, who thanks to export taxes had been forced to swallow prices below those enjoyed by foreign peers, while the prospect of a long-forecast peso devaluation had prompted them to hoard crops, as a dollar-denominated hedge.
“I think people believe that the peso is fairly valued and so there’s no reason to hold onto their corn or anything like that,” Mr Fortnum told investors.
“Everybody is comfortable selling their corn at this point in time.”
‘Much busier sellers’
The comments tally with observations last week from the International Grains Council that Argentine farmers had “turned much busier sellers” since the government reforms were introduced.
The pressure of sales, besides the impact of peso depreciation, had prompted a drop of some 3% since late November in Argentine corn prices, although “declines were capped by good overseas demand”
“Since the removal of the export permit system on December 29, approximately 8.7m tonnes of licences have been registered,” the council noted.
However, Mr Fortnum noted some upward pressure on Ingredion’s corn costs in Argentina, with domestic buyers now having to compete more strongly with exporters.
The removal of the export levy has “put a little bit of incremental cost to us because in the domestic market it was a balance there in terms of if you export the corn you were penalised with the export tax”.
Mr Fortnum was speaking after the group released results for the October-to-December quarter which showed a jump in earnings of 70% to $104.0m, on revenues up 2.7% at $1.49bn.
Profits were helped by higher North American volumes, thanks to depressed corn costs for the group, which makes the likes of high fructose corn syrup (HFCS) and starches from the grain.
The acquisition of ingredients group Penford Corp also contributed to the growth in earnings which, on a per share basis, came in at $1.42 for the quarter, ahead of a market forecast of 1.38 per share.
Ingredion forecast full-year earnings per share for 2016 at $6.20-6.60, allowing potential for beating the Wall Street estimate of a $6.38-per-share result.
Ingredion shares closed up 8.4% in New York at $96.95.
Separately on Thursday, the Buenos Aires grains exchange highlighted some setback to Argentina’s 2015-16 corn crop from dry weather which has, in the north east, held back late sowings.
Some parts of Buenos Aires province are also reporting “limited” moisture reserves, the exchange said, although it stuck with an estimate for sowings of 3.10m hectares, of which 98.4% have now been completed.
At Chicago broker Futures International, Terry Reilly said that “Argentina is battling drought conditions, especially for pockets across Buenos Aires”.
(Source – http://www.agrimoney.com/news/argentine-farmers-speed-up-corn-sales-after-export-peso-reforms–9238.html)