The Boom in Soybeans Has Changed Argentina

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“The boom in soybeans has changed Argentina,” said Francisco, the gaucho who manages our ranch. “I mean changed it physically. The good land used to be used for beef. That’s why Argentine beef is the best in the world. We didn’t even have feedlots. The cattle just fattened themselves up on grass. But then the price of soy – and other grains too – shot up so high farmers couldn’t ignore it. They sold the beef cattle, planted soy…and they got rich. That’s why you see so much money in Argentina today. And it’s why land prices are twice what they were a couple of years ago. And people are still buying. Because, even at $5,000 a hectare, land is still cheaper here than in other parts of the world. And when you figure in lower labor costs – and even lower fuel costs – we’re the world’s low-cost producer for a lot of things. Well, usually Brazil does better. But Argentine land is flat and rich. And farmers are coming from America, New Zealand, Australia and Europe. They’re buying it up. And at today’s grain prices…they can pay for the land in just three years.

“Of course, farm prices go down too. And then they’ll be sorry they didn’t stick to beef. The price of beef has doubled too. We’re getting nearly twice what we got two years ago.

“But it’s a whole lot easier to switch from beef to grains than it is to switch back. We say that ‘they plant soybeans in Buenos Aires’ – meaning that you can live in the city and operate a grain farm. You just make a couple of decisions per year. Some farmers never even see their land. They just call the foreman…or call the contractor…and tell them they want to plant.

“But when you run a cattle farm, you’ve got to see the cattle. Check on them. Touch them. Brand them. Vaccinate them. Take care of them when they’re sick. Make sure they get enough food and water. Especially up here, where there isn’t much food or much water.

“We’ve got another saying: ‘It’s the eye of the owner that makes cattle get fat.’ It’s true. You really have to work at it. And pay attention. And select your animals well. And when you want to switch from grains to cattle, it’s going to take you a few years to build up a herd. That’s why I think we’re going to see high grain prices for only a short time…but high cattle prices for much longer.”

Francisco is not an economist. His mind is clear of claptrap and mumbo jumbo. Plus out on the high plains, he has time to think.

But he probably has not thought about the difference between nominal prices and real ones. With so many people planting so much wheat and soybeans, we would expect prices to go down. But at the same time, the world’s central bankers are planting every possible acre in new money! It is very possible that the nominal price of grains could go up…while real prices (adjusted for inflation in other prices) could go down.

We haven’t told you much about our vacation.

Christmas Day was spent down in the ‘delta’ – an area of canals and rivers and dense vegetation about an hour from downtown Buenos Aires. There, our oldest son bought a charming cottage on the waterfront for $230,000. Of course, in the Delta, everything is waterfront…even places that are supposed to be landlocked. When the tide rises, it washes over bulwarks and dikes…fills swimming pools and basements…and splashes into backyard gardens.

“Yeah…it’s great down here…” he explained as he took us on a boat ride to visit the area. Besides, his house sits on an island; you can only get there by boat.

Everyone travels by boat. There are all manner of floating transportation – including wooden launches known as ‘collectivo’ – waterbuses.

Leaving the town of Tigre, we rode along…enjoying the sun…the waves…the boats, and the bronzed muscle-builders driving boats…and babes sitting at the back. Behind us a brown wake smashed into roots and mud, washing more earth into the already-silted river. Many houses were built on stilts. Many are rickety. Some have already fallen into the water. Some lots have disappeared completely – thanks to the action of so many boats and so many waves – leaving the houses standing over water, like fishing shacks.

“Elisa Marie” was the sign on one shack. “Fisherman’s Paradise” proclaimed another. “Mosquito Haven” said an honest one.

The Delta is an undiscovered treasure. Generations of Portenos (as Argentines call residents of Buenos Aires) have escaped the capital city by going out to the swamp…where they have built little houses…and some grand ones…for holiday retreats. They have let their imaginations lead them. One house looks like a Swiss chalet. Another looks like a place you might find in New Hampshire, a Victorian-era upright. Still another resembles a villa in Southern Italy. One is for fishing. Another is for sunbathing. In the other, owners swim off the pier.

Here too, rowing clubs have established themselves. There is the “Scandinavian Rowing Club,” for example, in Spanish, of course. But there is also the “Buenos Aires Rowing Club” (in English). And the Italian Rowing Club. We don’t know why people row by country of national origin…as far as we know, there is no “French Skiing Club” or no “Lithuanian Bowling Club”…but there you have it.

On Christmas Day, the Delta was alive with rowers, boaters, swimmers, sunbathers, picnickers, and backyard barbequers. There are no George Foreman grills down here…but everyone seems to love a cookout. Wherever we went, we could smell beef cooking over an open grill.

“Do you have a paddle on this boat,” we asked our son, as we set out.

By the time a man reaches 60, he wants to hold his pants up with a belt …and suspenders too. In his house, he puts on a deadbolt lock…and an alarm system, just in case. And when he takes a roadtrip, even if he hears voices from a satellite navigation system, he also takes a map; you never know.

“Yes, of course there is a paddle,” came the slightly annoyed response.

About a half hour into our trip, we were looking for the paddle. The engine had sputtered to a halt somewhere on one of the Delta’s hundreds of miles of bayous and canals.

But a young man hardly thinks of such things. For him, Plan A is always enough. Prices always go up. And everything always works out. Your author, on the other hand, remembers all the Plan A’s that didn’t quite work out. When a market goes up, he expects it to go down. When he gets in a taxi in Buenos Aires, he expects to be overcharged. And when he eats in an Asian restaurant, he is sure he’ll be sick. Instinctively, he looks for a Plan B. And even that isn’t enough. He wants Plan C, too. And a way to get home, just in case none of it pans out.

But it was all a nice adventure, down on the Delta. An hour of paddling…and we were home.

Until tomorrow,

Bill Bonner
The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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