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Tuesday, May 3, 2016

The CommStock Report

Friday, December 21, 2012

David Kruse
I am not crying for Argentina, but those who love Argentina should. Once upon a time, long ago, New York and Buenos Aires were the two shining cites on the Atlantic Americas. The Argentine peso traded par with the US dollar and Buenos Aires was called the 'Paris of Argentina.'

Unfortunately, that old majesty and grandeur has faded and Argentina is struggling to reflect its past character. They still tango and the food is still superb, but there are fewer tourists to imbibe the beat. Argentina is struggling to sustain its standard of living, which exceeds its neighbors in Latin America, but is not paid for. The Argentine government is confiscatory to both those in position to create wealth in Argentina and any foolish enough to buy its bonds or invest in its development. US bondholders and Spanish oil companies learned that the hard way.

Anyone who expects anything from Argentina is termed a "vulture." There is a Latin mentality in Argentina, also shared with Brazilians, that any return today is chosen over the risk of a return tomorrow. Tomorrow is uncertain and relationships and prospects of much larger returns are sacrificed for immediate gain, even at the destruction of what we consider to be valuable relationships. Argentina penalizes both exports and imports with taxes and stifles investment with currency controls. The people do not trust the value of their currency, and as such, all real estate trade transactions were done in dollars until the government decreed that pesos must be used. The Argentine housing sector stagnated and I saw no new construction, only stately old buildings from the past.

The official exchange rate is three-something to the dollar, but every vendor will accept dollars at five-something pesos to one dollar. They prefer foreign currency. Its neighbor, Chile, will not even exchange Argentine pesos for its own. Thirty percent inflation is crushing the cost of living in Argentina. There were garbage dumpsters only a few yards outside the front door of our hotel. We watched from our room above as the poor removed and opened each bag and salvaged any food item into a box. The pigeons took the second cut.

While walking in a park, I noted the trash bins being checked and re-checked by passer-byes. I prefer our food stamp program. It is no wonder that crime and corruption flourishes like it does in Argentina. It is a means of survival.

We traveled to the Cristina Ranch (no relation to the President), which has a history that exemplifies Argentina. It was settled by Brits before 1900, who were told that if they worked the land for 30 years they would receive the deed. Twenty-seven years in, the government changed its mind and designated it a park. They were allowed to stay there, tending 12,000 sheep until the family ran out of heirs.

To get the wool to market required crossing the largest lake in Argentina. They built their own boat, taking 10 years to do so, which they used for over 20 years until the government requested to see their papers on the boat. They had papers on the engine (which had been manufactured in Chicago) but not for the boat itself, which they had built themselves. To avoid confiscation by the government, they scuttled it and it rests in view for the tourists today.

That story encapsulates Argentina. Argentine agriculture is still productive, which means that it is at war with the Argentine government over the proceeds. I traveled 400 kilometers west of Buenos Aires into the Pampas wheat, corn and soybean growing region.

The structure of Argentine agriculture is different than ours. Most landowners are absentee and hire farm managers, who hire custom operators. They have fertile good soils, a favorable climate most of the time and practice very low input agriculture, including no-till. They use silo bags for storage rather than build grain bins. I found all the rain that we have been missing here was falling in the Pampas with extensive flooding that I believed could have been better managed with drainage systems. I think the technology to better drain the region exists, but it would be a huge investment requiring individual and joint investment . . . and that just isn't going to happen given the structure and culture.

The government takes 23 percent of the wheat, 20 percent of the corn and 35 percent of the soybeans produced before the general taxes. The government is the first landlord. We heard from everyone that it was getting warmer and wetter in Patagonia due to climate change. I looked up but couldn't see the hole in the Ozone. I would think anyone who cared about Argentina has cried their eyes out long ago and that very few that live there today can even conceive of how things can be different.

David Kruse is president of CommStock Investments,Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet. CommStock Investments is a registered CTA, as well as an introducing brokerage.

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