Silo Bag: responsible for a change in the way to market grain

December 7, 2013 El Campo No comments

Structural changes in the storage capacity in Argentina, namely the appearance of the bin bag in the late 90s. could have moderated the strong seasonality in soybean prices. When we talk about the seasonality component in soybean prices in the physical market grain Argentina oscillations we refer to these prices show-within a year-around a trend, which are repeated in a very similar way the same month or in the same quarter of each production campaign. In theory there are two types of seasonality: the supply and demand. The seasonality of supply is caused by systematic behavior in the supply of a product. The price of agricultural commodities (soy is one of them) shows precisely this type of seasonality, which coincides with the evolution of culture throughout the year. In periods of sowing, when the supply is low, prices are high, while in periods of harvest, when supply is abundant, low prices are displayed.

According to the working hypothesis for this analysis for the 80, and even the appearance of "silo bags" in Argentina in the late 90s, was observed clearly and very markedly the characteristic pattern of grain prices in the product soya. During the harvest of the oilseed, almost all of the annual supply of the product was available at one time to be sold in the market. As the demand for agricultural commodities was and is more or less stable throughout the year, they had storage capacity in fixed silos (especially factory, export, stockpiling and cooperatives) must store the goods to ensure supplies for the remainder of year. Prices of beans, then, tended to increase throughout the year as a result of the costs of transporting the goods in time (storage and financial costs). To understand this phenomenon, we try to place ourselves in the Argentine countryside living in the 90's before the emergence of the "silo bags". Imagine that the price cycle starts after the harvest. After selling much of the same, the end is usually soy stock will become part of the available supply until the arrival of a new crop. This stock, to be preserved as such, should be stored-or yes-in fixed silos and maintained in conditions. Therefore, as the days passed, increasing the charge should be paid for the storage and were increasing conditioning expenses. This last financial costs that were incurred for not selling the grain and keep it stored in fixed silos were added. We refer to the typical opportunity cost of capital, that is to say, what is left to gain by not selling the production, buy U $ S and invest in a fixed time at a bank or cooperative in the area or stop adqurir other financial assets (stocks, securities, etc..). As stated, prices after the last harvest began to increase by a value equal to the harvest price plus the cost of storage and financial. At the time of harvest stocks increased, rising supply, falling prices and increased quantity traded. Following harvest, all variables were moving in reverse, the stocks were declining, which reduced the supply, prices were increased and decreased the amount transacted. The prices under this scheme were a direct function of time until the arrival of a new crop. The working hypothesis that motivated this analysis was our belief that the process described above, as to the seasonality of prices of soybean in Argentina, still in force today . However, structural changes in storage capacity in Argentina (specifically the emergence of the silo bag to late 90s) may have moderated the strong seasonality in the price of soybeans. First, it is important to consider that to store the current national grain production of nearly 100 million tons, there is, according to the latest report of the Ministry of Agriculture, Livestock and Fisheries Office at December 31, 2012 - a capacity of commercial storage in fixed silos (storage plants, industries and port deposits) of nearly 54.5 million tonnes. Agricultural producers in 2008 had a storage capacity of dry grains in structures "permanent", "metal" or "mampotera" of about 16 million tonnes type. The important fact to consider is the great change produced by the incorporation of the silo bag from the late 90's, where, according to data from the INTA / Manfredi and suppliers during the 2000/01 campaign pocketed with this technology 2.5 million tonnes of dry beans. At present, an estimated 40 million tonnes of theoretical

storage capacity of producers with the "silo bags". In just thirteen years old, grew 16 times that storage capacity. This new store has allowed agricultural producers: a) extend the time of sale of their production, b) and avoid selling at harvest time when prices usually low, c) to market in the months of November, December and January with a relatively low storage cost. In order to confirm empirically whether it really has no moderate seasonality in prices since the onset of silo bags were constructed, using the technique of moving averages centered on 12 periods, a set of monthly seasonal indicators for price House soybeans, with data provided by the Arbitration Chamber Rosario Grains. This two periods were analyzed: a) Seasonality in the period 1992-2002 in monthly averages (to avoid the methodological problems of the changes in value of the currency sign used as a conversion factor the buying rate of the National Bank to express the series in dollars from 2002). b) Seasonality in the period 2003-2013, a period which begins to grow hard selling and widespread use of the silo bag. The results of the application of this statistical model were: As shown in the graph, the red line for the period 1992-2002 shows that prices chamber (CAC-BCR) in soybean harvest season (March-April-May-June) recorded a sharp drop from those reported in the summer, evidencing a strong seasonality. Instead, the blue line represents the period 2003-2013 the indicators are more stable and "ironed" shows that the red, there being a strong swing in prices as is evident in the period 19922002. Falling prices at harvest time in the period 2003-2013 is more moderate than that of the 1992-2002 period. In the statistical analysis the assumption that would moderate the strong seasonality in prices in the period 2003-2013 beans is confirmed. While there may be other factors that have contributed to reduce seasonality, we believe the silo bag has been a major for the following reasons: a) This form of storage, allowing the farmers to extend the time of sale of their production and marketing efficiently handle. b) The producers were able to avoid having to sell at harvest time when prices are depressed significantly. c) The low cost of the goods stored in silo bags has offset the higher costs of storage and packaging generating grain tenure fixed pending the summer season and the best prices silos.This cost reduction would moderate the price increase to the months of October, November, December, January and February.

d) The tendency of many producers to consider the grain silo bag as a form of savings and a store of value has led them to underestimate the opportunity cost of capital. For many men in the field, does not have much relevance that is left to win by not selling the production and invest in other financial assets. It was better than any financial investment business, expect best prices for soybeans and defer the sale. Source: Fyo.com