September 16, 2014
Farming sector expects record settlement
Value of the peso could be pivotal to move beyond US$25-billion mark
At the rate grain export firms have sold their produce between April and the third week of June, US$3.32 billion more will have been settled by the end of July, when the bulk of the soy harvest season effectively comes to an end.
This would leave the grand total for the season at US$16.43 billion, US$8.7 billion shy of the record set in 2011. Considering that US$15.51 billion had been sold up to July 29 in 2011, according to the CIARA and CEC grain export chambers that account for a third of all exports from the country, the country appears to be on track for a record-breaking season.
Farming sector leaders told the government back in February that solid soy prices in Chicago and the Buenos Aires Grain Stock Exchange’s prediction of a record soy harvest of 55.5 million tons would send the year’s settlement soaring past the US$25.13 billion record set three years ago.
Up to June 27, US$13.10 billion of grain has been settled, but the resurgence of hoarding amid economic uncertainty may prove an obstacle to the sprint toward the record-breaking finish line.
With consumer prices having risen 14 percent in the first quarter and the local currency depreciated, farmers have take hoarding beans as a unit of savings, and using them to barter for seeds, fertilizers and even pickup trucks.
Key to reserves, debt repayment
Swifter settlement this year, encouraged by January’s devaluation, has served as a cushion for strong dollar-purchasing by the Central Bank (BCRA), which has boosted its previously dwindling foreign reserves.
Reserves’ stability around US$29 billion in the last three months has been perceived as psychologically reassuring ahead of possible steep payments to holdout hedge funds.
Indeed, analysts largely consider that such foreign account dwindling could return once the harvest is over, highlighting the importance of a record-breaking settlement total.
AFIP tax bureau head Ricardo Echegaray announced that revenue from export duties had soared 107 percent in June on the same month of 2013, another encouraging sign that agri-greenbacks are flowing in.
The BCRA bought US$470 million last week, and reserves closed at US$29.479 billion.
Quicker than 2011
Between April and the end of third week of June, US$8.65 billion in grain had been sold abroad at an average rate of US$665.5 million per week. A peak of US$941,727 million was registered on the week ending May 9 and a low of US$451.42 million on the week ending June 19, with the latter a day shorter due to the June 20 bank holiday.
Considering the average continues this month, US$3.32 billion more will have been settled by the end of July.
The lowest total sales for a full week was the US$528.80 million of the week ending June 6, reinforcing the sensation that farmers and export firms have resumed hoarding significantly in the last few weeks.
The return of the hoarder
Farmers and export companies are seen as retaking to their hoarding practices of old as speculation over another significant devaluation for the peso by the end of the year, and macro uncertainty on the outcome of the government’s struggle with the holdout creditors has certainly not come as relief.
The Buenos Aires Grains Exchange said last week that growers had collected 95 percent of the harvest so far.
Some analysts insist that predicting US$16.4 billion in grain sales abroad by the end of July is too optimistic.
The harvest by July 30 will weigh in at US$14.22 billion, according to Agripac consultant Pablo Adreani.
Running different numbers and variables than CEC and CIARA, with significantly different results, Adreani told the Herald that “farmers are awaiting another devaluation, and will hold off on selling their soy for as long as possible.”
Encouraged by the near-15 percent devaluation in January, the margin of increased inter-annual settlement up to the end of April had regularly clocked in around 15 percent. In other words, dollars were flowing in quicker.
IDESA economic consultancy director Jorge Colina warned that the harvest has been slow this year due to excessive rains.
“Trucks have been sinking in the mud,” he told the Herald, adding that humidity has also affected the quality of crops.
Nonetheless, Colina pointed to a possible devaluation as pivotal, as “the black market rate will depreciate further by the end of the year, and when the gap widens with the official dollar, there is more speculation and hoarding.”
Beyond July, other crops and hoarded wheat would still bring in dollars.
A weaker peso by the end of the year could burst open silos and potentially push the sector beyond the US$25-billion record line.