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November 23, 2014
Tuesday, August 26, 2014

Reversal on rates as reserves plunge

The country’s Central Bank is seen in a file photo.
By Francisco Aldaya
for the Herald

Grain export settlement rates have dropped since default, down 65 percent last week

The Central Bank’s reserves began the week deep in red territory — plunging US$96 million to close at US$28.685 billion.

The drop came after a plunge in foreign-currency reserves of US$168 million on Thursday and Friday of last week.

The downward trend is likely to continue, particularly considering that grain exports appear to have slowed sharply since the country entered default on July 30.

Grain export settlement since the country’s June 30 default up to Friday weighed in at a total of US$1.635 billion, US$413 million less than during the same period of 2013, aggravating concern that the Central Bank will have to use up more of its precious foreign-currency reserves to keep the peso relatively stable.

Market sources confirmed yesterday’s decline was largely due to a US$100 million payment for energy imports.

“There has been an abrupt change (in grain settlement) when you compare August to July ... which is related to speculation and decreased activity as a result of the holdout issue,” the source said.

Debate over whether the country entered default has persisted since July 30, when the government and vulture funds failed to reach a deal on the country’s defaulted debt that did not undermine the restructurings of 2005 and 2010.

“The recent drop in currency settlement foreshadows the pressure on the exchange rates that the balance of payments could experience in the second semester of the year,” Eduardo Levy Yeyati, the head of the Elypsis consultancy, said.

Last week, grain firms settled US$252.752 million, 65 percent less than in the same week last year, the CIARA and CEC export chambers, which account for more than a third of all Argentine sales abroad, reported.

Perhaps more indicative of a turn for the worse, sales were 86 percent lower than in the same week of 2011, when the grain settlement record was broken

With export companies’ selling brakes screeching to a halt, settlement in 2014 so far still remained above the US$16.901 billion up to the same date last year at US$17.271 billion, but was 1.41 percent shy of the total traded in the same period of the record-breaking 2011.

Farmers in Argentina, the world’s number three soybean exporter, were expected to hoard even more of the oilseed in the event of a default, and indeed, many have seemingly hedged their bets on further devaluation before the end of the year.

However, should forecasts of higher settlement rates than in previous years keep up, paired with a projected record soy harvest of 55.5 million tons, the amount settled in 2014 would surpass the chambers’ 2011 record.

The troublesome dollar

The government’s main source of income from trade has been plagued by a widening gap between the official and black market dollar rates, which clocked in at 49.6 percent yesterday.

The “blue” soared another 10 cents to end the day at a new record of 13.98 pesos, while the official dollar closed steady at 8.42 pesos at the expense of import authorizations, which the Central Bank reportedly restricted.

The official dollar strengthened 7.5 cents to 8.4 pesos on Thursday last week, a devaluation of 0.8 percent that marked the highest daily decline in the peso’s value following January’s sudden depreciation of near-15 percent.

Hoarding is not the only adverse effect of a volatile currency market, as many farmers are lured over to trade on the illicit market, keeping their business under the table and consequently out of the reach of the AFIP tax bureau.

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. With no intstitutionalized mechanism to press for settlement, the currency’s depreciation may prove key, especially considering that a forecast record harvest in the United States has sent prices on the Chicago grain exchange spiralling down from the US$500 mark since the start of July.

“Higher expectation of depreciation ... has increased the demand to dollarize accounts, and one of the mechanisms, which was already seen in 2013, is to delay exports or bring forward imports,” said Elypsis economist Luciano Cohan.

Cheaper in Chicago

Export firms have been dissuaded by developments on the currency exchange market, but international commodities prices have also played a significant role.

Soy futures in Chicago yesterday traded at their lowest price for the year so far, closing at US$378 per ton for November delivery, the most sought-after contract. The price was 19.5 percent below the US$469.9 registered at the end of December, when rates began to plummet.

Farmers lack liquidity

A hoarding trend was not altogether clear for Santiago del Soler, assistant treasurer at the Regional Consortium of Agricultural Experimentation (CREA).

“There’s been a very important delay in the harvest due to rains, which continue to prevent trucks from accessing may farms due to the poor state of roads,” he told the Herald, adding “an enormous amount of soy is still at the farms, and the harvest season is over.”

Moreover, he argued that even if farmers wanted to hoard, they need the money now, as their “financial burden is enormous.”

“One of our recent studies at CREA showed that 50 percent of farmers are resorting to credits to cover at least 40 percent of their labour capital,” he said, emphasizing that “there is no liquidity.”

@franma1990
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