Dollars and drought: Increased delays to stock liquidation expected in February

Lower international prices and a 50% production drop in the wheat harvest explain lower availability of fresh dollars

As a result of the drought, the drop in international prices and lower grain sales, the settlement of foreign currency in January closed with a cumulative amount of only US$928 million, which marks the worst record since 2007 and a 61% drop year-on-year.

The economic challenge going forward will be to navigate February, a month when, seasonally, foreign currency inflow does not typically gain momentum, and expectations are that they will not even reach the US$900 million mark. Therefore, the first two months of this year will also be the two-month period with the lowest availability of fresh currency in 16 years.

The current drought that hits the main productive areas of Argentina has exceeded by far the most discouraging forecasts, as December and January were even drier than expected and there are currently no expectations of heavy rainfall coming in February. Meanwhile, international grain prices are far from the peaks they reached last year, in a context where Brazil’s super-harvest also largely compensates for drops in production in Argentina.

Farming cycles definitively mark the entry of fresh currency into the Argentine economy, since the dollars from the wheat harvest traditionally come in between December and March, and April serves up the main course with, mostly, the soybean harvest, and, to a lesser extent, corn. This year’s drastic change was felt, in the first place, because the wheat harvest dropped no less than 50% as a result of the drought, so the country had a lower exportable balance and this is affecting the companies’ settlements.

Meanwhile, and after two editions of the so-called Soybean Dollar –issued in September and November of last year– reality shows that the availability of soy grains from the 2021/22 campaign is actually halted, and the reporting of grain export shipments has not taken off either. Of a 43.3 million-ton harvest, there are still 7.8 million tons unsold, but the truth is that sales are scant, with just 56,000 tons moved on the market last week.

Farmers who still have soy from the last season keep it as a refuge of value, as they also take into account that the increase in the gap between the official and parallel dollar exchange rates remains above 80%, and this discourages marketing decisions, as farmers receive the price with the official dollar conversion minus a 33% in export taxes. Strong echoes within the sector say that in the future the government will once again resort to a differential exchange rate, to get not only those 7.8 million tons from last season in the short term, but also soybeans from the new one. So far, with the relentless drought, it is very hard to assess how far production cuts will go, but the truth is that people already expect a lower availability of dollars in 2023.

That is why February will be a key month, since the government will have to deal with even less foreign currency and, at the same time, there will be a clearer picture about the impact of the drought on the next soybean and corn harvests. In this scenario, we’re looking at weeks of decisions, where the economic team will assess the pros and cons of launching a new edition of the Soy Dollar, especially when they believe it will be a complex year with the next presidential elections also weighing on the producers’ decision to sell. A complex cocktail that will define this year’s economic path.

Originally published in / Translated by Agustín Mango

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