April 24, 2014

To motivate sale of grains

Friday, December 13, 2013

Central Bank launches bonds for the farm sector

The Central Bank created new bonds yesterday in order to encourage the farm sector to sell crops after it had been criticized by the federal government because of speculating over the price of their crops.

The bonds will mature in 180 days and have an interest rate of 3.65 percent. They could lead to higher Central Bank reserves if the farm sector decides to support the initiative.

Although peso-denominated, the notes would also compensate for any subsequent devaluation of the currency, making it more attractive to farmers.

There are an estimated US$3.4 billion of soybeans being held by farmers awaiting more favourable exchange rates, according to research company Elypsis.

Many of those holding on to the grains have said they are protecting themselves against inflation and a rapidly devaluating peso.

The Central Bank will provide liquidity to this new instrument since day 91 of the subscription through re-purchasing all the bonds or a part of them at their technical value before their expiration date.

The government has insisted that soy farmers are hoarding more of the oilseed than usual, with Cabinet Chief Jorge Capitanich discouraging producers from engaging in what he defined as speculative behaviour, pinpointing such hoarding as one of the top causes behind the recent depletion of Central Bank reserves.

Calculating the proportion of this year’s harvest that remains unsold is not straightforward, however, with many farmers arguing they are simply waiting for the best moment to sell their produce, as any other merchants would. The context of persistent double-digit inflation that some estimate at more than 20 percent tied with a quickening devaluation, makes keeping a portion of harvests a viable savings mechanism, some in the sector argue.

Herald with Télam

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