Tuesday
July 29, 2014

After agreement with government

Thursday, March 6, 2014

Grain exporters sell US$1.9 billion in February

By Fermín Koop
Herald Staff
The agreement between the government and grain exporters for the latter to sell US$2 billion in February was almost reached, according to a report by the CIARA and CEC export chambers, which represent a third of the sector.

In February, US$1.9 billion in foreign currency were brought in, accumulating US$2.960 billion in the first two months of the year, a 28 percent growth compared to the same period last year.

The exporters’ decision to sell their crops had a positive impact on the Central Bank’s foreign reserves, which only dropped US$84 million in February after having dwindled US$2.81 billion in January alone, with an average drop of US$192.6 million per day. After the long weekend, reserves rose US$6 million yesterday and closed at US$27.665 billion.

But it’s not just the sale of grain that explains the Central Bank’s improved outlook in terms of reserves. Economists told the Herald the rosier figures can be explained by an improving macroeconomic situation following the devaluation in January, along with the Central Bank’s decision to raise interest rates.

“The economic changes the government made were very important to stop the dropping trend of reserves and make farmers sell their crops,” Mariano Kestelboim, a University of Buenos Aires economist told the Herald. “Farmers benefited from the peso’s steep depreciation and from the hike on interest rates, thanks to which they can now deposit their incomes in banks and obtain good profit.”

Government officials had largely blamed farmers for the persistent drop in reserves and accused them of hoarding grain as speculation over imminent devaluation, in other words, holding out for greater profit. Government officials promised to maintain the dollar at eight pesos in order to make them sell their crops.

Nevertheless, the peso began to rise in recent weeks after the Central Bank announced a regulation that limits the amount of foreign currency banks can hold in their coffers to a maximum 30 percent of the institution’s financial liability or its liquid equity, whichever is lower. At the same time, a 10 percent limit was set for the futures currency market.

“The fact that the reserves didn’t drop that much was the result of several measures taken by the government such as a stable dollar exchange rate and the Central Bank’s measure to force banks to sell dollars,” Ariel Setton, an economist from Plan Fenix, told the Herald. “Because of those measures, the exchange market has been calmer in the last few weeks.”

Upcoming harvest

March and April will be two key months for the Central Bank’s international reserves, as farmers will start selling crops from the last harvest. Economists told the Herald a higher production level will be registered compared to last year and that they expect farmers to muster greater revenue, as the price of soy has been rising in recent weeks, reaching an average US$520 per ton after a 10 percent increase last month.

“There will be a much higher level of production in the current harvest. It’s a positive factor to have a higher sale of grain,” Setton said. “Nevertheless, the price of soy is also higher, and that allows farmers to obtain more dollars without selling that many crops and saving the rest in silos.”

President Cristina Fernández de Kirchner estimated in her speech to Congress last week that the harvest of soy would exceed 55 million tons, 3.77 percent more than economists have forecast and five percent more compared to the last record harvest of 2009/2010, when 52.67 million tons were harvested.

“Problems could arise if grain exporters decide to use their revenue from the harvest to purchase dollars in the illegal market. That would lead to a wider gap between the official and the ‘blue’ dollar,” Kestelboim said. “That happened in 2012 and 2013 and led to the exchange rate of the illegal dollar rising significantly.”

@ferminkoop

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