An additional US$1.2 billion would be brought in this year by agriculture exporters Grain exporters’ decision to sell their crops and bring in US$5.7 billion in the last quarter of the year means the country will receive before December 31 an additional US$1.2 billion compared to what was initially expected, a figure that could bring calm to the Central Bank foreign reserves amid a shortage of dollars.

Sunday, October 26, 2014

Grain dollars BCRA’s last gamble

Soybean plants are harvested at a field in the city of Chacabuco in a file photo

By Fermín Koop
Herald Staff

An additional US$1.2 billion would be brought in this year by agriculture exporters

Grain exporters’ decision to sell their crops and bring in US$5.7 billion in the last quarter of the year means the country will receive before December 31 an additional US$1.2 billion compared to what was initially expected, a figure that could bring calm to the Central Bank foreign reserves amid a shortage of dollars.

The CIARA and CEC exporting chambers made such promise after meetings over the last two weeks with federal government officials, eager to inject much-needed dollars into the economy. In order to make a deal, an extra 500,000 tons of corn, 400,000 of wheat and 100,000 of wheat flour of the previous harvest were authorized to be exported, plus another two million tons of wheat of the next harvest yet to be confirmed.

This would mean a relief for Central Bank foreign-currency reserves before the next harvest season starts in 2015. Reserves ended the week at US$27.40 billion, accumulating a US$102 million growth this week. Nevertheless, so far this year a US$3.21 billion has been registered.

The decision was welcomed by agricultural producers, who said it can be achieved even though it’s nothing short of ambitious. The US$5.7 billion represent a 70-percent increase on total grain exports of US$4 billion for the same period last year and would bring exports five percent above 2013 figures to US$24.3 billion.

“It can and it will be achieved. The grains will be sold and dollars will be brought in until the end of the year. There are a lot of grains that remain to be sold,” Martín Fragio, head of Maizar, which groups corn and sorghum producers, told the Herald. “But we need the government to authorize more exports, the figures agreed are very low and we are capable of exporting much more.”

In order to make good on the figures, the sector would need to be making harvest-level sales of around US$480 million per week until the end of the year. But the weekly figures so far this quarter — totalling US$875 million from the beginning of October until Friday 17 — fall short of that goal. In fact, weekly sales would have to be higher than the US$464 million average registered through the year

“It didn’t make any sense to keep hoarding the grain and not selling it. A deal should have been signed a long time ago, it was about time that this was solved,” Matías Ferrecio, head of Argentrigo, which groups wheat producers, told the Herald. “We could be exporting much more but they don’t let us. Now some additional exports were authorized but it’s only a small figure. Brazil bought wheat from US producers and not from us since we couldn’t sell.”

The government has criticized farmers for sitting on the grains, warning that falling prices would make them regret their decision. The price of soy has been dropping and the ton is now US$250 cheaper than it was at this time last year. Farmers meanwhile insist that this it’s the only way they have to protect themselves from inflation and a devalued peso.

At US$18.62 billion, total grain exports so far this year have fallen short of the first three quarters of 2013 when US$19.21 billion in export revenue were reported. The Agriculture Ministry has estimated there are 23 million tons of last year’s harvest that remain to be sold.

Not so easy

But the CIARA and CEC promises won’t come so easy, experts and economists warn, since over the last 12 years such a volume of crops has never been sold on the last quarter of the year. At the same time, agriculture producers are actually the ones to first sell the crops that will then be exported, leaving a question open on whether they will fulfill CIARA and CEC deal with the government.

“I doubt they will be able to sell so many tons in so little time. If you look at the calendar and don’t count the holidays and Christmas and New Year, they have only 42 business days to do it,” Pablo Adreani, farm analyst and head of AgriPAC consultancy, told the Herald. “The fact that exporters say the grain will be sold doesn’t mean agricultural producers will do that. An average 300,000 tons per day would have to be sold, a figure I find it hard to believe will happen.”

Economists Marina Dal Pogetto, partner at Bein, and Fausto Spotorno, economist and director of the Economic Studies Centre at the Orlando Ferreres consultancy, agreed with Adreani and asked themselves whether the government will use the extra dollars to bolster the Central Bank foreign currency reserves or to authorize more imports, which could help to reactivate the economy.

“The agreement was done with the exporting firms. Now they have to go and talk with agricultural producers, who are the ones who have to sell the grain first,” Spotorno told the Herald. “The extra dollars could be given to importers to stop the economic drop or use them to increase the Central Bank reserves.”

Dal Poggeto said more dollars brought in by agricultural exports would help for a better end to the year and “to soften the economic drop by allowing importers to bring in more goods.” At the same time, she said “a steep drop” in crop sales was registered in the last few months and because of that the Central Bank decided to give importers fewer dollars.

“I don’t see reserves growing so much since the Central Bank could use the dollars to allow more imports,” Dal Poggeto said. “The fewer dollars you get, the less you give. Now with more dollars, the economic drop reported during the last few months could come to a halt and the year could end better.”

@ferminkoop