Argentina: Peso Devaluation Erodes “Soy-Dollar” Program
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With harvest complete for Soybeans and Sunflower seed and practically complete for peanuts, farmers have been planting small grains and are making plans for summer crops for MY 2023/2024. After several years of drought, Argentine farmers hope an El Niño weather pattern will lead to more rainfall in the coming year. Rains have improved in much of the productive regions of the country, though the province of Cordoba has continued to experience drought.
Argentinian farmers are on track to plant more than 7 million hectares of small grains in line with recent years, which means there will continue to be a significant portion of the Soybean crop planted as a double crop following the harvest of small grains in November/December. Before the arrival of recent rains, there had been some concern that farmers might plant a substantially smaller small grain crop which would lead them to plant a higher proportion of first-crop Soybeans, but this did not come to pass.
Post estimates total Argentine Soybean production for MY 2022/2023 at 21.25 million metric tons (MMT) which is 3.75 MMT below the official USDA estimate. Post’s estimate is based on interviews with local market participants, traders, and farmers who report that final yields were lower than anticipated. Post’s lower production estimate is reflected in lower expectations for crush, domestic consumption, and ending stocks.
As per AgFlow data, Argentina imported 1.2 million tons of Soybeans from Brazil in June 2023, followed by Uruguay (78,047 tons). Post projects MY 2023/24 exports of whole Soybeans at 5.5 MMT. This would be a sharp recovery from Post’s estimate for MY 2022/2023 of 1 MMT, the lowest level since MY 1996/1997.
“Soy-Dollar” Program of Argentina
The most crucial policy development since April was the third installment of the “soy-dollar” and “agro-dollar” programs. Officially known as the Export Growth Program, it was established by Decree 194/2023 and was designed to incentivize the export sales of certain agricultural commodities. Soybean and Soybean products were listed in Annex 1 of the decree and benefitted from a particular exchange rate from April 10 through May 31, 2023, colloquially known as the “soy-dollar”. Other commodities, including Sunflower seed and subproducts and peanuts and products, were listed in Annex 1 of Resolution 138/2023, published later and benefitting from an “agro-dollar” scheduled to last no longer than August 31, 2023.
Due to currency and capital controls in Argentina, there is a divergence between the official exchange rate set by the government and various unofficial exchange rates that reflect what market participants and speculators believe the value of the Argentine peso would be absent from these controls. The CCL (Contado con liquidacion) and MEP (Mercado Electronico de Pagos) are more formal exchange rate quotations based on specific financial transactions but generally correlate with the unofficial “blue” rate quoted on Buenos Aires streets.
The spread between the official rate and various unofficial rates has narrowed and widened based on multiple factors. As of July 13, 2023, the official exchange rate was at ARS 263 per $1, and the unofficial “blue” rate was ARS 507 per $1, implying a perception among currency speculators that the peso is worth roughly half of its official value.
When the “soy dollar” was announced in April of 2023, the official exchange rate was 210 pesos, while the various unofficial rates were around 400 pesos per dollar. The fixed exchange rate of 300 pesos per dollar for ag products represented the halfway point between the official and unofficial rates. However, the official value of the peso was devalued steadily over the last few months of the current year, eroding the benefit of the fixed agro-dollar.
Other sources: USDA
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