Argentina ag. premiums could rise as govt limits dollar trade

Premiums for agricultural goods exported out of Argentina could rebound over the coming days and weeks after the government introduced fresh capital controls on Sunday.

President Mauricio Macri, after spending hundreds of millions of dollars to defend the peso, performed a political u-turn over the weekend by issuing an edict that requires dollar holdings to be converted into pesos.

“Dollars from exports made after September 2 must be liquidated no later than 5 business days after payment or 180 days after the shipment permit,” a Sunday statement from the central bank read.

Exporters receiving dollars from commodity exports will be given 15 days to convert their holdings.

With the peso on the slide, exporters will be required to liquidate dollar holdings and prop up the ailing currency as the government looks to “maintain exchange stability and protect savers,” according to the bank’s notice.

Firmer premiums

The move will likely have an impact on trade, with sources saying that farmer selling of soybeans and corn could slow as a result.

"Farmer selling will be stopped because you can not sell soybeans and buy US dollars. You will only sell soybeans, corn etc to pay bills in pesos," said one market source.

"This most probably will affect farmer behaviour. They will not be able to sell grains and buy dollars with pesos they get as payment. At least it will not be possible in the regular foreign exchange (markets)," said a second source.

"They most probably will go to the black market or other financial tools that will affect their margins. In my opinion, in principle, this is supportive of premiums in Argentina," he said.

For soybeans, buyers may be able to swallow higher premiums because China is still embroiled in a trade war with the US.

However in Argentina, the world's second-largest exporter after Brazil - for corn exporters things are less rosy.

Argentinian premiums for corn are now being offered below US futures as a huge global crop hits the market.

The lack of demand was best demonstrated last week by Korean feed buyer Kocopia, which passed on a buy tender last week due to what it said were high prices.

Longer-term

And while premiums may be supportive in the short term, a likely change in government in October could see the return of Peronists, who have supported maintaining export taxes as a means to shore up the country's finances.

Sunday’s move reinforced a recent change of tack from President Mauricio Macri’s embattled government, with the federal government giving up on attempts to assuage overseas investors and instead looking towards short-term policies aimed at curbing the outflow of dollars from the country.

Last week the government pushed back maturities on more than $100 billion of its debt, with ratings agencies saying Argentina was in “technical default” as a result.

The value of the peso has plummeted this year, losing more than half of its value against the dollar as the effects of a year-long recession have taken a tighter grip on the country.

The slide intensified last month as President Macri suffered a heavy defeat in a primary vote ahead of next October’s presidential election, with markets wary of the poll-topping left-of-centre candidate.