what was the key reason / Argentina News

In the end, Sergio Massa he indulged himself: against all the forecasts of the experts, the goal of US$5,000 million liquidated by the third version of the “soybean dollar” was reached, and left the market in an intense debate about what had happened.

After all, adding US$1,052 million in “discount time”, when everything suggested that the end of May deadline would be reached with just US$4,000 million settled, did not seem like a logical move or an easy explanation. . That is why the first speculations in the market pointed to the political factor, that is to say if there had been a “phone call” from the Government to the exporting companies so that they make the final “sprint”.

The conspiratorial versions had their explanation: in its new version, the “soybean dollar” had all kinds of difficulties, a weak start in April and the evidence that the $300 per dollar figure that was recognized for soybean producers had fallen short. . In fact, the officials had to come out to deny the version that had been installed about a correction that would take the export incentive up to $350.

The most heard criticism in recent weeks was that of design problems in the scheme, in such a way that they generated conflicting incentives between soybean producers and large exporters, who ended up pushing for the price. Translated into dollars, the producers, who aspired to obtain a price of US$383, should resign themselves to selling for only US$310, according to the estimate made by the economist Salvador Vitelli.

And, to top it off, the producers discovered a “loop” with the operations of the futures marketwhich allowed them to pocket up to 25% more than what the Government offered them, consisting of selling in the futures market in November and, at the same time, operating dollar contracts for the same date, and then issuing a check in November and discount it in the financial market.

With such a framework, no one was surprised that the performance of this new “soybean dollar” was well below its versions of August and December of last year, and the forecasts suggested that, in the best of cases, it would end a 20 % below the target that Minister Massa had set himself when he announced the new regime.

A jump in the price of June

How to explain, then, the massive sale of soybeans towards the end? Not everyone is looking for an explanation on the side of the political “squeeze”, but there are agribusiness experts who try to Find the logic of the market.

The key data to monitor is the jump that occurs in the price of soybeans from May to June. Market positions for the “post-incentive scheme” period indicate a price of US$390 per ton, while in the last days of May exporters paid soybean producers a price of just over US$320 per ton .

Why does that jump happen? The experts affirm that it is a natural reaction of the market: the producer who did not sell when they gave him the incentive of a high dollar of $300, will not see any reason to do so when they recognize the official exchange rate again. That is why, in the face of the demand of the exporting industries or companies, he will ask for compensation in the form of a higher price of the product.

Speaking in numbers, during the incentive scheme, the producer received a price of US$320 at an exchange rate of US$300, which is about US$96,000 per ton. As of June, it would have a price of US$390 with an exchange rate that -if the current devaluation rate were maintained- would reach US$250 within a month. That account gives a price of $97,000 per ton of soybeans. That is, it would be a way of not losing income.

It is, in technical terms, an arbitration: the producer compensates the disadvantage of a worse exchange rate with a higher price. And it has some strength to negotiate, given that the dismal campaign -a harvest of around 20 million tons, a 53% drop compared to last year- leaves the result of a low supply in volume.

According to estimates, Less than 12 million tons remain in the silobagswhen at the same time last year the stock was more than double that figure.

Despite the good liquidation, the Central Bank did not achieve a reinforcement in its reserves: it barely kept 28% of the dollars entered

Exporters make accounts

But, if for soybean producers there will be an arbitrage between price and exchange rate, what is it? From the point of view of the exporter, the incentive to pay off now rather than in a couple of months? The explanation of the experts is simple: it is cheaper for them.

The exporters who settle now obtain from the central bank preferential change of $300, which can be placed in a special bank account that updated according to the official dollar. Given the pace of crawling peg that is managing the institution chaired by Miguel PesceThis implies that for those who liquidated in mid-April, when the regime started, each dollar is worth $333 today, which is the accumulated devaluation.

This possibility of accompanying the devaluation rhythm means that, in their accounts, their exports are valued more if it is done under the incentive regime than in the “normal” context of returning to the official exchange rate of $240 and without indexation.

And not by chance, in recent days the officials of the economic team were in charge of deny the versions about a “soybean dollar 4”, something that would have worked as a disincentive to make sales in the last days of May.

In reality, this affirmation is almost obligatory for the Government, because at the slightest suggestion that the scheme will be repeated, that already works as a factor that “inflates” the price of soybeans in the domestic market, something that practically condemns soybean exports to close to zero in the coming months.

In any event, given the background, the market remains suspicious that if the Central Bank’s reserve situation becomes more complicated in the second semester, a new preferential soybean exchange rate could be seen.

“It is feasible that the Government appeals to extend it as a way of artificially stretching a short sheet, in a context of negative net reserves and an official exchange rate that is once again used as an anti-inflationary anchor”says the LCG consultancy, after analyzing the tools that the Government has at hand to stop the drain of reserves in the financial channel.

The Fundación Agropecuaria para el Desarrollo de Argentina (FADA) is also handling the possibility of a reissue of the incentive for exporters in the second semester, which focuses on the exportable volume that will remain as a remnant.

Nor does the influential agricultural consultant rule it out Salvador Di Stefanofor whom a reissue of the incentive scheme could occur if the Government was in dire need of dollars, although he warns that “If this happens, it will further complicate the numbers on the Central Bank’s balance sheet.”

The soybean dollar helped Massa in his negotiation with the IMF, not only for exchange rate stabilization but also for the contribution to tax collection

More costs than benefits?

In short, Massa achieved his goal: he was able to force an inflow of dollars in the adverse context of a drought. What it did not achieve, on the other hand, was that these bills were used to swell the reserves of the Central Bank which, in fact, are weaker today than when the “agro dollar” started.

Of the total liquidated for US$5,080 million, the BCRA was barely able to retain US$1,405 million, which implies 28%, a small figure if one considers that previous editions of the “soybean dollar” had pocketed 65 % and 74%, respectively.

But, in addition, there remains the “dark side” of the incentive regime: the financial cost which is produced by exchange distortion, given that buying a dollar expensive from soybean producers and selling it cheap to importers implies a loss and, furthermore, an involuntary monetary expansion.

According to the estimate of Vitelli, an analyst at Romano Group, the “soybean dollar 3” ended with a loss of $262,256 million, and an issue of $683,814, equivalent to 12.7% of the monetary base.

For government critics, these are numbers that lead to questioning the meaning of this type of export incentives. However, there is another fundamental piece of information that also enters into the analysis: soybeans matter not only for their contribution in foreign currency, but also for what he leaves in the AFIP box.

With 33% withholdings, it constitutes one of the items with the highest tax contribution, to the point that last year it contributed more than 8% to total tax collection. This year, on the other hand, due to the effect of the drought, in the first four-month period the export duties item barely had a 2% share.

That is where Massa sees the other reason that justifies the “soybean dollar”: it helps him improve fiscal performance just when he is in full negotiation with the International Monetary Fund for financial aid to help reach the elections with relative exchange rate peace.