The Argentine Central Bank, starved of dollars and declining international reserves started to trade new short-term dollar-denominate bonds in order to encourage the farm sector to sell the crops they are still holding on to. It is estimated that over 3bn dollars in mainly soybeans remain in the hands of farmers and cereal exporters.
The bonds will mature in 180 days and have an interest rate of 3.65% and could lead to higher Central Bank reserves if the farm sector decides to support the initiative. But farmers have been holding back on selling their crops as a hedge against inflation and the quickening depreciation of the peso.
The government would like to see grain exporters buy the bonds now and bring dollars into the country ahead of the harvest that will kick off in April. The bonds exclusively for the cereals export sector can be converted into Pesos at the official exchange rate of the day starting day 91. June 2014 Peso futures are trading at 7.405 Pesos to the dollar, 16% weaker than the current exchange rate of 6.363 pesos to the dollar at the Rosario Futures Exchange.
There are an estimated 3.4 billion dollars of soybeans being held by farmers awaiting more favorable exchange rates, according to research company Elypsis. Many of those holding on to the grains have said they are protecting themselves against inflation and a rapidly devaluating peso.
The Central Bank will provide liquidity to this new instrument since day 91 of the subscription through re-purchasing all the bonds or a part of them at their technical value before their expiration date, said the official release.
The Argentine central bank is desperate to get hold of 2 billion dollars, which would keep international reserves above the threshold 30bn; currently they are at 30.5bn but there are commitments of 800m in the next few weeks.
The Argentine government has insisted that soy farmers are hoarding more of the oilseed than usual, with Cabinet Chief Jorge Capitanich discouraging producers from engaging in what he defined as 'speculative behavior', pinpointing such hoarding as one of the top causes behind the recent depletion of Central Bank reserves.
Calculating the proportion of this year’s harvest that remains unsold is not straightforward, however, with many farmers arguing they are simply waiting for the best moment to sell their produce, as any other merchants would.
The context of persistent double-digit inflation that is estimated at running above 26% annually, tied with a quickening devaluation, makes keeping a portion of harvests a viable savings mechanism.