MercoPress. South Atlantic News Agency

Argentine grains futures market in shock: government wants operations in Pesos

Mercedes Marcó del Pont and futures markets meet next week to discuss the issue

Argentina could require that grains futures be listed in the local Peso currency the head of the central bank said on Friday, a move that traders said would paralyze markets in the leading global food supplier.

President Cristina Fernandez is pushing to “de-dollarize” the economy 10 years after officials ended a one-to-one peg to the dollar during a devastating crisis. A key aim is to protect the country's international reserves, used to pay debt, as the economy slows and inflation remains high.

The government has virtually banned foreign currency purchases since May, pushing the spread between the official exchange rate and the black-market rate to 40%. The ban has also battered housing sales because homes are normally paid for in the US currency.

Central bank chief Mercedes Marco del Pont told local radio the government was evaluating changes to futures contracts, whose prices are listed in dollars but ultimately paid out in pesos, to see if they could be “de-dollarized” entirely.

“At the end of a futures contract, whether it's for a commodity or a currency, the payment is in Pesos,” Marco del Pont said, adding that it did not make sense, then, for the operation to be listed in dollars.

“We're looking at other experiences in the world. In Brazil, this is done in the local currency,” Marco del Pont added.

Trade in grains futures came to a virtual halt at the Matba exchange starting on Thursday as rumours of the change began to circulate. Last year, a record 20.5 million tons of grains and oilseeds were traded on the Buenos Aires-based Matba.

The local grains futures market serves as a partial hedge against inflation estimated by private economists at between 20% and 25% a year. Widely discredited official data puts inflation at just under 10% annually.

Unlike the Chicago Board of Trade (CBOT), most futures contracts in Argentina include the delivery of physical merchandise, functioning as a forward sales market. US soy futures at the CBOT serve as their key reference for pricing.

“Farmers are not going to sell in pesos. If their debts were in Pesos, there wouldn't be a problem. But a majority of their debts are in dollars because many of their costs are in dollars” a Rosario-based trader said.

”Next week there's going to be a meeting between Marco del Pont and (officials from) the futures markets to try to find a solution that works for both sides,” the trader added.

Traders said if the contracts were to be listed in Pesos, it would be very difficult to reach agreement on their value since more and more transactions in the Argentine economy are being carried out on the basis of the black-market exchange rate.

Argentines have endured periodic economic crises that included currency devaluations, hyperinflation and deposit freezes. Since this latest round of currency controls first took effect in October, dollar deposits in banks have sunk 40%.

Earlier in the week the AFIP tax revenues agency again tightened another loophole of its “dollar clamp”. Since 20% of those who purchased dollars for tourism reasons did not travel overseas, unless they return the US currency, they will be fined and could even have the CUIT tax paying identification number suspended.

According to the tax agency, 73% of those who purchased dollars to travel said their destination was Chile, US and Brazil. But as they crosschecked data with the National Migrations Department it surfaced that 6.800 people who bought foreign currency worth 37.8 million pesos did not leave the country when they had said they would.

A communiqué released by AFIP reported that 34,500 people bought dollars in June for an amount of 184 million pesos and the main reasons for the trips were tourism (63%) and work (25%). In the case of those who said they would travel but did not do so, top destinations were Uruguay (27%), Chile (22%), US (15%) and Brazil (14 percent).

The agency announced it will ”send notifications to those contributors who did not leave the country and will inform them about the inconsistencies we found and reminding them that filing sworn statements with inaccuracies can be sanctioned with fines and with the suspension of the CUIT tax paying identification number”.

The official US dollar ended the week in Argentina trading at 4.55/4.560 Argentine Pesos, which is half a cent higher compared with the previous closing price. However on the black market the selling price of the US currency on Friday edged up three cent compared with Thursday closing price and the buying price was trading at 6.45 Pesos, confirming the spread of 40% between the two markers.