(Bloomberg) --
Farmers on the Pampas, Argentina's crop heartland, are set to hold on to nearly 30 million metric tons of soybeans that they've stuffed into silo bags and grain elevators for even longer after the government put in place currency controls.
President Mauricio Macri, once a free-market champion, resorted to the controls to halt a plunge in the peso and protect central bank reserves as a financial crisis grips the nation following a landslide win for the opposition in an Aug. 11 primary vote.
The controls set tight deadlines for exporters to repatriate foreign earnings. But they also mean companies can no longer freely buy dollars, and farmers -- especially those with dollar-linked costs to cover -- don't want to hold pesos at the moment because they may devalue quickly.
With that dynamic as a backdrop, growers will be loathe to turn over soybeans they've hoarded from this year's harvest to exporters, who pay them in pesos, said Eugenio Irazuegui, head of research at grains brokerage Enrique Zeni. Crop prices are in dollars, so the silo bags are like a dollar savings account.
“Farmers will sit on their harvests,” Irazuegui said by telephone from Rosario.
As of Aug. 21, growers still had 29.9 million tons of soy left to sell or price, from a bumper harvest of 55.3 million tons, according to government data.
There's a caveat. If farmers see the peso stabilize in the coming weeks thanks to the currency controls, sales of beans to traders may pick up. That's because growers are also scared that export taxes may rise in December if the opposition takes power.
And if they do sell, there's a loophole for getting hold of dollars -- though the greenbacks will come at a premium of 6 to 7 percentage points over the market rate, Irazuegui said. The operation, known as the “dollar MEP,” entails farmers buying bonds in pesos, then selling them for hard currency.
--With assistance from Carolina Millan.
To contact the reporter on this story: Jonathan Gilbert in Buenos Aires at jgilbert63@bloomberg.net
To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Philip Sanders
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