With net reserves in a critical zone, the Central Bank had a bit of relief this Thursday and managed to extend the buying streak in the official exchange market for the fifth consecutive day thanks to a significant rebound in the settlement of the agricultural dollar, which reached u$s162, 91 million, the third highest amount since its launch.
However, in terms of foreign currency inflows, the prospects for the future are worrying given that The Rosario Stock Exchange again adjusted downward its estimate of soybean production for the 2022/2023 campaign, going from 23 million tons in April to 21.5 million in May.
The analysts of PPI pointed out: “With the adjustment of soybean production, the panorama becomes more worrying, and we reestimate that the value of the total crop would be reduced by more than US$26,000 million (-50.8% per year) when settling on $25.217 million compared to $51.235 million in 2022.”
Meanwhile, they calculated that “agricultural exports would sink from US$41,032 million to US$19,216 million, so the collapse will have a floor of US$21,800 million (-53.2% per year).”
In this context of exchange fragility and deterioration of expectations, a report by the consultancy PxQ, directed by Emmanuel Álvarez Agis, stressed that in the future dollar market demand for coverage increased in May compared to April, and indicated that in that market the implicit Annual Effective Rate (TEA) reaches over 300% between the PASO and the general elections “which shows the nervousness due to a devaluation between those dates.”
Reserve: the BCRA extends positive streak
The BCRA registered this Thursday a net positive balance of US$11 million for his intervention in the MULC, which shows acceleration with respect to the favorable result of US$1 million from the previous round. Thus, the monetary entity put together a buying streak for the fifth consecutive day, in a round in which market sources commented that “there was very strong demand from importers.”
The BCRA registered on Thursday net purchases for US$11 million in the MULC and extends its buying streak for 5 days
In this way, the BCRA accumulates during this week net purchases for US$22 million, while totaling a sales balance of around US$252 million so far in May, and adds a negative result for the year somewhat higher than the US$3.200 million.
Thursday’s favorable balance was thanks to the fact that The field settled through the agricultural currency dollar for US$162.91 million, the highest amount since April 21, and the third largest in this third stage of the soybean dollar.
The amount settled since the launch of the measure is about US$2,381 million, a value that seems far from the target of US$5,000 million that the Government intended to achieve with the soybean 3 dollar, which ends on May 31.
Salvador Vitelli, Finance and agribusiness specialist, indicated that the price offered by exporters was $110,000 per ton of soybeans, the same as on Wednesday, but better compared to previous days, which was around $100,000. And he evaluated that “the improvement in the price somewhat lubricates the businesses, although not in a significant way, I have doubts that they will be able to meet the goal of US$5,000 million by the end of May, because 13 wheels are missing and it would mean liquidating US$200 million average per wheel, and that is a value that was achieved only in one day so far for the agricultural dollar.”
BCRA dollars: worrisome prospects for reserves
Vitlelli emphasized that “beyond the liquidation of this Thursday via the agricultural dollar, Until now, the BCRA was able to retain only 13% of the liquidatedpurchases are very lean”, and warned that “as long as this does not change, reserves have no prospects for improvement”.
“The dynamics for net reserves are disturbing, they are in critical condition, and the problem is not that they are negative, but that there are no prospects in the near future that they will improve significantly.”he claimed.
The farm liquidated $162.91 million soybeans per dollar, the third best amount since its launch
For this reason, said the expert, the expectation of the market is placed on the renegotiation of the agreement with the IMF and on whether the organization will give “extra money available” given that analysts assure that only advancing the disbursements planned for the rest of the year serves to improve the photo of the reserves but it does not solve the underlying problem that is the lack of dollars.
At the same time, Sebastian Menescaldidirector of Eco Go, stated that “To maintain the calm” of the financial dollars “they have to rebuild reserves and improve the dynamism of the agricultural dollar.”
“If they continue to intervene -in the bond market to keep the financial dollars stable- the net reserves are going to be even more negative and that can create a problem in the financial system, that doubts are generated and people withdraw deposits, to avoid that They are going to have to buy foreign currency,” he warned.
Within this framework, the economist speculates that in order to achieve more liquidation of the agricultural dollar, the Government could implement “a drop in withholdings or an increase in the exchange rate offered” which is at a fixed value of $300, which in an inflationary context loses purchasing power and becomes less attractive with each passing day.
Future dollar: how does that place evolve?
The consultant PxQ assured that “if the inflow of foreign currency is not recomposed via some additional incentive for exporters and/or disbursements from the IMF that can be used for purposes other than payments to the agency itself”, it may become “impossible for the monetary authority to avoid a jump in the official exchange rate.
And that perception investors have based on what they reflect the future dollar contracts that show an 18% jump in the price between the end of July and the end of August, post STEP.
With negative net reserves of around US$1,000 million, the market sees the risk of an exchange jump
Andres ReschiniF2 Soluciones Financieras analyst, explained that “the futures contracts that we see in Matba-Rofex are an operation through which the price of the dollar is agreed, in this case the wholesale official -which is called underlying- at a future date (up to a year term) and They are standardized for each end of the month so that, for example: December 2023 is the price at which the parties agree for the last day of that month, one buys and the other sells”
“They are guaranteed and since the value of the underlying and the different positions varies every day for different reasons, the differences between the agreed price and the adjustment of the day in favor are collected and against are deposited. Some use this tool as a hedge, for example to ensure profit margins, and others may use it for mere speculation,” he said.
The expert specified that “if you bought dollar futures, you will not receive the dollars at the expiration of the contract, but you will have received the difference between what you agreed to and the price of the underlying at expiration if this is higher or if you have paid that difference in case the latter is less than the agreed price. The opposite if you were a seller”.
According to the closing of this Thursday, the value of the official dollar negotiated for the end of May is $240.45, for June $263.3, for July $290, and for the end of August $342.5. And if you look a year from now, the price for April 2024 is $747.
Future dollar: what does the market foresee?
A report of GMA Capital stressed that “exchange rate derivatives are once again at the center of the scene” and stated that “the trigger for market interest is the same as always: the acceleration of devaluation expectations in the run-up to the election, after a real appreciation of the Argentine peso of more than 20% since the end of 2020”
“The extra seasoning that makes the situation more unstable is the lack of dollars (visible in the negative photo of net reserves), aggravated by the worst drought in decades“, he asserted.
Exchange rate futures are traded with implied rates up to 300% (TEA)
The fund manager said that “another way of looking at futures is through the implicit rates derived from these contributions”. In this regard, he specified that “We observed levels of up to 300% (TEA) that have nothing to do with the speed of other nominal variables such as inflation, the interest rate or the rhythm of daily microdevaluations (crawling peg)”.
“According to the market, the smooth devaluation of the peso is not credible, much less sustainable”emphasized
The analysis of PxQ He also stressed that “the implicit TEA gets to be above +300% between the PASO and the general elections, which shows the nervousness about a devaluation between those dates.”
In addition, Reschini He detailed that “futures began to soar along with the escalation in the gap and the bad results of the first days of the soybean dollar, it came to adjust at the highest point of the implicit rate at 314% TEA on May 2.”
“Since the first days of May, with the slowdown in the crawling peg, some pressure on the short end has given way, although it is also likely that the BCRA is intervening, but it has moved to the long end given that the intervention policy only deepens the problems towards the future and there are no solutions in sight,” he added,
In relation to the devaluing expectations reflecting the futures market, Reschini pointed out that “the rhythm grows and jumps to the end of August after the STEP, then it slows down but continues above 15% TEM to jump back to 15% TEM at the end of December after the change of government” and clarified that “it does not mean that this is going to be the case, but it marks the pulse a little The risks that the market sees are obviously the reflection of a very fragile scenario”.
Devaluation expectations in the futures market jump in August, post STEP
Future dollar: what is the market reading?
Juan Delich, Eco Go analyst linked the jump in the value of the future dollar in August “to the fact that there is an expectation of an exchange rate jump that month” ._And he speculated: “That the market is taking care of a situation like the one that occurred in the post-Paso of 2019, they are thinking that something similar could happen.”
The economist commented that “what the market is looking at these days is that the Government is in a very bad situation with reserves, with the drought that had a negative impact and because of how the soybean dollar has been designed, the incentives are not given the right way for producers to liquidate”.
“That puts the government in a situation half begging for reserves, and what the market reads is that in this extremely fragile situation, an adverse result (in the PASO) could disarm the political will of the government and force it to do some of the macroeconomic corrections”, he assessed.
For his part, Nery Persichini, GMA Capital strategist assured that “the market no longer looks at the crawling peg but rather covers itself against a possible discrete jump in the exchange rate”
“It is an insurance in the event that the ‘Plan Llarr’ is not achieved The recent dynamics of the reserves, the reduced effectiveness that the agricultural dollar is showing in the midst of the drought, the amplification of the gap and the acceleration of inflation are factors that contribute to the overheating of implicit rates,” concluded.
