Argentina introduces corn dollar exchange campaign to ramp up foreign reserve

The government of Argentina has included corn in the Export Increase Program that contemplates a differential dollar rate to boost the country's foreign exchange reserves until Aug. 31, a release from the Ministry of Agriculture announced July 25.

According to resolution 295/2023 published in the Official Gazette, the Argentine Ministry of Agriculture incorporated corn and malting barley into the Export Increase Program, which defined an increase in the differential exchange rate to Argentinian Peso 340/$1 for regional economies. The increase in the official exchange rate for corn exports is estimated to strengthen the reserves of the central bank.

The unofficial dollar exchange rate in market is rumored to be around Peso 536-Peso 541 to $1 against the official value at Peso 270-Peso 283 to $1.

Argentina's government expects to raise $2 billion with the new corn dollar. Grain corn, flint, popcorn and malting barley are to be incorporated into the program, having not been present in previous versions of the program. The payment of export duties must be carried out until Nov. 30 in accordance with the relevant regulation.

The resolution highlighted that "it is necessary to continue the implementation of policies that tend to strengthen the reserves of the Central Bank, stimulating the generation of genuine income of the national State, product of the export of merchandise with low incidence in the value chains of national supply."

The differential exchange rate has been established primarily for soybeans on three occasions. Argentina introduced the latest special foreign exchange rate for soybean exporters in a bid to boost shipments, raise the central bank's reserves and increase farmer sales on April 5. The scheme was valid from April 8-May 31 and allowed local exporters to accomplish their sales from the soybean complex at a rate of Peso 300/$1, almost 40% above the current official rate.

The Argentinian government has also set up an equilibrium volume for export under the new exchange regime based on internal calculations. This works as a limit to how many grains can be exported.

Thus, the exportable volume for corn was set at 26 million mt, implying an increase of 4 million mt from the previously established figure. The exportable volume for sorghum was set at 950,000 mt and the exportable volume for feed barley was set at 2.6 million mt.

However, different sections of the economy have raised concerns regarding the inclusion of corn in the new exchange regime.

"This measure that establishes a differential exchange rate of 340 pesos generates enormous distortions throughout the value chain," the Argentine Corn and Sorghum Association, Maizar, said. "This type of untimely measures make this encouraging crop scenario more complex, slowing down innovation, creating problems for normal supply and distorting the corn market for export and local industrialization. In turn, it denotes the lack of clear rules and a comprehensive overview of where we want to go as a country."

Market sources expected, with the inclusion of corn in the new exchange rate, that producers will further reduce corn sales in the domestic market in anticipation of higher prices.

The struggle to buy corn "may possibly further reduce Argentina's corn exports," a market source said.

Additionally, many market sources pointed out that because corn is a food input for the livestock, pig and poultry sectors, production costs for meat and milk will be affected, and therefore producers will be harmed, unless differentiated assistance is provided to compensate for this increase in feed costs for those industries.

Since corn is a key input for feedlots and pig and sheep farms, as well as for bioethanol, the decision is expected to have an inflationary impact.

The US Department of Agriculture has pegged marking year 2023-24 corn production in Argentina at 54 million mt, up 58.8% from MY 2022-23 estimates at 34 million mt. While the exports estimates increased to 84% on the year to 40.50 million mt, the MY 2023-24 domestic feed increased to 9.3 million mt from 8 million mt in MY 2022-23. Additionally, MY 2023-24 domestic total use increased to 13.50 million mt from 12 million mt in MY 2022-23 estimates for Argentina, the USDA data showed.

According to the govnerment of Argentina, corn was 75% harvested as of July 20, compared to 86% a year prior, according to the July 25 USDA Weekly Weather and Crop Bulletin.

Platts, part of S&P Global Commodity Insights, assessed corn FOB Up River for September loading at $228.54/mt July 24, $11.22 higher than the previous assessment.