Reuters: US Dollar Report: Argentina may force grains futures prices into pesos

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Argentina may force grains futures prices into pesos Jul 27th 2012, 19:14 Fri Jul 27, 2012 3:14pm EDT * Farmers use futures market to make forward sales * Government on drive to de-dollarize economy * Meeting on futures contracts due next week - trader By Maximiliano Rizzi BUENOS AIRES, July 27 (Reuters) - 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. Argentina's center-left government 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 percent. The ban has also battered housing sales because homes are normally paid for in the U.S. 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 rumors of the change began to circulate. Last year, a record 20.5 million tonnes of grains and oilseeds were traded on the Buenos Aires-based Matba. Grains futures are also traded at the Rofex exchange, based in the port city of Rosario. Argentina is one of the world's biggest exporters of corn, soybeans and wheat and the top supplier of soyoil and meal. The local grains futures market serves as a partial hedge against inflation estimated by private economists at between 20 percent and 25 percent a year. Widely discredited official data puts inflation at just under 10 percent 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. U.S. 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 on condition of anonymity. "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 percent. The crackdown on the dollar has riled many middle-class Argentines, who have long saved in greenbacks to guard against economic volatility at home. Link this Share this Digg this Email Reprints

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