It did not take long for Argentina to feel the macroeconomic effects of the peso devaluation, as fuel prices skyrocketed and crop export prices dipped.
The country's major oil players, including YPF, Shell, and Axion, have hiked gasoline and diesel prices by nearly 70% in December alone, with the majority of the hike coming after the peso devaluation. Simultaneously, the devaluation has prompted concerns about increased local supplies entering the market, sending the futures prices of soybean and corn lower.
Fuel prices soared
The cost of a liter of petrol has surged to over 600 pesos at certain locations, and additional hikes are anticipated. Price updates have begun circulating among various service stations, with the Federal Capital leading the way, as reported by Buenos Aires Times.
These latest increases, marking the third consecutive round in as many weeks, follow Economy Minister Luis Caputo's confirmation of a 54% devaluation on Tuesday night.
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The surge in fuel prices comes at a time when Argentina is grappling with a hyperinflation, clocking in at 160.9% over the last twelve months.
Export prices dipped
On the export front, wheat, soybean, and corn — Argentina's primary agricultural exports — experienced a decline in futures prices. A commodity report by the Netherlands-based ING Bank suggests that a reduced exchange rate could lead to an increased influx of Argentina's supplies and inventory into the market, fueled by a rise in local currency prices. The adjusted exchange rate brings potential benefits for grain producers, as their sales, tied to US dollar values on export markets, will result in higher yields in pesos.
While the recent devaluation is termed "shock therapy," employing devaluation to stimulate exports is not a novel approach in Argentina. Doug Christie, an agribusiness executive and author of the monthly newsletter Agricultural Commodities Focus, notes, “Argentina has deployed a policy of preferential rates for exports previously, so they have already used a devalued peso as an incentive for farmers to export. The incentive has at times been as much as a 30-40% advantage versus spot rates."
It remains to be seen if the sale of crops can offset the increased costs for the farmers. “There are other economic factors impacting the farmers, but more on the cost side,” says Christie. “Fuel subsidies will be a prime example. We could see that negatively impact farmers on the cost side if the new economic program is more market based, especially when the country is already grappling with a surge in fuel prices.”
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While the devaluation aims to boost local exports, its long term impact on the global agricultural market may be limited.
“Ultimately, the global agricultural market is USD denominated,” notes Christie in his newsletter. “Exchange rates in specific countries can impact purchase and sale timing, but the system overall is still a global one, balancing supply and demand for a USD denominated product. The current changes in Argentina are unlikely to have a huge long-term impact.”
It should also be noted that currency valuations are only one of the factors that influence commodity movements from Argentina, he adds. A proposal announced yesterday to increase export taxes on soy products from the country was supportive to global price levels.
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