In the month of December, the agricultural sector has benefited from two measures that significantly increased the price in dollars received by producers.

On the one hand, the well-known elimination of export duties (except for soybeans, which were only reduced by 5 percentage points). On the other hand, and perhaps less known to those who are not used to following the sector, the elimination of the scheme known as green ROE.

El ROE It was an instrument used by the public sector to restrict the exports of some primary products, such as milk, beef or, in this case, corn and wheat.

The official justification had to do with internal food prices. By restricting exports, local supply was assured, putting downward pressure on the prices of cereals, the primary input for food products.

The effectiveness of the policy to avoid increases in the prices of final goods is debatable, but the truth is that it led to domestic grain prices being below the theoretical FAS. That is, the internal price of corn and wheat were -generally- lower than the price received by exporters.

FOB (Free On Board) prices are prices that indicate the value that external customers are willing to pay for an exportable product.

If the FOB prices are discounted: 1- Withholdings. 2- Expenses in ports. 3- Commercial expenses derived from the process; The theoretical FAS price or export parity price (Free Alongside Ship) is obtained. Therefore, the Theoretical FAS price is the one that the exporting sector could pay for the grain that is being marketed.

Why was this happening? Because sales abroad were restricted, an oversupply was generated in the local market. The scheme was significantly more restrictive for the marketing of wheat than for that of corn, which led to the price of the former showing an even greater gap with respect to its international price.

After the election of Mauricio Macri as president, with the subsequent validation of the expectations of devaluation and elimination of export duties; Internal prices were quoted above the FAS, given that no one wanted to part with the merchandise at the price of the official dollar.

Once the exchange rate correction was carried out, logic indicated that the elimination of the ROEs system should lead to local contributions tending to be equal to the theoretical FAS. In the case of corn, prices indeed showed this trend, and were even above their theoretical price.

However, the same did not happen for the wheat, whose internal price continues to be out of date and below export prices.

This has led wheat producers to wonder what is happening with the internal price of cereal and, fundamentally, how long we will have to wait for a full price correction to occur.

One of the main causes is that exporters and the local industry are not demanding the cereal, which is due to two main causes: i) the high level of accumulated stocks and ii) setting a maximum period of 45 days for the shipment of bread wheat (recently extended to ninety days).

Firstly, the last campaign showed a significant difference between the quantities of wheat purchased by the industry and those actually exported or milled.

The industry and exporters bought a total of 13,7 million tons of wheat, when export and milling statistics show that only 10,3 million were used. In other words, there is a significant stock of unsold wheat in the hands of the industry.

This high level of accumulated stocks was supposed to disappear as exporters began to accelerate their wheat purchases in 2016. However, given the elimination of export duties and the ROE system, the government feared that this would generate a shortage in the wheat market and established a maximum period of 45 days for Foreign Sales Affidavits (DJVE).

In the rest of the crops, it was set at 180 days. This measure led exporters to postpone purchases and reduced demand for wheat. As a consequence, the internal price remained below the FAS.

On December 29, 2015, the government established the requirements for the registration of Affidavits of Foreign Sales (DJVE) of agricultural products, in a joint resolution between the ministries of Agroindustry, Treasury and Public Finance and Production.

According to the regulations, the exporter must present the DJVE form as an Affidavit of Foreign Sale to the UCESCI (Unit for Coordination and Evaluation of Domestic Consumption Subsidies), or in the authorized Interior Agencies closest to Customs where the shipping documentation will be made official; with a presentation period that will run until the first business day following the day on which the sale abroad was closed.

Thus, the creation of export businesses in the case of wheat showed a much lower dynamism than that observed in the case of corn. In fact, for this last crop, the DJVE presented in the 2015/16 campaign reached 11,1 million tons, almost 80% above the purchases made in the year.

In part, this is what currently generates a greater need on the part of exporters to obtain the merchandise, putting pressure on internal prices to rise, even above the FAS price.

On February 10 of this year, the government extended the deadline for wheat DJVEs to 90 days, and it is expected that it will be extended to 180 days soon. Will this measure be enough to narrow the gap between prices? The first thing we should note is that exporters' purchases have not increased as a result of this measure.

What's more, in the three weeks after the measure they bought 710 thousand tons of wheat, almost 200 thousand less than in the previous three weeks. A significant acceleration was observed in the DJVEs carried out.

While until February 10, presentations had been made for 2,5 million tons (an average of 50 thousand tons per day since the first presentation made), in the last month DJVE were presented for 1,8 million tons (65 thousand per day).

In this way, it is expected that the domestic price of wheat begin to show a recovery in the coming weeks. In the coming days, exporters that committed greater exports will have to begin to intensify purchases to meet these obligations.

However, we will still have to wait for the internal price to reach levels similar to the FAS, since the stocks accumulated in the previous campaign continue to generate an oversupply effect in the local market.