FILE PHOTO: Ships used to carry grains for export are seen on the Parana River in Rosario, Argentina August 9, 2024. REUTERS/Matias Baglietto/File Photo

By Maximilian Heath and Aida Pelaez-Fernandez

BUENOS AIRES (Reuters) -Argentina's government on Monday temporarily eliminated export taxes on grains and their by-products, as well as on beef and poultry, in a bid to speed up sales abroad and rake in much-needed dollars to prop up the flagging peso currency.

Just over a month ahead of congressional elections, President Javier Milei's government has faced setbacks in the legislature which have caused nervous investors to turn to the safe-haven dollar and forced the central bank to dip into its dwindling reserves.

The decree published Monday suspends export taxes on soy, corn, wheat and their by-products, including biodiesel. It will last through the end of October, or until declared exports reach $7 billion.

This significantly eases the tax burden for exports from the key sector, from a prior level of 26% on soybeans, 24.5% on soybean oil and meal and 9.5% on corn.

Argentina is one of the world's top grains suppliers, and the sector is key to funneling in foreign currency.

Presidential spokesperson Manuel Adorni later said that beef and poultry exports would also be tax-exempt through the end of October.

SHORT-TERM RUSH

The tax break could cause a rush to sell, especially as farmers look for cash to fund planting for next season, analysts said.

Significant portions of the 2024/25 grains harvests worth more than $8 billion, remain unsold, according to analyst Lorena D'Angelo.

After the announcement, soybean futures for November delivery Matba-Rofex exchange rose some $50 to around $355 per metric ton. Prices could climb to up to $400 per ton, D'Angelo said.

However, the temporary measure could backfire, she and others warned, saying that by creating a short-term rush to sell, the resulting supply glut could limit potential price increases.

Agricultural association Sociedad Rural Argentina criticized the decision, arguing for a permanent tax break.

"It's clear that this is an emergency measure due to the need for dollars," said the group's vice president, Marcos Pereda. "This has happened in the past, and any temporary measure usually causes supply to greatly outweigh demand," he added.

BROADER ECONOMIC BOOST

Argentine markets rallied on Monday, with the tax break announcement followed by a pledge from Washington to examine financial support for Argentina.

U.S. Treasury Secretary Scott Bessent said swap lines, direct currency purchases and purchases of U.S. dollar-denominated government debt could be used to boost the Latin American ally.

The wholesale peso strengthened nearly 4.5% on Monday, closing at 1,412 per greenback, while on the parallel market, the currency appreciated around 3% to 1,475 per dollar.

Dollar bonds and the main stock index also rallied, with the country risk index - a measure of investor confidence - coming down.

(Reporting by Maximilian Heath and Aida Pelaez-Fernandez; Additional reporting by Nikhil Sharma in Bengaluru and Kylie Madry in Mexico City; Writing by Kylie Madry; Editing by Louise Heavens, Marguerita Choy and Alistair Bell)