Argentina: Grains Update
29 April 2008 Argentina is expected to see a minor decrease in total grain area, with wheat taking the biggest hit, according to a report from the US Dept. of Agriculture’s Foreign Agriculture Service (USDA-FAS).
The total area for grains production is forecast at around 3% lower than last year, with the wheat area down 5%, while corn remains at stable levels compared to last year. Offsetting the decrease in wheat area will be increases in sorghum, barley, canola, and other minor crops.
Specifically, USDA-FAS notes that a shift to more barley production is occurring in southern Buenos Aires and other regions near malting plants, and that an increased concentration of corn within the Corn Belt and via crop rotations will balance out marginal areas such as Entre Rios and northern Santa Fe and Cordoba, which will drop some corn area to plant sorghum and canola.
In addition, the country’s new export tax regime could mean a slowdown in the adoption of new technologies and inputs, including precision ag adoption and the use of high-tech pesticides and increased fertilizers.
Wheat
In spite of high international prices, USDA-FAS projects a decline in area due to the risk of more closures of export registrations; the decreased profitability created by increasing input costs and a de facto ceiling price established under the new variable export tax scheme; and the strong incentive to produce barley in place of wheat due to barley’s earlier harvest, which allows for earlier planting and subsequent higher yields for second-crop soybeans. In fact, the factors are strong enough to lead to some analysts’ predictions of a wheat area decline by as much as 15% to 20% compared to last season.
The wheat area will be somewhat displaced by production of minor crops such as linseed and canola in the more marginal areas due to less government intervention in marketing those crops. There will also be increases in barley production, mainly in southern Buenos Aires and other areas within close proximity to malting plants. USDA-FAS forecasts a 10% increase in barley area following the construction of a new malt plant in Punta Alvear, as well as several large traders exporting barley. In addition, farmers may also begin to produce barley in limited quantities off-contract with seeds held back from this year.
There could also be a doubling of the area planted to canola due to several of Argentina’s largest farming pools making a strong effort to increase production of that crop.
There also remains much policy uncertainty following the country’s farmer strike. Although the strike has been suspended for 30 days while the government fulfills its agreement to clarify the package of benefits for small producers, this has not yet occurred. Depending on subsidies and other incentives given to farmers, this aforementioned forecast could change. New measures for small farmers that the government promised include export tariff rebates, fertilizer subsidies, transportation subsidies, a re-opening of wheat exports, and subsidized credit for small- and medium-sized producers, among others.
Wheat export registrations are currently closed, and it is unclear when they will be re-opened. Although the government announced on March 31 that wheat export registrations will re-open, the re-opening has been delayed. The unclear future of export policy will discourage some farmers from planting wheat next year.
Based on all of these factors, USDA-FAS forecasts the 2008/09 harvested area at 5.3 million hectares (m. Ha). Foreseeing average weather patterns, 2008/09 production is set at 14.7 million tons. This is compared to a 2007/08 area of 5.6 m. Ha and production of 15.5 million tons.
Corn
The 2008/09 area planted to corn is expected to remain at 3.1 m. Ha, USDA-FAS says. The primary factors that will affect farmers’ decisions to plant corn are high world prices and the necessity to have a rotation crop in the production cycle. Those incentives will be offset by decreased profitability stemming from increasing input costs and a de facto ceiling price established under the new export tax regime.
Despite a slight decrease of 0.8% in the export tax applied to corn under the new export tax regime, it is uncertain that the government’s stated goal of creating stronger incentives to grow grain crops rather than oilseeds will be achieved. Corn is a high-risk crop compared to soybeans due partly to its higher production costs. Corn requires more fertilizer than soybeans, and most inputs for corn production have increased in price by 40% to 50% from last year, with phosphorous based fertilizers have reportedly increasing in price by 260%.
In addition to higher input costs, corn is riskier than soybeans due to its more stringent moisture requirements. Drought conditions during critical phases of corn development could produce irreversible yield losses, while soybeans are more resilient under such conditions.
Another factor affecting farmers planting decisions is the need to have a summer rotation crop. There are few alternatives to corn due to the lack of viable markets for those crops. The major alternative, sorghum, is expected to increase in area at the expense of some corn area in marginal areas for 2008/09.
Although corn area in the US will likely be lower this year due to expanded soybean plantings, the resulting higher prices will provide weakened planting incentives to Argentine farmers due to the variable nature of the new export tax on corn – as FOB prices rise, export taxes also rise, creating a ceiling price. Since sorghum does not face a variable export tax, USDA-FAS expects to see some acreage shifted from corn to sorghum.
USDA-FAS forecasts the 2008/09 corn harvested area at 3.1 m. Ha. With average weather patterns, 2008/09 production will be around 23.5 million tons. This would be slightly higher production that the 2007/08 estimated total of 21.5 million tons, on the same area.
Although the harvest was delayed by the 20-day agricultural strike, farmers have now harvested around 30% of the crop. Official government statistics now place corn production at 20.5 million tons on a planted area of 4 m. Ha.
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