March 29, 2005
Argentina 2005-06 corn production estimated 17.5 million tonnes
Argentina's corn production in marketing year 2005/06 is forecast down slightly at 17.5 million tonnes on 2.65 million hectares, according to a USDA.
Wheat production for 2005/06 (December - November) is forecast at 15.5 million tonnes on 6.25 million hectares, down 3 percent from the previous year.
The wheat harvest for MY2004/05 ended in late January with 16 million tonnes collected. The MY2004/05 corn harvest is expected to reach a record and is forecast at 19.5 million tonnes, with excellent quality.
Executive Summary
Although commodity prices fell over the past year, the Argentine agricultural sector continues strong. Faced with several limitations, such as an inadequate transportation system, an inefficient wheat grading system, and agricultural export taxes, production, exports, and domestic consumption continue to increase.
While production for the 2005/06 marketing year (MY) is not expected to reach this year's near-record levels, corn and wheat area and production are forecast up slightly from two years ago at 17.5 and 15.5 million tonnes, respectively.
The preliminary estimates for MY2004/05 show wheat and corn production this year are up 22 and 30 percent, respectively, from the previous year, due to excellent weather throughout the growing season. Wheat production for MY2004/05 is estimated at 16 million tonnes. Corn production in MY2004/05 is estimated at 19.5 million tonnes. Additionally, wheat area in the central Argentine production area increased slightly due to an increase in wheat/soybean double cropping. This area is expected to increase slightly again next year, as producers look for ways to generate more income on the same amount of land.
Argentina will continue to be a key player in international grains markets due to its large exportable supply and relatively low price. Post forecasts that wheat exports will finish this year up about 25 percent over last year, at 12 million tonnes. Corn exports are forecast up as well, 28 percent from last year, at 14 million tonnes.
Production
Wheat
Post forecasts wheat production for next marketing year (MY) at 15.5 million tonnes on 6.25 million has. This forecast is based on higher than normal yields (2.48 million tonnes/ha) and increased area due to very good wheat/ second soybean results in the central Argentine production area. Post has not changed its MY 2004/05 production estimate of 16 million tonnes on 6.1 million has. in line with official Argentine statistics from the Secretariat of Agriculture (SAGPyA). Yields were higher than the 5-year average throughout the country, averaging 2.6 million tonnes/ha. Wheat yields throughout the agriculture areas vary greatly, ranging from 1.5 million tonnes/ha, in marginal areas (Northern Santa Fe, Northern Cordoba, La Pampa), to over 4.0 million tonnes/has. in the wheat belt (Southern Buenos Aires). Over half of total wheat production is found in the southern Buenos Aires province.
Surprisingly, during MY2004/05, wheat producers in Northern Buenos Aires, Southern Santa Fe, and Southern Cordoba (Venado Tuerto, Marcos Juarez, Junin, Pergamino, Bragado, Casilda, Cañada de Gomez) had yields of approximately 3.3 million tonnes/ha, well above national five and ten-year averages. In this area, in the face of falling soybean prices, producers can spread out their risk by planting wheat followed by second crop soy, rather than concentrating on only first crop soybeans. This trend is likely to continue next year, contributing to the increased wheat area and production.
Corn
Post forecasts MY 2005-06 corn production at 17.5 million tonnes on 2.65 million harvested has. Harvested area remains unchanged from the previous year, but production is forecast to decrease as yields return to normal. Planted acreage may increase, although, corn area harvested for grain will most likely remain unchanged due to low grain prices and higher milk and beef prices.
Post increased MY2004/05 corn production and area estimates to 19.5 million tonnes and 2.65 million has., respectively. USDA field travel during February confirmed reports that the corn crop this year is excellent and historical yields in many areas are expected. While some small areas experienced drought followed by heavy rains and flash drying, corn in the main producing areas look excellent.
Harvest for grain began in the northern areas of the country at the end of February. As of February 26, 2005, less than 5 percent of total corn area was harvested, compared to around 9 percent harvested at the same date last year.
Transportation
Transportation of grains is a major limiting factor to production. Many production decisions are based on the location of producers and elevators from ports and the availability of alternate types of transportation. Historically, only 15 percent of production is transported by train, and the remaining production relies on truck transport. In very few instances, transport is on waterways.
Analyses show that, in terms of corn production, it is more profitable for producers located more than 300 - 400 kilometers from port to convert their corn production into meat or milk, by feeding directly to cattle, instead of exporting.
Additionally, up-river ports around the Rosario area in Santa Fe province are unable to fully load large sea vessels due to inadequate dredging. Currently, the main channel of the Rio de la Plata is dredged to 32 feet. Vessels must be partially loaded in the Rosario ports and then topped off either in Bahia Blanca, Argentina, or Paranagua, Brazil. This additional stop dramatically increases transportation costs from Argentina. Some analysts calculate that every hour a vessel must wait to finish loading at other ports can cost upwards of US$1,800. The cost for dredging the main channel to an optimal 42 feet is great. Calculations show that to reach a less optimal 36-foot dredge, over 40 million cubic meters of earth must be moved. The cost of moving 1 cubic meter of earth is approximately US$2.50. Although it is a major limitation to the competitiveness of Argentine agriculture, it is unlikely this project will be undertaken in the near future due to the cost.
Consumption
Wheat
Post forecasts that MY2005/06 domestic wheat consumption will be flat at 4.5 million tonnes. An increase in domestic consumption is not probable as demand for wheat products (bread, cookies, pastas) is relatively inelastic. As income changes, the Argentine consumer does not change his overall consumption of wheat products, although the composition of consumption may change; i.e. he may substitute pasta for bread or vice versa.
Post estimates that MY2004/05 domestic wheat consumption will remain at the level of MY2003/04 - 4.5 million tonnes. According to SAGPyA statistics, 5.148 million tons of wheat was milled for flour and feed in MY 2003/04. Durum wheat accounted for close to three percent of total wheat milled. Wheat milled for feed (durum and common) in MY 2003/04 totaled approximately 3,253 million tonnes, down slightly from 4,300 million tonnes in MY 2002/03.
Of the total wheat milled in MY2003/04, 672,000 million tonnes of flour, pasta, and pre-mix (wheat equivalent) was exported. Total domestic consumption for MY 2003/2004 is estimated at 4.5 million million tonnes.
Corn
Feed corn grown in Argentina is destined to mostly milk and poultry production. Poultry production is concentrated in the province of Entre Rios. This area accounts for 10 percent of total corn production, or 1.5 million tonnes. This production, however, only satisfies 50 percent of local feed demand. An additional 1.5 million tonnes of grain must be imported from other areas of the country to satisfy the demand. Overall, the poultry and egg industries demand large amounts of corn; the feed rations for these industries are normally 60 - 70 percent corn. Poultry production in 2005 is forecast to increase 10 percent.
At current prices it is excellent business to convert cheap corn into high-priced milk. Total milk production is slated to increase approximately 6 percent in 2005.
Approximately 25 percent of the Argentine cattle herd is finished on feedlots with balanced feed rations, usually containing 50 percent corn. It is common practice that a large part of the remaining 75 percent of the cattle herd will receive some form of balanced rations in the field. The Argentine beef herd is expected to increase in 2005 to 49.2 million head, which means an increase in feed consumption by not only large producers, but smaller ranchers, as well, especially in the finishing of the last 80 - 100 kilograms.
Additionally, as stated above, the farther corn production is from major ports, the more likely it is that producers will feed the grain to their livestock. Therefore, producers in the provinces of Salta, Chaco, Corrientes, Tucuman, San Luis, and parts of Cordoba, will opt to consume corn on the farm instead of paying high transportation costs.
Trade
Wheat
Post forecasts MY2005-06 wheat and wheat product exports at 11 million tonnes due to the price competitiveness of Argentine wheat. Argentina will continue to be an international player in the wheat trade due to the low prices, but not necessarily due to the quality of its wheat. While the quality of Argentine wheat in general is good, the lack of a well-developed classification system has led producers to concentrate on quantity instead of quality. Post estimates MY2004/05 exports up from the previous year to 12 MMT. According to customs data collected by private sources, from December 1, 2004 through March 6, 2005, Argentine wheat and wheat product exports totaled approximately 6.2 million tonnes, compared to 2.6 million tonnes for the same period last year.
Corn
Post forecasts MY2006-07 corn exports at 12 million tonnes, down slightly from the previous year due to a forecast decrease in production, and an increase in demand for feed due to an expansion of livestock, dairy, and poultry production.
Post estimates MY2005-06 exports at 14 million tonnes. At the end of February, port reports show that over the following three weeks, 550,000 million tonnes of corn would be loaded in the up-river ports. Total forecast loading during this period, in all ports in the country, is 600,000 million tonnes. Export pace is forecast to continue as domestic demand for export quality grain decreases. Export commitments for the new crop have also picked up speed over the past few weeks due to the large exportable supply forecast for the new crop and the availability of cheap corn. It may be difficult, however, for Argentine corn to continue to win favor in the international markets due to the global oversupply of corn. At the end of February 2005 there was still over 9 million tonnes left to sell, compared to the same time last year when all but 5.84 million tonnes was already sold.
Post estimates MY2003-04 corn exports at 10.9 million tonnes. Preliminary end of year data show corn exports between March 2004 and February 2005 were 10.9 million tonnes. Additionally, popcorn exports were 124,000 million tonnes, which is not included in Post's corn export estimate.
Corn for export depends heavily on the location of producers and elevators to ports, as transportation costs are high. Normally, production for export is centered 300-400 kilometers from ports, farther distances are not as profitable.
Stocks
The increase in on-farm storage, mainly in silo bags, complicates calculations of grain stocks. Prior to this increase, stock calculations were made based on official surveys of storage facilities. While these official data are still available, they do not provide a realistic calculation of stocks due to the unknown factor of on-farm storage, which is not included in the survey. What is certain about on-farm storage is that there has been an increase in silo bag sales of 25 - 30 percent over the past year. Last year approximately 80,000 bags were sold. This year sales of 100,000 bags are expected. Additionally, sales of 5-6,000 sillage bags are expected. With capacity of between 150-200 million tonnes/each, there may be an additional 15-20 million tonnes of storage in the countryside.
Prices
Commodity prices in Argentina are set at the different Grains Exchanges throughout the country. There are three principal exchanges that set prices: Buenos Aires, Rosario, and Bahia Blanca. The spot prices set by these markets are usually a reflection of CBOT prices, less a percentage, relatively close to the export tax for the product. Curiously, producers are paid this spot price for their production (less transportation), regardless of the final destination of their product (local or export market).
Source: USDA
