January 27, 2012

 

Dry weather may lift US corn, wheat shipments

 

 

Due to concerns on Argentina's crop, the world's top 2 corn exporter, US corn futures surged to a two-week high of US$6.33/bushel on Tuesday (Jan 23).

 

After analysts cut their forecast for Argentina's grain output, food prices worldwide are set to rise as the country's fields wither under a relentless drought.

 

Tighter supplies of the corn used to make many foods and to feed livestock couldn't come at a worse time for the world's poor.

 

The food price index calculated by the UN's Food and Agriculture Organization averaged 288 points last year, 23% higher than in 2010, and well over the previous high of 200 points in 2008.

 

Argentina's farmers were expected to harvest a record 30 million tonnes of corn in the 2011-12 season, but analysts say about a third of that potential output has evaporated because of hot, dry weather blamed on the La Nina weather phenomenon.

 

La Nina involves the periodic cooling of the equatorial Pacific Ocean that usually brings dry weather to the farm belts of Argentina, Uruguay, Paraguay and the south of Brazil.

 

"The drought was terrible for corn," said Adrian Seltzer, an analyst at grain brokerage Granar.

 

Between eight million and 10 million tonnes were lost, which will directly impact the export quota and the international market, he added.

 

If correct, those losses would represent about 10% of the 94.7 million tonnes in global corn exports the USDA estimates for the 2011-12 season.

 

Argentina's Agriculture Ministry still expects 15.4 million tonnes of corn to be available for export from the current crop.

 

While recent scattered showers across the farm belt have provided some relief, much more rain is needed to ease fears of even greater losses, especially to the thirsty corn crop.

 

"It hasn't ended the drought, just contained the damage," said Eduardo Sierra, chief climatologist for the Buenos Aires Cereals Exchange. "It simply stopped things going from bad to a disaster."

 

Farmers will start to harvest the first corn and soy fields in February and March, respectively, and continuing dryness is expected to take its toll, said farm services company Lartirigoyen analyst Francisco Mariani.

 

And more hot, dry weather is on its way. "By February 4, farmers will be gazing up at the sky again looking for rain," Sierra said.

 

Analysts are predicting 2011-12 soy production of between 45 million and 49 million tonnes – well short of the record 54.5 million tonnes harvested in the 2009-10 season.

 

The crop will be even smaller if the fields don't get a soaking in February, said brokerage Panagricola vice president Ricardo Baccarin.

 

La Nina is expected to fade in March or April, but its effects will linger through the southern hemisphere winter with dryness continuing until October or November, Sierra said.