April 16, 2013

Argentina to lower corn output next season

Hampered by high inflation and antagonistic government policies, Argentina will reduce its corn output next season as farmers brace for a record-high US harvest likely to trample prices and push them toward planting soy instead.

Lower Argentine output would affect global trade given the country's role as a reliable corn shipper just as the US, the world's top producer, is reducing its share of the export business.

Less corn from number three supplier Argentina would be felt most significantly in Asia, which relies on shipments from the country from April-July, when global stocks tend to run low just ahead of the US harvest.

"If corn prices go down, which they will as the US gets ready for its 2013 harvest, Argentina and other corn exporters like Brazil, South Africa and Ukraine could be driven out of the business at least for the next season," said Martin Fraguio, head of Argentine corn industry chamber Maizar.

Farmers in Argentina's Pampas grains belt will sow corn in September, just as their US counterparts are gathering what is forecast to be a record harvest of more than 360 million tonnes. The new supply could push Argentine corn prices down to US$100-120 per tonne from the current US$165 per tonne.

"At that price," agricultural consultant Pablo Adreani said, "80% of Argentina's corn area would be operating at a loss, and a lot of corn farmers would have to switch to soy".

Soy farming has taken off in Argentina over the last two decades. The country is the world's number three exporter of beans and its top supplier of by-products such as soyoil, which is used in the booming international biofuels sector. But corn is key to the crop rotations that are needed to keep Pampas soils healthy.

The worst US drought in decades punched a 100 million-tonne hole in world corn supply last year, raising fears of a global food crisis. The price spike made corn profitable for Argentina this year despite government export curbs and high farm costs caused by soaring inflation.

Economists predict inflation will end this year at about 30%, one of the highest rates in the world. Then there are the curbs that the government puts on corn shipments to ensure ample food supplies domestically.

Agriculture is the backbone of the Argentine economy but the country's sparsely populated rural areas carry little political clout compared with the vote-heavy suburbs of the capital. These industrial areas are the bastion of President Cristina Fernandez, who says her interventionist policies help the poor.