August 1, 2012

 

 

Buoyed by a new export policy aimed at ensuring farmers can sell their whole harvests, Argentina will produce more corn and wheat for the increasingly hungry world grains market.

 

The South American agricultural powerhouse is already the world's No. six wheat exporter and No. two corn supplier after the US, where the worst drought in decades has caused global prices to soar on fears of poor harvests.

 

Argentine farm investment has suffered as the sector feuds with President Cristina Fernandez, who won re-election last year on promises of increasing the state's role in the economy. But Agriculture Undersecretary Oscar Solis said the new system of approving corn and wheat exports in single yearly quotas, replacing a piecemeal scheme dreaded by growers, would spur production once farmers see allocations are big enough to ensure they find a market for their entire harvests.

 

Facing growers who say they will not increase corn or wheat plantings until both are free of export curbs -- as is the case with Argentine soy -- Solis said the new system comes as close as they're going to get to a free market.

 

"This measure goes in the direction that farmers have asked us to go in. It might not be everything that they want, but the direction is good, so they should take advantage by planting more corn and wheat," Solis said in an interview.

 

"For the rest of this government's term (ending in December 2015) we will free, once a year, all corn and wheat available for export," he added. "We are not going to backtrack toward the previous policy of many quotas being announced throughout the year, which was unpredictable for farmers."

 

The government uses corn and wheat export curbs to ensure affordable domestic supplies of food. The new policy took effect in mid-July when the government said a whopping 15 million tonnes of 2012-13 corn could be exported.

 

"We hope this is a step toward a free and open export market," said Martin Fraguio, head of corn chamber Maizar.

 

Crop estimates are not yet available for 2012-13 corn. Output in the 2011-12 season will be 21 million tonnes, according to the Agriculture Ministry, well short of the 23 million tonnes of Argentine corn collected in 2010-11. Plantings for the upcoming season are expected to be around the same as the five million hectares (12.4 million acres) sowed with corn in 2011-12. The government expects farmers to seed 3.8 million hectares with wheat in the 2012-13 season, down sharply from 4.6 million hectares in the previous crop year. More corn and wheat is needed to replenish soils stressed by an explosion in soy cultivation over the last 15 years.

 

"The ratio of soy to corn is six to one in Argentina today," Solis said. "By 2020, we want a ratio of four to one."

 

Argentina is the world's No. three soy exporter. It ranks as the top supplier of derivatives including soyoil, used in the booming biofuels sector, and meal, employed as cattle feed in places such as China, where an emerging middle class is clamouring for steak. Prices across the grains sector are providing plenty of incentive to increase output. A USDA report late on Monday (July 30) said corn and soy crop conditions in the US Midwest deteriorated further last week in the worst drought in the US Midwest since 1956. Chicago corn futures touched new highs on Tuesday (July 31), heading for their biggest monthly gain in more than five years.

 

Under Argentina's new scheme, a single wheat export permit will be granted in March while corn is announced in July, before respective planting starts. The policy is of interest to trading companies such as Bunge Ltd, Molinos Rio de la Plata and Noble Group Ltd, which have major operations in Argentina. Argentina's economy has boomed over most of the last decade and Fernandez is keen to keep the farm sector humming as double-digit inflation takes a toll on investment, while fallout from Europe's debt crisis hits state finances.

 

The United Nations expects demand for food to double by 2050 as the world population reaches nine billion. Argentina, with its ample water supplies and vast Pampas farm belt, will be a key supplier over the decades ahead. Argentine growers say investors are scared off by state-centric policies such as a 35% tax on soy exports and the ceiling on wheat and corn shipments. But agricultural areas contain relatively few votes compared with Fernandez's bastions of support in the heavily populated suburbs of Buenos Aires. The farm lobby failed to muster a serious challenge to Fernandez in October's election. So growers, at least for now, have to adapt to her policies.

 

"We are sending a signal to farmers that they should sow more corn and wheat, in line with our own strategy of supporting those crops," Solis said.