August 29, 2012


Argentina to produce near-record soy crop by next season


In order to help fill supply gaps left by a US drought that has sparked fear of world food crisis by pushing prices to new highs, Argentina will produce a near-record soy crop in the coming season.


The worst dry spell to hit the US Midwest in decades and poor crops from the Black Sea bread basket have lifted grain futures, saddling Southern Hemisphere producers Argentina, Brazil and Australia with the task of replenishing stocks before food is priced out of reach for poorer consumers.


Argentina appears ready to step in, according to growers. At the end of its rainiest August on record, the Pampas is basking in ample ground moisture as farmers get ready for October soy planting.


This along with zooming global demand and profit-sapping export curbs that the government puts on corn and wheat is encouraging Argentina to plant more soy this season, said Ernesto Ambrosetti, chief economist for the Argentine Rural Society, which represents some of the country's biggest growers.


"The global panorama is very promising for the entire Southern Hemisphere," Ambrosetti told Reuters.


"Argentina, for various reasons, not just high prices but the government's intervention in the wheat and corn markets, will result in more soy planting this season," he said.


He forecast Argentina's 2012-13 soy output of at least 53 million tonnes. That would be up from 40.5 million tonnes in the previous season, which was weakened by a December-January drought that parched soy and corn plants just as they entered their delicate flowering stages.


Argentina's soy production record, according to the Rural Society, was 54.2 million tonnes reached in the 2009-10 season. Soy area should be 20 million hectares versus 18.7 million in the 2011-12 crop year, Ambrosetti said, citing Rural Society preliminary estimates. The expansion in soy area will take place in Northern provinces such as Chaco, Salta and Jujuy, using genetically modified seeds, he added.


"From mid-Santa Fe province northward, we should see an increase in soy planting," he said.


Argentina is also the world's top exporter of soyoil, used in the booming biofuels sector, and of soymeal, used as cattle feed in Europe as well in China, where the expanding middle class is fast acquiring a taste for beefsteak.


US soy futures were little changed on Tuesday (Aug 28). The market was taking a breather following a sell off on Monday, when investors took profits after a drought-driven rally lifted prices to contract highs.


Global financial lenders are advising countries to prepare for the possibility of higher food bills in the months ahead. Brazil grain industry group Abiove, meanwhile, expects the world's No. two soy producer to turn out a record new crop of 81.3 million tonnes, possibly surpassing output from the US for the first time.


Argentina's farm sector has feuded for years with President Cristina Fernandez, who has deepened the government's role in the economy. Her wheat and corn export curbs are aimed at ensuring affordable domestic food prices, but growers complain that they trample profits by reducing competition among buyers.


Farmers are encouraged to cultivate soy, which is subject to a 35% export tax but not included in the dreaded export controls that are slapped on wheat and corn. Argentine grain supply flow is of interest to major global exporters such as Cargill Inc., Bunge Ltd and Noble Group Ltd.


The Rural Society expects both corn and wheat area to shrink in the 2012-13 season, each to 3.6 million hectares from 4.6 million hectares in 2011-12. The group's forecasts show wheat output falling to 10.5 million tonnes in 2012-13 from 14.0 million in 2011-12, with corn rising to 22.0 million tonnes from 19.5 million.


"Soy is more drought-resistant, it has less vulnerability to the weather than corn has, it costs less to plant per hectare than corn, and the government does not intervene in the soy export market," Ambrosetti said.


"Where does that leave the average farmer, who wants to minimise risks after cash flow was hurt by last season's bad weather?" he said.

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