October 17, 2008

Argentina's grain farmers face soaring costs, low prices

The costs of growing grain in Argentina have shot up over the past year, squeezing farmers in the face of plunging grain values, according to the October agriculture report from the Buenos Aires Cereals Exchange.

The cost of the principal inputs necessary to grow wheat has risen 65.1 percent from a year ago, the report said. Sunflower seed costs are up 55.7 percent; corn costs are up 44.7 percent; and soy is now 46.1 percent more expensive to grow.

The spiralling costs are making farmers reluctant to expand area and increase investment.

On Wednesday, the Agriculture Secretariat estimated that soy area this season will climb 7 percent to 10 percent from last year to a record 17.8 million to 18.2 million hectares.

The relation between cultivation costs and prices will favour the beans, and soy is expected to take up a significant amount of area which had been planned for wheat, the Secretariat said.

However, the Secretariat's report contradicts recent comments from sector players, who see the area flat or even lower due to the recent declines in grain prices.

Wheat planting is done and area fell sharply due to drought and the rising costs. Sunflower seed area is expected to fall short of initial expectations due to the early drought and lower prices. The drought also delayed corn planting, and soaring input costs are expected to lead a major shift away from the crop.

Wheat output is estimated at 9.5 million to 11 million tonnes by the Secretariat, down sharply from the 16 million tonnes grown last year.

Corn area is pegged at 3.4 million hectares, down from 4 million hectares last season, while sunflower area is forecast at 2.38 million hectares, down from 2.62 million hectares.