Argentina Corn: On Course for Another Solid Crop — DTN
The weather at Federico Barzi’s farm at the center of Argentina’s grain belt might have looked gloomy recently, but his corn looks good, especially the second crop planted from December.
“The first-crop corn didn’t like the dry weather we had, but the second crop is excellent,” said Barzi from his 2,000-acre farm in Nueve de Julio, northern Buenos Aires province.
It’s a story repeated by farmers across the key corn states of Buenos Aires, Santa Fe and Cordoba after hot, dry weather scorched crops in December and early January.
As a result, Argentina looks on course to produce another solid corn crop. Output will total 24 million metric tons in 2013-14, according to the Buenos Aires Cereals Exchange and 23.9 mmt, according to Rosario Cereals Exchange. That’s down from around 28 mmt last year, principally due to lower planted area.
The crop could have been a disaster were it not for the increasingly popular strategy of planting corn late in November, December or January. This corn is known as the second crop, although only part is planted after a winter crop.
Late planting started about a decade ago as a defensive strategy to restrict the damage caused by the regular dry spells that hit Argentina’s grain belt in December and January. In doing this, farmers accept lower yield potential in return for a more consistent crop. Around 60% of the crop was planted late this season.
“The strategy really appears to have paid off again,” said Estaban Copati, chief analyst at the Buenos Aires Cereals Exchange.
DAMP SLOWS THE HARVEST
Rain slowed the corn harvest in April, while many farmers have left the corn to harvest soybeans during the last few weeks.
As a result, the harvest was 12 percentage points behind last year at 28% complete as of last Thursday, according to the Buenos Aires exchange.
With approximately 2.3 million acres harvested, average yields are around 117 bushels per acre, reported the exchange.
Normally, later-harvested corn brings down average yields, but after benefiting from ample rains in January and February, the effect will not be as pronounced this year.
According to Copati, significant parts of Cordoba, Buenos Aires and La Pampa provinces are set to produce record yields of 127 to 143 bpa.
With later-crop prospects so good, analysts and industry leaders think that the exchanges may be underestimating the crop, which could be between 25 mmt and 28 mmt.
“The exchanges are always very conservative. I wouldn’t be surprised to see an upward revision going forward,” said Pablo Adreani, grain analyst at the Agripac consultancy in Buenos Aires.
It is very difficult to measure crop size in Argentina. In a land where government data can’t be trusted, there is little incentive for farmers to be transparent.
It’s much better for farmers to underestimate the crop, avoiding the attention of the government, which is desperate for farmers to sell for export to raise dollars. Doing this opens the possibility of selling corn on the black market, thus avoiding the government quotas and the 20% export tax.
PRICES STILL QUITE GOOD
While Argentina’s economic outlook remains extremely complicated, the prospects for farm corn prices are not too bad.
A devaluation of the peso against the dollar in January gave prices a boost, while costs were quoted at the old exchange rate.
Meanwhile, the government is offering an ample export quota of 15 mmt for 2014-15, which will be augmented by export licenses for 1.5 mmt left over from the year before.
However, the inflationary, unstable environment means farmers will likely seek to sell as little corn as possible until later in the season, holding the dollar-denominated grain as a hedge against the chaos.
“Corn is like hard currency, not something you want to sell unless you can help it, in a place like Argentina,” said Martin Fraguio, executive director of the Argentine Corn and Sorghum Association (Maizar).
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The bulls were again winners in an exciting week for longs and producers. In last week’s report, I said the markets bias would be near unchanged to a bit lower.