Argentina Crop Outlook - 2
Dryness Worries for Corn, But Forecast Calls for Rain Boost
PERGAMINO, Argentina (DTN) -- Driving around Michael Dover's 5,000-acre farm in Pergamino, northern Buenos Aires, the early corn looks pretty healthy.
But wait until you get into a field, and you'll start to see the problems, according to Dover.
When one gets in among the corn plants, it is obvious what he is talking about with poor tasseling and grain-filling problems reasonably prevalent.
The culprit: a dry spell that has hit a triangle in northern Buenos Aires, southern Santa Fe and Entre Rios, which has the highest-yielding corn fields in South America.
The six-week dry stretch has analysts at the Rosario Cereal Exchange predicting that yield potential for early corn in northeast Buenos Aires province is down to 80 bushels per acre, only half the level typically seen in the region.
That's the bad news.
The good news is that rain appears to be returning to the region with rainfall of between 1 and 3 inches on Sunday and further heavy showers forecast for this week. If El Nino does re-establish itself and above-average rains return in February, there will be ample opportunity for crops in this region to recover.
"It is too early to say there are major losses. We are entering the key month now. February will determine the size of the crop," said Patricio Lagger, grain market analyst at the BLD brokerage in Rosario.
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It's also important to remember this is just one region, and that other regions of the country look good. Buenos Aires Cereals Exchange reports crops in Cordoba and many parts of the Buenos Aires region with good soil moisture reserves are reaching tasseling and grain-filling in healthy shape. Even later corn has the opportunity to recover with the return of the rains that are forecast for February.
The state of the crop aside, the outlook for Argentine corn is infinitely better than when farmers started planting back in October.
Then, low international prices, surging costs due to inflation, an artificially strong peso and tariffs and quotas on corn exports were weighing massively on margins.
As a result, only those truly committed to rotation or those in prime corn areas were going to plant.
"Among members of CREA (a group of large grain farmers), area was due to drop 60%," Dover said.
In November, the Buenos Aires Cereals Exchange pegged planted area at 6.7 million acres, the lowest level in the last six years.
But things turned around dramatically in late November/early December when farm-friendly Mauricio Macri surged in the presidential election race and promised to cut corn quotas and tariffs and devalue the peso.
He won, and honored his promises. In response, farmers planted up to 1 million extra acres of late-season corn, prompting the Buenos Aires exchange to increase its acreage estimate to 7.7 million acres.
"The outlook for corn changed from terrible to good. We've come out of the stone age," said Martin Fraguio, executive director at the Argentine Corn and Sorghum Association (MAIZAR).
As a result, Argentina is expected to produce a commercial crop of around 20 million metric tons. That's still down a quarter from last year but better than expected.
The price for corn in Rosario has jumped from 1,200 pesos per ton ($2.15 per bushel) in October to 2,200 pesos per ton ($3.94 per bushel) in February, which along with the lifting of export restrictions, has led to substantial sales in recent weeks. Demand appears to be solid with forward sales of the crop moving forward a month before harvesting begins.
Optimism is high about the prospects for production next year, which will allow Argentina to establish itself on the export market.
Initial expectations are that area could rise by 2 million acres or more. And with better fertilizing and spraying, there is a great chance of beating record commercial output of 27 mmt recorded in 2012-13.
Of course, the outlook will only remain positive if Argentina can maintain its economic stability, which most significantly means bringing inflation under control. Costs of transport rose 60% last year; fertilizer and chemical costs also rose sharply in pesos. Unless that pressure eases, newly healthy margins can quickly wane.
Alastair Stewart can be reached at alastair.stewart@dtn.com
Follow him on Twitter @astewartbrazil
(AG/CZ)
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