PRODUCTION

Post projects corn production for crop season 2015/16 at 20.0 million tons, lower than the previous season as a result of a lower planted area and normal yields (productivity in 2014/15 is expected to be a record high). Planted area is forecast at 2.75 million hectares, 200,000 hectares lower than USDA´s current 2014/15 harvested area. Based on current market and policy conditions, most farmers are quite discouraged with corn production as it is the crop which demands the highest investment (current direct costs are US$600 per hectare) and has a significantly lower projected returns than soybeans. Corn will still be produced by farmers owning the land (roughly 70 percent of the total area is leased land), have operations close to ports (no more than 200-300 kilometers) since high freight costs have a severe negative impact on returns, by producers which are contractually obliged to plant corn, and in the northern part of the country which due to environmental and productive issues need to rotate almost every year corn with soybeans. In Argentina, the current ratio of planted area between soybeans and corn is roughly 6 to 1. Farmers know that this is damaging soil quality, but continue planting soy given the favorable returns compared to corn. Moreover, Argentina is currently having a significant and growing problem with weeds resistant to glyphosate, forcing them to spend between US$60-100 dollars per hectare more than two or three crop seasons ago in different cocktails of herbicides. Much of this situation is attributed to the low level of crop rotation (winter crops are also at a minimum). Argentina is quite ahead in the adoption of GMO seed technology, especially in soybeans and corn hybrids. However, in the past couple of seasons the resistance of corn to armyworms has not been as effective as expected, affecting yields and increasing farmers´ costs due to spraying needs.

If a new government, which takes office in December, quickly moves to eliminate export quotas (ROE) and reduce or completely eliminate export taxes on corn, producers have indicated that they could shift from planting soybeans to increasing late corn acreage for the 2015/16 season. This last minute shift could be relatively big as returns for corn would improve significantly. However, most farmers nowadays prefer not to speculate with such possibility as they mention that there is still a high degree of uncertainty of who could become elected and what and when could they apply any policy changes for the agricultural sector.

Roughly ten percent of the 2014/15 corn crop is already harvested, with an expected average record yield. Early planted corn yields are so far averaging 10.5-11.0 tons per hectare in the Argentine Corn Belt (practically all corn in the country is produced without irrigation). Weather has been extremely beneficial with good rains in almost the whole growing stage. Therefore, Post now estimates Argentine crop production for 2014/15 at 24 million tons.

CONSUMPTION

Consumption for 2015/16 is forecast at 10 million tons, the highest ever as production in the domestic livestock sector is expected to increase. The ethanol industry mostly uses corn and it is expected to operate at high capacity as the official mandate of ethanol in gasoline increased to ten percent in December 2014. Furthermore, all the recent investments would be fully operational during the whole crop year. In late 2014, the Argentine government presented a preliminary study indicating that the local consumption of corn in Argentina in 2013 was roughly 13 million tons. This volume is far larger than what Post is estimating at 8.8 million tons. The high consumption correlates with the government's high production estimate for 2013 of 32 million tons. Neither Post nor most in the private sector agree with these high numbers. In the report, the government estimated that the poultry sector consumed 3.3 million tons of corn, the beef sector 3.0 million tons, the dairy sector 2.5 million tons, pork 0.9 million tons, eggs 0.8 million tons, wet milling 1.3 million tons and the grain ethanol industry 0.4 million tons. The largest growth in demand over recent years has been in the new grain ethanol industry, which is forecast to consume approximately 1 million tons of corn in 2015/16. By then, probably the six large plants will have the capacity to dry the distilled grains.

TRADE

Corn exports for 2015/16 are projected at 10.0 million tons, a significant drop from the previous year and the lowest since 2005/06. This is a result of a projected significant drop in production. North Africa, South East Asia and the Middle East are the main destinations expected for Argentine corn. Some regional shipments to Chile, Peru and Venezuela are also expected. Although Argentina is eligible to export corn to China, traders are somewhat skeptical of doing business, but do not discard that a few vessels could be shipped.

Exports in crop season 2014/15 are increased to 15.0 million tons, reflecting an increase in production. Argentina is expected to export roughly 1.8-2.4 million tons per month from April through August. After that, monthly shipments will diminish significantly. The government has already provided ROE (export permits) for 8.0 million tons. Most traders believe that the ROE system will end in December 2015 with the change of the government and that this will make the market more dynamic.

With the new grain ethanol plants Argentina has begun to export dry distiller's grains to Chile and Uruguay. Exports are averaging 10-15,000 tons per month. These products pay a five percent export tax while corn exports are taxed 20 percent. In general the 5-6 plants which produce ethanol from grains prefer to sell wet distiller's grains to nearby customers, but drying the distiller's grains gives them more flexibility to market their entire volume.

STOCKS

Ending stocks for crop 2015/16 are projected to remain unchanged at 1.1 million tons, mostly in hands of the different users.

POLICY

The current policies that mostly affect grain production and trade are export tariffs and export quotas for wheat and corn. The export quota system known as the Registry of Export Operation, or ROE, was created in 2007 with the original objective of delinking high international prices from local food prices. The ROE system is currently applied primarily on wheat, corn and beef exports. By limiting exports and announcing export quotas without a given pattern, buyers for the domestic market and exporters do not compete for the product, making farmer prices artificially low. Export taxes provide price advantages for local processing industries and animal feed sector. Current export taxes are 23 percent for wheat, 20 percent for corn, 20 percent for barley and 5-10 percent for rice. These policies have reduced both corn and wheat production over the years in favor of soybean production, which is not affected by export quotas. The leading presidential candidates have all indicated that the agricultural sector needs to be reformed and have stated that they would eliminate the ROE and reduce or eliminate export taxes on grains, save for soybeans, upon taking office on December 2015. If such a reform would occur, one would expect an increase in corn planted area and in wheat exports for the coming marketing year. As of now, Post estimates are based on the policies currently in place.

Corn

2013/2014

2014/2015

2015/2016

Market Begin Year

Mar 2013

Mar 2014

Mar 2015

Argentina

USDA Official

New post

USDA Official

New post

USDA Official

New post

Area Harvested

3,400

3,400

2,950

2,950

0

2,750

Beginning Stocks

1,315

1,315

1,520

1,520

0

1,130

Production

26,000

26,000

23,500

24,000

0

20,000

MY Imports

5

5

10

10

0

0

TY Imports

1

1

10

10

0

10

TY Imp. from U.S.

1

1

0

0

0

0

Total Supply

27,320

27,320

25,030

25,530

0

21,130

MY Exports

17,000

17,000

14,500

15,000

0

10,000

TY Exports

12,846

12,846

14,500

15,000

0

10,000

Feed and Residual

5,800

5,800

6,100

6,100

0

6,500

FSI Consumption

3,000

3,000

3,300

3,300

0

3,500

Total Consumption

8,800

8,800

9,400

9,400

0

10,000

Ending Stocks

1,520

1,520

1,130

1,130

0

1,130

Total Distribution

27,320

27,320

25,030

25,530

0

21,130

1000 HA, 1000 MT, MT/HA