Drought decimates Argentine grain output

Argentina is one of the main food producers in the world due to its extensive agricultural land with usually excellent weather and physical conditions for grain growing. However, this country’s feed production is in danger to suffer serious cutbacks because harvests are beating records for the worst in decades.

Farmers are reducing planted areas due to the political and meteorological uncertainty in which the last harvests are being developed. And the local authorities have reduced the projections for these crops several times during 2009.

Production down

By the end of the 2008-09 marketing year, corn production in Argentina will reach only about 60% of the previous year. And acreage has decreased by 40%. This reduction of Argentine corn production is highly important for the feed industry, considering that “corn is the protagonist in local feedlots,” said Rodrigo Troncoso, general manager of the local the Feedlots Chamber. “Corn accounts for 70% of the feed consumed in Argentine feedlots, while the remaining 30% is divided between wheat and sunflower by products.”

According the U.S. Department of Agriculture, domestic use for Argentine corn will reach 6.7 million tons, with 4.8 million dedicated to the feed sector.

“Therefore, in theory, the Argentine grain production would be enough to cover the feed needed for the local animal farming”, said Juan Uccelli, president of the Argentine Association of Pigs Producers.

However, Uccelli said “the problem will be the remaining carryover for exports, since planted areas for corn are being reduced in favor of soybean plantings.”

Soya beans most important crop

This is one of the reasons why experts attribute this decrease of corn, wheat and sunflower crops. Soya beans are currently the most important crop in Argentina.

Due to the tough drought the country went through in the last Southern Hemisphere summer, soya bean harvest finished with 32 million metric tons for the 2008-09 marketing year, 14 metric tons less that in the previous harvest. The future looks promising for soya beans, however, with forecasts calling for a record 52 million metric ton harvest.

This rise would be produced by an increase in the planted hectares for this grain, at the expense of wheat crops, according to the Oil World forecasting service, although this is not the only motive for which other crops are being reduced.

The new political context has had an important consequence for the feed business (see WATTAgNet Exclusive). “Corn growers are speculating with the possibility of a reduction in export taxes. Therefore, they are stocking their production and not selling to feedlots,” said Uccelli.

He added that “although there is corn available in the country, we are experiencing some difficulties obtaining it, not because of the reduction in planted areas but because producers are speculating with the possibility of better commercial conditions.”

“The government factor” aside, the reduction of planted areas for wheat and corn crops, in favor of soya bean plantings in Argentina is concerning feed and livestock industries.

“If we continue with this trend and keep reducing planted areas, in 2010 there will be trouble with the feed supply, considering that feedlot production has been growing and it is expected to continue,” said Uccelli.  

Drought impact

Analysts called the last South Hemisphere summer one of the worst droughts in Argentine history.

“This can only be compared to the drought of 1952,” said Alberto Hack, agriculture specialist. All the main rural areas –Buenos Aires, Santa Fe, Córdoba and Entre Ríos--were affected by the drought, with serious losses of animals and crops.

The Argentinean Government responded to this adverse situation with a series of measures to assist affected producers.

In the 2007-08 marketing year, the wheat harvest was 16.3 million metric tons, according to the Argentinean Secretary of Agriculture, Livestock, Fishing and Food (SAGPyA). However, the United States Department of Agriculture lowered the estimates for the Argentine wheat 2008-09 harvest to 8.4 million metric tons; almost half of the previous year’s harvest (see Table 1).

According to the USDA, the average use of this Argentine grain for feed is of 0.8 million metric tons. And local demand of wheat is of about 5 million metric tons a year, which would leave a small exporting carryover, considering that in the 2007-08 this country’s wheat exports were 11.2 million metric tons.

In the case of Argentine corn, the 2007-08 crop year produced 22 million metric tons, of which 7 million were consumed domestically, with 5.1 million metric tons used by the feed industry, with exports exceeding 14.8 million metric tons.

For 2008-09, however, the USDA is predicting 13 million metric tons, 40% less than the previous harvest. Therefore, this organization is forecasting exports for Argentine corn will be 7 million metric tons, which less than half of what was exported in the previous marketing year.

Fewer planted hectares

Planted area reductions for some crops are becoming increasingly evident. The Argentine Cereal Exchange has reduced its planted area estimations for wheat, with projections calling for a 40% reduction compared to the 2008 harvest (see Table 2).

Sunflower estimates have also decreased since August of 2008, cut from 2.8 million hectares to just 2.03 million hectares. Finally, corn planted areas estimations have been lowered by the local Cereal Exchange from 2.85 million hectares at the beginning of the campaign to 2.4 million in late summer.

With these drastic reductions in wheat, sunflower and corn harvests grain processing facilities could experience raw material shortage, especially to comply with their commitments to external markets.

“Although the harvest has been reduced, the current grain production in Argentina is enough to cover internal demand. The consequences would show during the 2009-2010 period. For instance, wheat exports would be reduced by approximately 84% and corn exports would fall by 41%”, said Hack.

In regards of soya beans, “there’s no internal demand for this product in Argentina and this industry produces for export,” he says. It’s important to underline that Argentina is the third largest exporter for soya beans worldwide.