September 2, 2016
Argentine Crop Acreage Forecast for 2016/17 Growing Season
As the U.S. growing season winds down, the focus of the market will shift to South America and the potential for their 2016/17 crop production. With that in mind, below is my forecast for the corn and soybean acreage in Argentina. Corn planting in Argentina may start by the end of September and soybean planting usually starts in October.
Argentine Corn Acreage to Increase 25% - When President Macri was sworn in as the President of Argentina last December, he embarked on a series of policy changes that greatly impacted agriculture. The first big impact was the elimination of the export taxes on corn and wheat and a 5% reduction of the soybean export tax from 35% to 30%. Another big impact was the approximate 40% devaluation of the Argentine peso. And lastly, his pledge that the government would no longer interfere in the export market was just about everything Argentine farmers could have hoped for from the new president.
The impact on corn market was a nearly doubling of the domestic corn price and a renewed confidence that corn production would once again be a viable option for Argentine farmers. Some problems though have also come along with the changes. Inflation is roaring along in Argentina at probably more than 40% and the weaker currency is making any imported items such as chemicals or fertilizers more expensive. So there have been pluses and minuses.
In general though, Argentine farmers have been encouraged by the changes and as a result, the 2016/17 Argentine corn acreage is expected to increase 25% from 3.50 million hectares of commercial corn production in 2015/16 to 4.30 million hectares in 2016/17 (+800,000 hectares). Most of that increase will occur in the core production regions of the country where the yield potential is the highest and the transportation costs are the lowest.
With an increase in corn acreage, the 2016/17 corn production in Argentina is estimated at 35 million tons compared to the 27 million tons produced in 2015/16 (my estimate).
Argentine farmers have not had a suitable crop rotation for a number of years because the government policies forced them to grow mostly soybeans. During the 2015/16 growing season, there were approximately 5.7 times more hectares of soybeans than corn in Argentina. Therefore, farmers want to take this opportunity to try to get a little better balance in their crop rotations.
To show you how out of balance the crop rotations are in Argentina, if farmers increased their corn acreage 25% per year for the next four years and the soybean acreage stayed unchanged during that period, at the end of four years, the soybean acreage would still be about 2.3 times larger than the corn acreage. So, farmers in Argentina have a long way to go to balance their rotations.
Argentine Soybean Acreage to Decline 3% - Argentine farmers were very pleased when President Macri lowered the soybean export tax from 35% to 30% and pledged to continue lowering it 5% per year until it is eliminated. While he carried through on his pledge to eliminate the first 5% of the soybean export tax, it is unclear if he will follow through on eliminating the second 5% to bring the tax down to 25%. The administration is hedging on that commitment and it is unclear at this writing if there will be an additional 5% reduction of the soybean export tax or not.
Corn and soybeans compete for the same acres in Argentina and Argentine farmers are poised to plant more corn. Therefore, if the corn acreage increases by 25% (+800,000 hectares), then the soybean acreage will decline, but probably by a lessor amount. I anticipate that the soybean acreage in Argentina will decline by 3% from 20.00 million hectares in 2015/16 to 19.4 million hectares in 2016/17 (-600,000 hectares). As with the corn, I think most of the reduction will occur in the core production areas where the soybean yields are the highest.
With a 3% reduction in soybean acreage, the 2016/17 Argentine soybean crop is estimated at 58 million tons compared to the 56 million tons estimated for 2015/16. The 2015/16 soybean crop was reduced by approximately 4 million tons due to severe flooding last April.
The 2016/17 soybean acreage in Argentina could still be influenced by the government's decision concerning a further reduction in the soybean export tax. If the government does not reduce the tax, then farmers in far northern Argentina may not plant as many soybeans as anticipated. Farmers in northern Argentina generally have lower soybean yields and higher transportation costs, so a further reduction in the soybean export tax is very important for them.
Acreage of all Crops in Argentina could Increase in Years Ahead - For this upcoming growing season, Argentine farmers are expected to increase their corn acreage at the expense of soybean acreage, but that may not be the case in years ahead. Given the right price and policy incentives, in the years ahead, farmers in Argentina could increase the acreage of all the major crops by converting pasture and hay to row crop production and clearing of new land for agricultural production.
Most of the increased crop acreage will be in northern Argentina where yields are generally lower and costs are higher, especially transportation costs to get products to port facilities. Therefore, either improved commodity prices or reduced export taxes on soybeans will probably be needed before a robust expansion in crop production is seen in northern Argentina.