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September 7, 2011

Argentine Corn Acreage up 20%, 26-27 mt Potential Production

Strong corn prices and tight world supplies are encouraging Argentine farmers to plant more corn in 2011/12. Some early corn planting is under way in parts of Argentina and the main planting will occur over the next 45 days. In the heart of the Corn Belt in Argentina, the ideal time to plant corn is from September 15 to October 15. Even though the main corn area of Argentina just experienced a frost a week ago, farmers who have a lot of corn to plant have already started to plant their 21011/12 corn crop. There is adequate soil moisture to start planting corn in Santa Fe province, but in other provinces such as Cordoba the soils are very dry and farmers will wait for additional rainfall before they start planting.

It is currently estimated that the 2011/12 corn acreage in Argentina will be up 20% to 3.8 million hectares (this acreage is for grain production only). If achieved, this would represent an increase of 600,000 hectares compared to the last growing season. The total 2011/12 corn production for Argentina is estimated in the range of 26 to 27 million tons. Corn yields in Argentina are expected to be better than in 2010/11, but not as good as the record yields obtained in 2009/10. The main reason for being cautious concerning Argentine corn yields is the forecast for a return of La Nina conditions over the next few months.

It's easy to see why farmers are so eager to plant corn in Argentina. The calculation that has been widely discussed in farmer meetings over the wintertime is the comparison between producing 10,000 kg/ha of corn and 6,000 kg/ha of soybeans. In order to make the same margins from 10,000 kg/ha of corn production (154 bu/ac), a farmer would have to achieve a soybean yield of 6,000 kg/ha or 87 bu/ac. It is much easier to achieve a 154 bu/ac corn yield in Argentina than it is to achieve an 87 bu/ac soybean yield. Therefore, even though corn production is more capital intensive, farmers in Argentina are opting for more corn due to the profit potential.

The corn has not yet been planted of course and adverse weather could still disrupt their planting intentions in Argentina. The biggest weather concern is the possible reemergence of La Nina and its potential for dryer than normal weather at least during the early part of the growing season. If the springtime weather ends up being dryer than normal, the farmers in Argentina will extend their planting window for corn because the potential return on investment is just too good to pass up. We saw the same thing here in the U.S. this past spring when strong corn prices encouraged farmers to plant their corn even though the official planting window had closed.

The economic forecast for corn farmers in Argentina isn't entirely rosy because they still have to confront a federal government that feels farmers make too much money and that they need to share their "windfall profits" with the rest of the country (much more on this in a following article). The government continues to limit corn exports which are depressing domestic corn prices by an estimated 10%. Combining that with the 30% export taxes levied on corn, farmers in Argentina are receiving approximately 40% less for their corn compared to U.S. farmers.

Even with high export taxes, farmers in Argentina can still make money growing corn due to their low cost of production. The cost of producing 155 bushel corn in northern Buenos Aires province is estimated at approximately US$ 2.30 per bushel. Most of the corn in Argentina is produced very close to the ports so transportation costs are very low compared to the United States and especially Brazil.