A growing force in corn

by Cristina Krol
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Already the second-ranked corn (maize) exporter in the world behind the U.S, Argentina is about to become an even stronger presence in the global market. Yields are increasing, more land is being dedicated to corn production, and the country is on the verge of entering the Chinese market.

“Argentina could grow a sea of corn,” said Santiago del Solar, president of Maizar, the corn and sorghum growers association, at the inauguration of the Maizar Congress 2011 last May in Buenos Aires.

He also noted that corn could be more profitable than soybeans in most of Argentina’s cultivated areas and that the corn sector is expected to produce record results in the 2011-12 campaign. The latest projections estimate total production of 28 million tonnes, which would be the largest Argentine corn harvest in 40 years, with a cultivated area of over 4.5 million hectares.

In addition, the 2010-11 period will leave a carryover of about 4 million tonnes. Therefore, Argentina will likely have approximately 32 million tonnes of corn at its disposal by the end of the next harvest. Furthermore, the Buenos Aires Cereal Exchange indicates that, due to the excellent yields, some of the grain planted with eyes on the feed market might be destined for industrial uses.

This combination of good yields and new production regions should generate a large exportable surplus for 2011-12 campaign. However, exports are strongly restricted by the local government. For the 2010-11 campaign, the authorities only authorized corn exports of 12 million tonnes.

Argentina’s main competitor in this global market is the U.S., the principal corn exporter in the world. According to a report from the U.S. Department of Agriculture (USDA), the U.S. controls over 49% of the global market, while Argentina holds 18.4% of the market share.

However, the weather in the U.S. “continues to be the focus of attention, which could cause its yields to be smaller than expected in a context with tight surplus,” said sources from the Regional Consortiums for Agricultural Experimentation (CREA). This would create a favorable situation for Argentine exporters.

According to the consultant firm, Agritrend, Argentina’s stock-to-use ratio is currently 13.2%, while the U.S. ratio is 6.4%, leaving the South American country a large surplus for export.

The difference between stock and demand could become even larger since Argentina is planning to increase its planted area. Maizar experts are promoting the incorporation of new areas in the province of Salta and the Patagonia region, which are not traditionally suitable areas for this crop, using technology and innovation. This would certainly change the map of Argentina’s corn sector, given that the best producing areas are located in the center of the country. According to the Secretary of Agriculture, Cattle and Fishing (SAGPyA), the province of Buenos Aires accounts for 33.2% of the country’s production. Cordoba province is next at 32.1%, followed by Santa Fe (15.1%), Entre Ríos (7.1%), La Pampa (3.3%) and Chaco (2.2%). The remaining provinces only account for 7% of production.

New Destinations

North Africa, South Asia and Latin America are the biggest markets for Argentine corn, accounting for 80% of the country’s corn exports. However, Argentine corn producers now have their sights set on the growing Chinese market. China, the world’s second largest corn producer, was self-sufficient until recently. Beginning in 2009-10, China began importing corn from the U.S. to supply its growing meat, poultry and dairy industries.

New opportunities have started to emerge since Julián Domínguez, Argentina’s Minister of Agriculture, Cattle and Fishing, met in Beijing with Nie Zhenbang, head of China’s Central Grain Administration, who is said to favor the entrance of Argentine corn into the Chinese market. Currently, Argentine and Chinese authorities are working on a phytosanitary protocol to regulate this trade, which is set to begin in 2012.

Reaching an agreement for corn exports to China is likely, since both countries have already signed agreements for other food products such as soybeans, citrus, and meat.

“Argentina’s relationship with China doesn’t have limits, since they are our strategic partners,” said Domínguez at the Promotion of Business and Investments seminar, organized by the Argentine Chancellery in China. Over 300 Chinese executives from different industries attended the meeting.

“Because it has 1.3 billion inhabitants, including 10 million that are migrating every year from the country to the cities, China is setting a change of habits and new requirements in the global food demand,” he said.

“On the other hand, Argentina’s available natural resources and the know-how of its producers will position the country as one of the most dynamic partners with regards to the food market.”

However, government regulations for corn exports as well as the high export taxes are having a negative impact on corn seeding estimations. Solar said that “due to the interventions of the cereal market, the increase in Argentina’s cultivated area for corn crops is not growing to the extent of international prices. If there is some growth in cultivated areas, it feels a little small.”

“If corn exports from Argentina were unrestricted, the profit margins of corn could overcome soybean margins, in some cases by over 100% in provinces from the Central, North West, East and the Chaco regions of Argentina, which are also the ones that need crop rotation,” said Solar. “As a result, about a million hectares could be incorporated for the next corn campaign (2011-12),” Bio-energy: focus on the future

The large demand for biofuels in the domestic market and the incentives granted by the local government to add value to rural commodities are creating a good opportunity for corn producers in the ethanol field. Argentina is one of the leading biofuels producers in the world. However, since most of its production is soy oil-based biodiesel, the country cannot comply with the 5% mix of ethanol set for the local market.

Most of Argentine ethanol comes from the sugarcane industry. Nevertheless, experts from Maizar point out that one-third of the annual corn crop in the U.S. is destined for ethanol production, while the corn ethanol industry in Argentina is in the beginning stages. Therefore, producers are very enthusiastic about the opportunities this market could generate in the future.

Several new ethanol projects are proof of this new scenario for Argentine corn. The first corn-based ethanol company authorized to sell its production in the domestic market was BIO4. This firm, along with the alcohol distillery Porta Hermanos, is developing a corn-based ethanol facility near Rio Cuarto, in the province of Cordoba. The project has already been assigned a 50,000-cubic-meter-a-year quota to commercialize its production in the domestic market in 2012.

The grain exporting consortium Asociación de Cooperativas Argentinas (ACA), is also currently building a corn-based ethanol manufacturing plant with nameplate capacity for 125,000 cubic meters a year in Villa Maria, Cordoba. The investment for this project will be $80 million, and it is estimated the plant would begin production during the first months of 2013.

The Argentine government already assigned an ethanol quota for that amount for ACA to sell in the domestic market in 2013. This decision was in response to the Argentine government’s strategy to increase ethanol production. Moreover, four corn producers from the province of Salta have associated to invest $40 million in a new corn-based ethanol plant. It would process about 40% of the province’s annual production, 250,000 tonnes a year. “This would amount to 80,000 cubic meters a year,” said Eduardo Freytes, spokesperson from Indagro, the new company formed by Anta del Dorado, Las Lajitas, Combustibles del Norte and Omar Monaldi.