Corn market looking for bull scenario
U.S. farmers looking for a fundamental factor to turn the corn market around may find one in South America.
On Monday, the corn market hit a three-year low. With the U.S. harvest ramping up, the corn market remains under heavy price pressure.
Though it may be a longer term price supporter, Argentina's corn output is expected to drop in 2013-14.
A recent projection by Agritrend, a consultancy from Buenos Aires, estimates Argentina's corn area at 7% smaller in the 2013-2014 season. The total area for the cereal would fall in that country to 10.1 million acres.
This year, Argentina produced 32 million tons; 18 million tons of those were already sold to exporters and 15.6 million tons shipped. The result of this will not be significant to international corn prices - at least in the short-term, says William Tierney, chief economist at the AgResource Company.
"Brazil has big stocks of corn, the U.S. harvest is coming, and there is also the Ukrainian production contributing to the world supply," explains Tierney to Agriculture.com.
Meanwhile, Pablo Fraga, a market analyst at BLD, a consultancy from Argentina, reveals that exporting is not a very good business to Argentinean farmers, who are looking more to soybeans as a profitable crop. "Brazil is a lot more competitive (to grow corn), and the American corn (harvest) is coming," adds Fraga.
The current price of corn in the Rosario port, in the Northeast of Argentina, is US $150/ton. By comparison, last year the price paid was US$ 200/ton as well as in the 2013 harvest. "The cost to grow corn is double that of soybeans in Argentina. The risks are higher and the weather is not helping. There is no way that Argentina can put 26 million tons of corn in the marketplace," Fraga says.
In Argentina, corn gets taxed at a 20% level on exports. As the agricultural sector is the most important industry of the country, the government tries to pay its debt and to curb inflation with those taxes, making the outside market less attractive to farmers.
For Juan Pablo Cañon, an independent Argentine market analyst, the price of corn cannot go any lower than the current value. "There is sort of a shortage of the grain for domestic consumption. That can bring the prices up again," says Cañon. Domestic corn consumption in Argentina is 8 million tons a year. This would put the country just with 10 million tons in stock.
Tierney concludes that the downside for corn will remain for the next two months. "If the U.S. harvest is much worse than expected, if Brazil sells more corn and does not get a good new crop, then things can change (for the corn value)," he says.
Luis Vieira is a freelance writer from Rio Grande do Sul, Brazil