Crop production competition
Crop woes in the U.S. and the resulting tightness in commodity markets add up to opportunities for competing producers around the world. And though they don't make the headlines, countries from Argentina and Brazil to Russia and Ukraine are reacting in ways that will strengthen their competitive positions.
“The current higher prices [for corn and soybeans] are not transitory,” says Edward Allen, an agricultural economist with USDA's Economic Research Service. “With sustained high prices, we're now getting competitors responding.”
In South America, high prices are attractive for corn production, giving areas like southern Brazil an incentive to plant corn rather than soybeans, according to Allen. “But since central west Brazil is double-cropped, Brazil can produce more corn and more soybeans.”
Erin FitzPatrick, a grains and oilseeds analyst for Rabobank, sees a similar outlook. “We're definitely going to see both corn and soybean acres increase in Argentina and Brazil this year. We should see a larger share of Brazil's corn coming from its second-crop safrinha corn, and plantings are still expanding aggressively in northeastern Brazil.”
To protect soils and to reduce the spread of disease, Brazil's government sets a moratorium between the soybean harvest and planting the following corn crop. But officials have shortened that period to extend the growing season, FitzPatrick says.
Argentina represents more potential impact, FitzPatrick says. “Their corn yields are about double Brazil's yields, and their domestic consumption is less than 10 million metric tons, so any production above that is a big swing factor,” she says.
The biggest risk to Argentine production will be the possibility of a returning weaker La Niña after this year's strong La Niña, she says.
Increased plantings don't tell the full story, however. Brazil and Argentina are also investing in their agricultural sectors in ways that can make them more competitive.
Brazil builds roads
We've seen an increase in storage and transportation in both countries,” reports Allen. “Brazil is beginning to build roads to provide the access it needs to get from the major growing areas to the ports. Although with higher prices, the Brazilian government is stepping back from subsidizing internal transportation from Mato Grosso to the coast. So a producer in the interior doesn't get the same benefit as those closer to the markets.”
“In South America, the story for corn and soybeans is Brazil and Argentina,” agrees Mike Gumina, chairman of the American Seed Trade Association. “They are very active in adopting biotechnology as a tool to drive productivity. For Brazil, in particular, we see rapid adoption of biotechnology, especially insect resistance in a number of different modes.”
Competition is also growing on the opposite side of the world, where Russia and Ukraine have recovered from the devastating 2010 drought and have resumed exporting.