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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.
“We're forecasting a significant rebound in exports from the former Soviet Union,” reports Allen. “Some of these countries held stocks until the ports reopened and are now shipping supplies. They've also had a very strong increase in production and have started to export quite aggressively. We expect that to continue.”
Rabobank's FitzPatrick also expects the region's output to increase, depending always on weather. “There is big potential in the Black Sea region. It looks like the fields in Iowa, but there are issues with the infrastructure and with government policies that add to uncertainty for landowners and investors.”
Already, feed wheat from Russia, Ukraine, and Kazakhstan competes with corn for export markets from Egypt and North Africa to Southeast Asia, and increased investments under way in agriculture could improve the region's competitive position.
“They are making more aggressive use of fertilizers and chemicals to improve their yields,” reports Ray Grabanski, president and senior market analyst for Fargo-based Progressive Ag. “Their infrastructure is much better than in South America. They have a lot of paved roads, and their access to the Black Sea is a tremendous advantage.”
Grabanski, who recently spent time in Ukraine, reports yields of up to 100 bushels per acre in winter wheat.
“The European continent is still a non-GMO market,” says the ASTA's Gumina. “But Ukrainian and Russian producers want improved seed. We think [planted] hectares will be up there, and people will be more likely to buy improved genetics.”
Elsewhere, FitzPatrick expects fairly strong exports from Australia. “A La Niña could be a positive influence for production in Australia. If all goes well, they could reach the highest level of exports in 10 years,” she says.
Still, not everything is rosy for the export competition, according to several sources.
While India has announced it will export some corn, wheat, and rice, USDA projects an export decline, as a growing poultry sector boosts domestic use and reduces the supply of grains available for export.
Ukrainian harvest glut
USDA has also forecast a decline in European Union exports, reflecting a very dry spring and relatively flat production, according to Allen.
China is “really driving to improve productivity,” says Gumina. “We see a great opportunity for development in China, but its productivity gains will probably be outpaced by growing demand. It's a great opportunity for U.S. agriculture to be a provider of food to the Chinese people.”
Ukrainian producers, already facing high-risk climate conditions, have no access to crop insurance or market-based risk-management tools, according to Grabanski. They also have little or no storage, forcing growers to sell at harvest when prices are lower.
As for Brazil, Bruce Babcock, director of the Center for Agricultural and Rural Development, sees world currency relationships moderating their export outlooks.
“Long term, it looks like both the Brazilian and Australian currencies are overvalued,” putting their exports at a disadvantage, Babcock says. “The U.S. competitive position [with a weak dollar] has improved, and the U.S. is in a really good position regarding grain exports.”
Babcock sees another tantalizing opportunity for U.S. agriculture.
“China is looking shorter of meat than anyone anticipated six months ago. Is U.S. agriculture going to be producing corn for China or pork for China? It makes more sense for China to import pork than corn,” he says.
By Edith Munro