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Thursday, March 01, 2012

Corn And Soybean Production Increases In South America Will Have A Domestic Market



 

US Farmers have been watching Brazil and Argentina increase their corn and soybean export business with global consumers, and while the US remains the dominant producer, many buyers are first initiating business with South American suppliers.  While the current La Nina year has challenged those plans, future plans in both countries are for significant expansion of corn and soybean production, along with exports.  However, there is something in the works that could interrupt the expected output.

The recent USDA Outlook Forum allowed economists, policy makers, and agribusiness executives to gain a better perspective on the dynamics of corn and soybean production in the major South American production regions.  Mariano Marques, the director of commodity analysis for CONAB, Brazil’s official crop assessment agency, reported that Brazil has surpassed the European Union-27 to become the world’s third largest corn producer with a total of 57 MMT in the last production year.  Brazil’s domestic consumption removes 49 MMT from the market, allowing about 14% of the crop to be exported.  Since the 2006-07 production season, corn exports have varied from 21% of the crop, down to 11% of the crop.  From the current corn crop, of 60 MMT, 46 MMT will be used for livestock feed and other domestic industrial uses. 

Marques says Brazil produces two corn crops because of the long growing season in some parts of the nation.  While the first crop has remained rather steady in total production over the past decade, the size of the second crop has nearly tripled in size, providing the basis for overall production growth. Acreage for the initial crop has declined from 25 million acres down to 19, while the size of the second crop has grown from 6 million acres to more than 14 million.  Yields have generally been parallel, but in the last growing season second crop corn yielded significantly less due to weather.  Interestingly, the first and second crops are grown, not by the same producers, but in different parts of the country.  Brazilian farmers are marketing 30% of their first crop corn in February and March and the bulk of the second crop is marketed in June through August.  While price trends are parallel throughout the year, there is a wide variation in basis that can represent as much as one-third or more of the value at times of lower prices.  Brazilian corn exports have risen from 9% of the global market share in 2008-09 to 13% in 2010-11.  About 60% of the corn departing Brazilian ports occurs from August through December. Marques reported that corn production in Brazil is expected to increase from the current 60 MMT to 70 MMT by the year 2015-16.  However, exports are expected to remain steady through that period at 10 MMT due to greater domestic consumption.

Reporting on the Argentine corn and soybean outlook, crop consultant Pablo Adreani reported that Brazil and Argentina combined are the largest exporters of soybeans, soy oil, soy meal, beef and poultry and second in the export of corn, behind the US.  Within Argentina, Adreani said total grain production has doubled in the past 15 years to 100 MMT.  At the same time he said, “Global soybean demand has grown far faster since 1990/91 than has demand for corn, cotton, rice and wheat.  This has been because of strong economic growth, particularly in China and elsewhere in Asia which has driven demand for meat, milk, and eggs.  This has led to faster growth in plantings and production of soybeans in North America and South America, in particular.  Corn demand has grown faster in recent years because of the growth in the U.S. corn-based ethanol sector.  Cotton demand has fallen as a result of the recession.  Wheat demand has grown slowly as people around the world have shifted to eating more meat.”

Adreani reported that the total grain and oilseed production in Argentina in the past 15 years has increased 112%, while the total acreage has increased only 65%.  Much of the change was attributed to the use of biotech seed corn, along with no-till farming, and fertilization.  At the same time, Argentine soybean production has increased 350% in the past 13 years since the introduction of Roundup Ready seed.  He indicated that the primary crop production nations in South America collaborate on biotech approvals, and if approved in one nation, that is good enough for the rest, which include Argentina, Brazil, Paraguay and Uruguay.

While soybean production has been increasing in both Brazil and Argentina, Adreani reported US soybean production for the past 15 years has only risen from 73 MMT to 83 MMT.  During the same time, Argentine soybean production has grown from 20 MMT to 48 MMT and Brazilian soybean production has increased from 26 MMT to 72 MMT.  Subsequently, where the US produced 60% of the global soybean crop in 1997 that statistic has dropped to 41%.  Brazil now produces 35% of the global soybean crop and Argentina has 23%.  Regarding exports, Adreani predicts Brazil will surpass the US in soybean exports during the 2012 season because of a four-fold increase since 1997.  Argentine soybean exports have languished with only marginal increases over the past 15 years.  From the mid-90’s US soybeans have seen a 37% decline in global market share, while Brazil has seen a 30% increase in global market share. 

Regarding soybean products, Argentina has focused on exporting soybean meal, and its increased exports have increased 257% in the past 15 years, giving it a 49% share of the global market.  The US has 13% and Brazil has 24%.  With its crushing capacity, Argentina has also captured 54% of the global market for soybean oil, with 20% in Brazil and only 6% for the US.  But Argentina is taking advantage of exporting a higher value product, replacing soybean oil exports with exports of biodiesel fuel.

However, Argentine corn consumption is on a parallel path with Brazilian soybean consumption since both are increasing.  Adreani said meat production is increasing in Argentina, and poultry slaughter has increased three-fold since 2002, and the trend is expected to continue.  Feed consumption has tripled since 2002 and will quadruple by 2017, which is a 65% rate of increase in corn consumption. In addition to poultry, pork production has nearly doubled since 2003, but is expected to double again by 2016, with a nearly exponential rate of growth. To reach such high rates of production, increased amounts of soybean meal and corn will have to be used domestically in Argentina.  Adreani said production will increase for both corn and soybeans to keep pace with the consumer demand.  However, the corn to soybean planting ratio will make a major shift to substantially increase soybean production, for the purpose of having enough for domestic livestock production. 

Summary:
South American crop production will see increased production over the near term, continuing the trend of the past few years which have allowed Argentina and Brazil to surpass the US in global market share for soybean exports.  Brazil has focused on soybean exports, while Argentina has focused on corn and soybean meal exports.  With both nations planning increased production, the production increases will be needed to meet increasing domestic demand for corn and soybeans, for livestock production purposes.

Posted by Stu Ellis on 03/01 at 01:35 AM | Permalink

Comments

But some report says south America soy crops likely to fall 120-140 lack tones.

Posted by: Vikas Shringi at March 7, 2012 1:01AM

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