Short Supply of Argentine Corn
Jan 27, 2009
Chip Flory
Chore time for me isn't what it used to be when I was growing up on our eastern Iowa farm, but taking care of two horses in the morning before I head in for work gives me a little time to think about the day ahead. Each morning, stop at this spot to get a feeling for the "tone of the day" - and some attitude about agriculture and the markets.
I was thinking…
... about South American crop potential.
At Pro Farmer, we've been reporting on drought conditions across South America. In fact, we've continued our popular Crop Tour newsletter into the U.S. winter so we can add a couple extra pages to the newsletter once a month to provide more information about South American crop conditions.
Some S. American crop-watchers call the corn crop "toast" -- others tell us the corn crop is hurt, but Argentina will still be a player in the 2008-09 corn export picture. From Brazil, Argentina and Paraguay, PF crop consultant Dr. Michael Cordonnier says S. America will produce about 62.7 million metric tons (MMT) of corn for export in the current marketing year. That's down about 23% from last year's production of 81.5 MMT from these three countries.
If the South American corn crop is off 20%-plus from year-ago, why haven't we seen a bigger price reaction in U.S. corn futures? That's a fair question, with a simple answer -- because the South American crop shortfall has not turned into extra export demand for U.S. corn. At least not yet...
University of Illinois Marketing Specialist Darrel Good says the South American corn crop problems could turn into additional demand for U.S. corn -- it just hasn't happened yet. (Click here for the full story from Good.)
The point is a South American crop problem only creates the potential for higher U.S. crop prices, it doesn't automatically push prices higher. For a crop shortfall anywhere in the world to support U.S. prices, it must turn into additional demand for U.S. crops. Until that happens, a crop problem in another exporting country only limits downside price risk.
The Argentine drought is also taking a big bite out of South American soybean supplies and the crop is also shrinking in Brazil and Paraguay. We'll detail the latest South American soybean crop estimates from PF crop consultant Dr. Michael Cordonnier in this week's Pro Farmer newsletter. And most importantly, we'll detail how crop problems there are turning into more demand here.
