September 6, 2013 / 12:01 PM / 4 years ago

Dry Argentine weather could impede corn sowing, bolster soy

5 Min Read

* Pampas grains belt gasps for water after a dry August

* Farmers may shift toward cheaper, easier-to-grow soy

* Diving Chicago futures prices another reason not to plant corn

* China open for Argentine corn, but will there be supply?

By Hugh Bronstein

BUENOS AIRES, Sept 6 (Reuters) - Argentine farmers can add dry weather to the list of reasons not to sow corn this year, having already factored in high financing costs, tumbling Chicago corn futures prices and crop price distortions caused by government export curbs.

With corn planting set to start in about one week, dry weather is raising questions about production just as Argentina emerges as a supplier to commodities-hungry China.

Argentina got its first big corn cargo into China last month, establishing the South American country as a competitor for a booming market long dominated by the United States.

But with dry weather causing concern on Argentina's vast Pampas farm belt, where wheat was recently planted and corn is set go into the ground at mid month, growers face a choice. Will they risk lower corn yields by waiting for rain before planting or will they switch toward cheaper and easier to grow soybeans?

Argentina is the world's No. 3 exporter of both crops.

"Corn has become riskier because of the lack of rain. This will push farmers toward planting soy instead," Buenos Aires-based agricultural economist Manuel Alvarado Ledesma said.

Forecasters say the corn belt in Buenos Aires, Cordoba and Santa Fe provinces should get moderate showers this weekend before normal rain patterns start forming toward the end of the month. Most of the area got no rain at all in August and the parts that did got 50 percent less than in August 2012.

"Climate models forecast good rains from early October till the end of February, benefiting middle and late corn and soybean plantings," said Eduardo Sierra, weather expert with the Buenos Aires Grains Exchange. Soy planting starts in November.

Rains over the days ahead could prompt some corn sowing, but soy has the advantage as farmers weigh which crop to grow. It is less sensitive to weather, cheaper to seed and cultivate and exempt from the export curbs that are put on corn and wheat.

Inflation and financing costs have risen under President Cristina Fernandez, who was re-elected in 2011 on promises of increasing government's role in Latin America's No. 3 economy.

The president used curbs on the export of wheat and corn export to ensure ample food supplies at home. Farmers say the curbs, which can be raised and lowered through the year, make crop planning impossible and kill profits by cutting competition among buyers.

International prices have also strengthened the case for planting soy. Chicago corn futures prices are down 30 percent so far this year while soy futures are flat since January.

U.S. farmers are starting to harvest what is widely forecast to be the largest ever corn crop for the world's top producer and exporter, suggesting prices could remain low.

U.S. soybean prices have been rising as recent dry weather sapped production potential and threatened to keep U.S. stocks of the oilseed uncomfortably tight for another year.

These are some reasons why soy is favored by Argentine farmers this season despite the risk that growing too much of the oilseed reduces crop rotation needed to keep soils fresh.

The upcoming soy crop could break Argentina's production record of 52.7 million tonnes set in 2009/10.

The country is expected to harvest a record 27 million tonnes of corn in the upcoming 2013/14 season, up from 26.5 million tonnes in the previous crop year, according to the U.S. Department of Agriculture (USDA).

But dryness-related planting delays could put corn harvest projections under pressure. To get maximum yields, Argentine corn should be planted between Sept. 15 and Oct. 15.

"The longer you wait after that, the lower the yield," said Esteban Copati, an analyst with the Buenos Aires Grains Exchange. "We have to wait a couple of more weeks to see if it rains. The dryness is becoming a concern for corn farmers, in addition to low international prices and high seeding costs."

Argentine farmers expect China to soon approve their one remaining variety of genetically modified corn yet to be certified for import by the commodities-hungry Asian country.

The South American grains powerhouse wants to push quickly into the Chinese market while its neighbor and fellow corn exporter Brazil is stuck on the sidelines, waiting for Beijing to approve its genetically modified corn.

China could import 20-30 million tonnes of corn a year to cover growing supply shortages, a researcher with a government think tank said on Thursday, as much as four times current levels. (Additional reporting by Karl Plume in Chicago)

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