Boston, MA -- (SBWIRE) -- 12/06/2012 -- Argentine grain production had a generally poor year in 2011/12, with corn, soybean and wheat production all falling year-on-year (y-o-y). This was mainly a function of dry weather as part of the La Nina weather pattern. In the midst of concerns around global food supply, Argentina could be a significant bright spot, with record production forecast for corn and soybean in 2012/13. Furthermore, the country's once struggling beef sector appears to be finally making some progress towards herd expansion. Argentina has long since relinquished its position as South America's pre-eminent food producer to Brazil, but the sector remains a vital part of the Argentine economy. Despite this, the poor relationship between farmers and the government (mainly due to export tax disputes) is likely to continue.

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Key Forecasts

- Corn production growth to 2015/16: average 6.5% per year to 31.4mn tonnes. We expect the area harvested to increase as improved prices and export opportunities arising from increasing livestock and biofuel production encourage farmers to plant corn. However, some of this growth will also be due to base effects.
- Soybean production growth to 2015/16: average 6.0% per year to 52.0mn tonnes. This is mainly due to recent government approval for new types of genetically modified seeds, which are likely to boost yields over the medium term.
- Beef production growth to 2016: 28.3% on the 2011 level to 3.2mn tonnes. In 2011/12, the return of rain in many areas and the improvement of pastures, combined with firm beef prices, led farmers to start rebuilding herds. Production would most likely be higher if export taxes on beef, at 15%, were reduced. Much of this growth is due to base effects.
- 2012 real GDP growth: 4.0% y-o-y (down from 8.9% in 2011; predicted to average 4% from now until 2016).
- Consumer price index: 25% y-o-y in 2012 (up from 9% y-o-y in 2011).

Industry Outlook

The Argentine government announced two policies in August that will impact future soybean production. First, the government increased the export tax on biodiesel from 20% to 32%, now equal to soybean oil and soybean meal export taxes. The government enacted the policy (which includes reducing the internal reference price by 15%) to reduce biodiesel exports and make domestic biodiesel cheaper. It also would increase the competitiveness of soybean oil exports, which are often compromised as soybean oil is occasionally converted into biodiesel owing to better returns.

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