Rains are expected in Argentina’s main farm areas this week, but climatologists question whether the amount of water to hit the drought-stricken Pampas will be enough to revive key corn and soy crops.
Grains-exporting powerhouse Argentina has been hit by an unforgiving southern hemisphere summer sun, prompting analysts to cut their crop forecasts and fueling farmers’ demands for tax cuts to help them get through the season.
Lack of water has shrunk Argentina’s corn crop at a time when the world’s No. 2 exporting country was being counted on to replenish global supplies after a disappointing U.S. harvest.
The drought could also add to government fiscal challenges this year as Argentina faces fallout from Europe’s financial mess and lower demand from key commodities client China.
So international bondholders to physical grains traders are all watching the vast blue Pampas horizon for signs of rain.
“The central growing area will get rain over the 48 hours ahead, but the situation is delicate because the rains that are expected would be less than needed,” said German Heinzenknecht, a forecaster at consultancy Climatologia Aplicada.
The country’s central Pampas farm area includes of southern Santa Fe, northern Buenos Aires and southern Cordoba provinces.
“These areas need 150 millimeters of rain and only 20 to 25 millimeters is forecasted,” Heinzenknecht. “Of course there could be surprises. Some areas could get more than what’s expected, but you cannot count on that.”
The heart of Pampas growing area is panting after getting only 10 to 50 millimeters of rain in December, down sharply from 60 to 100 millimeters in December 2010.
Corn and soybean futures rose at the Chicago Board of Trade early on Monday based on Argentina’s weather woes.
Martin Fraguio, executive director of Argentina’s main corn industry chamber Maizar, said the rains expected to start late Monday and on Tuesday will replenish some corn and soy fields while less fortunate farmers will have to decide whether to immediately replant or wait until next season.
“Some crops will be lost to the drought. Those farmers will decide whether to replant or to end the season,” Fraguio said. “In the case of corn, since the price is quite high, farmers who have enough moisture in their soils after this week will probably replant, using cheaper seeds just to take a gamble at recovering some of what they lost in the drought.”
Whether or not Argentina gets the ample rains it is hoping for, the 2011/12 corn crop will likely come in over the record 23 million tonnes seen in the previous season. Current forecasts are for a 2011/12 harvest of 23 million to 27 million tonnes.
Secretary of Agriculture Oscar Solis sounded an optimistic note in comments to local radio on Monday. “I don’t agree with those who say the drought is similar to that of 2008,” he said, referring to a harsh dry spell that toasted grains plants as they stood in the fields and wiped out whole herds of cattle.
Solis predicted a total 2011/12 grains harvest of 100 million tonnes, down from a previous estimate of 110 million.
Argentina’s Agriculture Ministry will hold a meeting with farm groups on Thursday to discuss their requests for tax cuts and other measures aimed at helping them get through the season.
President Cristina Fernandez has had a troubled relationship with the agriculture sector, although tempers have cooled since growers shook her government in 2008 with massive protests over an increase in soy export taxes. She easily won re-election last year, with a surprising amount of support from farm areas.
In another sign of detente with the sector, the government has scrapped its system of wheat export quotas, a change that should increase farmers’ revenue by boosting competition among the trading houses that bid for their crops.
Growers detested the quota system, saying it killed profits. A similar system, intended to keep domestic food prices down, remains in place for corn. Farmers at Thursday’s meeting are sure to ask that the corn quotas be thrown out as well.