Last modified: Thursday, November 13, 2003
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January 13, 1997
This report draws on information from USDA's global network of agricultural attaches and counselors, official statistics of foreign governments, other foreign source materials, and results of office analysis. Estimates of U.S. acreage, yield and production are from the USDA Agricultural Statistics Board, except where noted. This report is based on unrounded data; numbers may not add to totals because of rounding. The report reflects official USDA estimates released in the World Agricultural Supply Estimates -->WASDE 322-10 January 10.
This report was prepared by the Grain and Feed Division, FAS. Agbox 1048, 14th and Independence Ave. Washington DC 20250. Further information may be obtained by writing to the division, by calling (202) 720-6219, or by FAX (202) 720-0340
The next issue of the Grains circular will be available electronically after 3:30 pm local time on February 13, 1997
SITUATION/OUTLOOK
FOREIGN COUNTRIES' POLICIES AND PROGRAMS
WORLD AND U.S. GRAIN OVERVIEW
WHEAT
The forecast for 1996/97 world wheat trade stands at
88.7 million tons, the next-to-lowest level of
international wheat trade in over fifteen years.
Annual global production is projected to increase by
eight percent to 579.1 million tons -- the second-highest level
on record -- and for the first time since
1992/93 is anticipated to exceed consumption. The
global bumper crop has reduced foreign trade and
weakened international prices as production increases
in all the major exporters and most of the traditional
importers put a tight squeeze on the market, prompting
aggressive efforts to place larger supplies in a time
of soft demand. Prices have reacted to the abundant
harvests by falling off dramatically from the record
highs reached last spring. The additional production
will provide an opportunity to increase the world's
severely depleted reserves by a projected 8.2 million
tons, resulting in a 1996/97 global stocks-to-use ratio
of 19.7%, a small increase from last year's record low
ratio of 18.9 percent.
RICE
The estimate of 1996 calendar year rice trade was
increased slightly this month to 19 million tons, up
from 18.8 million tons last month. Meanwhile, the
forecast of 1997 world rice trade was also raised, from
18 to 18.2 million tons. Key to the increase in
estimated 1996 trade was a 51,000 ton increase in the
export forecast for Thailand, which finished 1996 with
5.251 million tons in exports. The increase in
forecast 1997 trade was sparked by and increase of
350,000 tons in the 1997 export forecast for Pakistan,
now at 1.75 million tons. This increase in forecast
Pakistani exports was partially offset by a 250,000 ton
decrease in forecast exports by Vietnam.
COARSE GRAINS
Global trade of coarse grains during 1996/97 is
forecast at about 88.3 million tons, down marginally
from the 1995/96 trade level of 88.6 million tons.
Global production of coarse grains in 1996/97 is
expected to be sharply higher than in 1995/96, due
largely to increased corn production in the United
States, China, and the EU, and expected increases in
barley production in Canada, North Africa, and the EU.
Foreign coarse grain stock levels are forecast to
rebound in 1996/97, mostly due to increases in Canadian
and EU stocks. U.S. stocks, drawn down sharply in
1995/96, are projected to rebuild somewhat in 1996/97,
but remain at relatively low levels. World stock
levels at the end of the 1996/97 season are forecast to
increase roughly 18 million tons to nearly 109 million
tons. The global stocks-to-use ratio is forecast to
rise slightly to 12.5 percent, the third lowest on
record.
FOREIGN COUNTRIES' POLICIES AND PROGRAMS
India Swings Back From Wheat Exporter to Importer
In an effort to ease domestic wheat prices, the
Government of India has resumed importation of wheat,
even announcing that some importing would be allowed
(for the first time) by the private trade. This will be
the first season in which India has imported
substantial quantities of wheat since 1992/93, after
government stocks plummeted to extremely low levels.
Production then rose to consecutive record levels
during the next three years, encouraging India to
export wheat during 1995 and early in 1996, as a means
of reducing its large and mounting government stocks.
The timing of the exports proved opportune for India,
which was able to export wheat when world prices were
high, and now is importing at substantially lower price
levels.
While India was reducing its government-held wheat
stocks to manageable levels, the state procurement
program for the 1996/97 season was running into
difficulties. Farmers found it more profitable to sell
their wheat on the open market than to the government
at its lower purchase prices. Procurement for 1996/97
is estimated at only around 8.2 million tons, well
below the 12.3 million tons procured in 1995/96, and
the lowest mark since 1992/93. The government's
estimate for this season's wheat crop also has been
lowered, to 62 million tons, or 4.5 million tons below
earlier estimates and below last year's record output.
This year's decline in wheat production is attributed
to a slight shift in planted area to oilseeds and a
yield decrease resulting from higher than normal
temperatures during February and March in northern
India.
Declining government wheat stocks, the sharp drop in
this year's state procurement, and the declining
prospects for the current year's production caused
India's internal wheat prices to soar by mid-1996. In
June, wholesale wheat prices rose sharply to the
equivalent of around $145 per ton, which was 30 percent
over the government procurement price and 25 percent
above the wholesale price a year earlier. In response
to the price increase, the government suspended further
allocation of wheat exports under the export quota of
3.0 million tons for the 1996/97 season. Only 1.0
million tons has been allocated to exporters (wheat
flour exports also have since been restricted, with
only 150,000 tons permitted through March, 1997). In
addition, the government also began to sell wheat from
its stocks into the open market at below market prices.
But as the weeks and months passed, market prices
continued to soar, and government stocks plummeted. By
late November, the indicative Delhi ordinary wheat
price reached a high of $210 per ton, or 50 percent
above a year earlier. Prices of higher quality wheats
and those in markets further from growing areas were
considerably higher.
In an effort to contain the price rise, the government
decided to increase the monthly open market sale of
wheat from its stocks from 300,000 tons to 600,000
tons. This is in addition to the allocation to the
Public Distribution System (PDS), which is around
800,000 tons per month. However, the government's
ability to dampen prices through sales from its stocks
will be limited in the coming months by the low level
to which those stocks have declined. On December 1,
1996, government stocks were put at only 8.0 million
tons compared to 14.6 million tons a year ago and 14.4
million tons two years ago. It is feared that continued
large releases of government stocks will reduce them to
the point of jeopardizing the GOI's ability to supply
wheat to the PDS.
About 30 percent of India's wheat crop is marketed with
the balance being consumed on-farm or at the village
level. An estimated 10 to 11 million tons of wheat are
milled in the organized flour milling industry. These
mills, numbering around 800 with a total milling
capacity of over 15 million tons, are located
throughout the country. The balance of milling is done
in small, local shops called "chakkies," where
consumers take the wheat they buy through the PDS or in
the open market for processing. Here the wheat can be
milled into fresh, custom made "atta," which is high
extraction flour, at relatively economical prices.
India's wheat consumption fluctuates somewhat with the
size of its crop, but there is a clear indication of
increased use at the rate of about 5.0 percent per
year. The steady rise in consumption has been aided by
the GOI's policy of not raising the sales price to the
subsidized PDS since 1994, as well as the country's 2.0
percent annual population growth rate. India is also
experiencing substantial growth in consumer purchasing
power, and the demand for branded flour marketed by the
larger mills is gaining popularity as a convenience
item in urban areas. Bread consumption, which is
estimated at almost 2.0 million tons, is also rising
yearly at around 5.0 percent, and the variety of breads
available is increasing. Wheat is not far behind rice
as India's main food staple.
All these developments have led to the shift in India's
wheat trade stance. In a decision taken in mid-December,
the GOI authorized imports of up to 2.0
million tons of wheat by the government-run State
Trading Corporation (STC) and permitted, for the first
time, the importation of wheat directly by private
flour millers. The STC quickly purchased 1.0 million
tons of Australian wheat, 250,000 tons of Canadian
wheat, and may be seeking further purchases from
foreign suppliers. Wheat imported by the STC will be
distributed by the government either directly to
consumers through the PDS, or to millers and other
users through the open market sale system.
Although private flour millers will temporarily be
allowed to import wheat directly, certain restrictions
will apply. Imports will be duty free, but will be
subject to an end-user condition ( ie. these imports
must be milled by the importing mill) and must be
registered with the GOI. The window for these imports
closes on March 31, 1997. Flour millers are not
expected to be big importers of wheat, not only because
of the short window of opportunity, but also due to
their inexperience in international trading and the
lack of economies in scale. Furthermore, the GOI does
not permit millers to hold wheat quantities in excess
of 60 days of milling capacity. So, in the end, no more
than 100,000 tons of wheat are expected to be imported
by the millers.
India's recent brief role as a wheat exporter was
marked by significant problems in the marketing of a
relatively poor quality product, plus logistical
difficulties in shipping the wheat. In reality, the
exports were possible only because of the extremely
high wheat prices on the world market at the time,
which were caused by the tight world supply situation.
India's internal wheat prices normally are well above
those in the international market, and the GOI has not
shown any inclination toward subsidizing wheat
exports.
Based on reports from the Office of the Agricultural
Counselor, American Embassy, New Delhi. For further
information, please contact David Wolf at (202) 720-2897.
Argentina's Grain Export Future Appears Promising
With its diverse climate and abundant natural
resources, Argentina produces, exports and imports many
of the same agricultural products as the United States.
In the northern sub-tropical regions, sugarcane,
cotton, teas and tobacco are grown. Grains, oilseed
and livestock production predominate in the vast,
temperate central plains known as the pampas. In the
west, fruit production is most important, while the
desolate reaches of Patagonia to the south are limited
to sheep production.
Agriculture, livestock, forestry and fishing
contributed 5.9 percent of GDP in 1995 (down from 6.9
percent during 1994). However, as many processed raw
materials are not included in the calculation, this
figure underestimates the economic importance of the
sector. For example, at least 50 percent of total
exports last year were agricultural or agro-industrial
goods. In aggregate however, the primary sector has
performed poorly in recent years: between 1990 and
1994, total output increased by only 4.4 percent
compared with a 34.4 percent expansion of total GDP.
With the exception of beef and wool, international
prices for principal Argentine export commodities
(oilseeds and products, wheat, corn, beef, tobacco,
sugar, apples and pears, cotton and wool) have been
very strong the past couple of years (corn and wheat
reached 15 year highs) This development has brought
considerable investment into the farm sector and
introduced improved technologies to boost productivity.
Argentina at a Glance
Population (1995): 34.1 million
Population growth rate: 1.12%
Urban population: 86%
Per capita income: $8,200
Land area: 2,737,000 sq. km., slightly less than one-third
the size of the United States.
Land use: crops 13%, meadows and pastures 60%, forest
and woodland 20%, other 7%.
Major crops: wheat, corn, soybeans, sunflowerseed,
grain sorghum, sugarcane
Livestock sector: beef and dairy cattle, poultry,
sheep, horses, swine
Leading agricultural exports: oilseeds and products,
grains, beef, animal products, fruits and fruit
products, dairy products, wool, vegetables, cotton
Agricultural exports as a share of total exports: 52%.
U.S. share of total agricultural exports: 5%
Leading agricultural imports: coffee, fruits, cocoa,
seeds, cork, resins, essential oils.
Agricultural imports as a share of total imports: 5%
U.S. share of total agricultural imports: 11%
Percent of labor force in agriculture: 12%
Argentine Field Crop
Production (Thousand Metric Tons)
Commodity
1994/95 1995/96 1996/97(F)
Wheat 11,300 9,200 15,500
Corn 11,100 10,700 13,500
Rice 931 877 954
Sorghum 1,650 2,100 2,000
Barley 350 450 450
Soybeans 12,650 12,640 13,000
Sunflower 5,900 5,600 5,000
Total 43,881 41,567 50,404
Argentina's Agricultural Policy is Relatively
Unstructured
Beyond the effect of its macro-economic policies which
have encouraged investment, greater economic planning
and more efficient use of capital resources, the
Argentine government does not have many specific
policies affecting the agricultural sector. In recent
years, the general direction of agricultural policy in
Argentina has been towards less government involvement
in production and marketing decisions. The
government's most important role at this point is to
provide a stable economic environment. It has however
used such international fora as the GATT and now the
WTO to advocate the elimination of production
incentives and export subsidies in other countries,
principally the United States and the EU, which it
believes unfairly discriminate against the non-subsidizing
countries of the world. Export taxes have
practically been eliminated and much of the existing
infrastructure, such as transportation, ports and
marketing (through the elimination of the National
Grain and Meat Boards for example) has successfully
been privatized. This has resulted in major
improvements in rail, trucking and grain handling
services, thereby increasing Argentina's export
capacity.
Less government intervention at the macro-level has
resulted in decreasing costs and more efficient
transportation, communications, marketing and port
services. Deregulation of train services has lowered
costs, improved overall quality and forced a decline in
trucking rates. In the case of port services, the
privatization of grain elevators has lowered handling
rates. Vertical integration (most of the elevators are
now owned by grain trading companies) have also lowered
related transaction costs. Other port costs, such as
pilotage and daily stays, have also declined. As a
result, port handling costs have dropped an average
$1.70/MT, equivalent to 11 percent of pre-reform costs.
Between 1991 and 1994, the ratio between domestic and
FOB prices increased from 85.2 to 96.5 percent for
wheat and from 83.5 to 92.6 percent for soybeans.
The Argentine agricultural sector is productive and
world competitive. With the exception of tobacco,
there are currently no major government policies,
programs or subsidies to encourage production. Most
agricultural exports do benefit however from a system
of export rebates which are said to return part of the
taxes incurred in the different production and
marketing stages. The current range of rebates is 1.35
to a maximum of 10 percent. Rebates on trade to
Mercosur countries have been eliminated completely.
Export taxes were generally reduced to zero in 1991,
with the exception of a 3.5 percent tax on oilseed
exports to encourage domestic processing operations and
a 15 percent tax on raw hides.
In the past, Argentina protected its domestic
agricultural sector through a system of high import
tariffs, inspection fees and other charges. Since the
economy has opened up however, these import duties have
been reduced to relatively low levels and the red tape
required of importers eliminated or vastly simplified.
Argentina committed in the Uruguay Round to establish a
35 percent import ceiling for agricultural products
plus a 3 percent statistical tax. It now applies the
Mercosur common external tariff, which for most
agricultural goods varies between 0-20 percent. The 3
percent statistical tax is added to the import tariff.
Duties on intra-Mercosur trade however are generally
zero.
There are still a number of difficulties facing the
Argentine agricultural sector. Production costs,
including labor costs, inputs and taxes, remain high.
Credit availability is very limited and carries
an extremely high cost. Interest rates on production
loans, even for farmers with excellent credit, run at
least 16-20 percent on an annual basis in dollar terms,
which is very high on a real basis considering that the
inflation rate has been around 2-3 percent each of the
last two years.
The government also needs to do more to address the
problem of tax evasion on the national level, which is
estimated to have an annual cost of at least several
billion dollars. A few operators of meat packing plants
for instance have been accused of avoiding or under
reporting their tax liabilities on a massive scale. It
has also been reported that between 30 and 40 percent
of all the transactions involving grains and oilseeds
have been handled in an illegal manner, costing the
government from 400 to 500 million dollars in lost tax
revenue.
In general though, there is a great deal of optimism in
Argentina regarding the future of its agricultural
sector. Government and private sector officials cite
the growing world demand for food going into the 21st
century, particularly from Asian countries, and see
themselves as very favorably positioned to meet some of
that demand, especially for grains, oilseed derivatives
and red meat. Recent large investment (primarily
foreign) in the local food industry has brought renewed
strength to the agribusiness sector which is one of the
most important pillars of the country's exports
expansion. Furthermore, the preferential duty access
under Mercosur (Argentina, Brazil, Uruguay and
Paraguay), with a total population of over 200 million,
is providing a strong economic stimulus to the sector.
Some in fact refer to Mercosur as Argentina's
"insurance policy," a guarantee that much of the
country's surplus agricultural production (especially
of grains and dairy products) can be absorbed by its
neighboring trade partners.
Mercosur has also recently concluded negotiations
making Chile an associate member this year, but with a
phase-in period of up to 18 years for agricultural
products. It is certainly conceivable that within a
few years, some Argentine grain and other agricultural
commodities could be exported to Pacific Rim markets
through Chilean ports. Free trade negotiations have
also been concluded between Mercosur and Bolivia and
will soon begin with the remainder of the Andean pact.
Further adding to optimism in Argentina is the
perception that subsidized foreign competition will be
declining in future years. The production and export
subsidies of other countries, namely the United States
and the EU, have always been viewed in Argentina as
having a major negative impact on the volume and value
of many of its agricultural exports. With the limits
on those subsidies now established in the Uruguay
Round, Argentine producers anticipate less competition
from subsidized exports, thus greater demand for many
of their own agricultural exports.
Factors Affecting Grain Production
One of the main areas of change has been in the use of
fertilizers and agricultural chemicals on a much
broader scale. Ten years ago, annual fertilizer use
was less than 100,000 tons. Industry sources now
estimate fertilizer use may reach 1.6 MMT during the
current crop year (1996/97), up 40 percent from a year
ago and double the level in 1994. Fertilizers may be
applied on an estimated 70 percent of the wheat and
more than 50 percent of the corn area this year.
Agricultural chemical use (herbicides, fungicides,
etc.) more than doubled between 1991 and 1996. The use
of no-till cropping, particularly for second-crop
soybeans following wheat, has helped spur this growth.
Sales of farm machinery have soared; tractor sales for
the first eight months of 1996 were up 334 percent and
for harvesters they were up 248 percent compared with
the same period a year ago. Irrigation equipment, once
seen on only the largest and most progressive farms,
has now become much more commonplace. Despite this
growth, however, irrigation still covers a relatively
small percentage of total crop area. Today there are
more than 300 center-pivot systems in the humid pampas
region irrigating more than 20,000 hectares, mainly in
the Argentine "corn belt" of northern Buenos Aires and
southern Santa Fe and Cordoba provinces. Reduced
import duties on capital goods and easier credit terms
and long-term leasing arrangements have also helped
further spread its application there.
With the higher grain and oilseed prices have come
higher land values, which are up an average of 30
percent in the past year. Rental rates, which normally
are set at 10 percent of the value of the land, were
also up by a similar amount, but recent sharp declines
in output prices have reduced this. Prime corn/soybean
land in 1995 sold for $1,800-$2,500 per hectare; a year
later those prices were in the $2,800-$3,500 range;
land in the prime areas of the wheat belt went up
during this period from $800-$1,300 per hectare to
$1,200-$1,600. Although these are significant
increases, agricultural land prices in Argentina are
still relatively low compared with many other important
agricultural areas of the world and this has attracted
great interest and investment, both domestic and
foreign, into the region. Although these latest
increases in value may have narrowed its advantage
somewhat, the lower cost of land has traditionally been
an important factor in helping Argentina maintain its
competitiveness in world agricultural trade.
Another trend which has recently gathered momentum in
Argentina is the use of so-called "sowing pools."
Although they have been around for more than 15 years,
these investment strategies have recently grown in
importance. Basically, these are investments which
pool investor funds (mainly domestic but some foreign
capital is involved as well) to rent land, provide the
inputs and hire the technical expertise to grow
primarily field crops and divide the profits (or
losses) among the shareholders. The land owner usually
receives about 10 percent of the value of the rented
land in advance. In the absence of affordable credits
for the small and medium size farmer, these investment
groups offer many of them an opportunity to keep their
farms and eliminate much of their financial risk and
since the pools often bring together adjacent rented
lands, it also creates a more efficient production
unit. It is estimated that as many as a half million
hectares were contracted under these investment funds
during 1996.
Argentine crop yields in general (except sunflower) are
lower than comparable ones in the U.S., although the
trend is decidedly towards higher yields. Soybean
yields are lower in Argentina than the U.S. mainly
because some 30-40 percent are second-crop soybeans
which are sown later in the season and generally have a
lower-yielding potential.
There are several important reasons why Argentine crop
yields should increase in the future:
1. Increased fertilizer/agrochemical use: in both
wheat and corn, fertilizer use is steadily trending
upwards; wheat area receiving some fertilizer has grown
from less than 25 percent four years ago, to almost 70
percent in 1996; in corn, that percentage has grown
from just 10 percent a few years ago to at least 50
percent this year. This trend is expected to continue
in spite of higher fertilizer costs, the bulk of which
is still imported (mainly phosphorus and urea). Corn
yields could potentially show the most productivity
improvement, as lower-yielding flint-type corn is
increasingly being replaced by dent and semi-dent
varieties. Fertilizer use per hectare is still a
relatively small proportion as compared to the United
States and the European Community.
Herbicide use has also grown as more farmers are
switching to no-till or minimum tillage practices where
good weed control is essential. New varieties such as
"Round-Up Ready" soybeans and Bt corn should in fact
help farmers reduce their reliance on herbicides and
pesticides.
2. Improved cultivation practices: no-till cropping
has become relatively common for some crops in certain
areas, for example planting second-crop soybeans or
corn in wheat stubble following harvest; this practice
not only helps prevent soil compaction (improving
aeration and tilth), but allows preserves soil
moisture. Other measures which have become more
common: strip or contour plowing to prevent wind and
water erosion.
3. Improved seed varieties: much research effort has
gone into identifying and producing newer seed
varieties better suited to local growing conditions.
In corn for example, many international seed companies
have established local research centers to develop dent
and semi-dent hybrids which can be sown in higher
densities of 60-70,000 plants/ha. and which have
greater yield potential, particularly when some
fertilizer is used. The use of certified seed is also
expected to grow in the future. Also, Argentine
farmers are planting new seed varieties that
incorporate recent advances in biotechnology for
soybeans and soon other crops as well.
4. Newer farm machinery: there has been a tremendous
growth in sales of farm equipment (tractors, seeders,
harvesters, etc) the past three-four years as the
general farm economy has improved; tariffs for imported
goods have been reduced and the rules governing capital
good imports have been liberalized. As credit becomes
more available and affordable (it now can run from 17-22
percent annually for the majority of small-medium-size
producers) this trend towards equipment
modernization should continue. However, recent
declines in commodity prices will mitigate this growth.
There has also been tremendous growth in sales of
irrigation systems, which together with increased
fertilizer use, has the potential to boost grain yields
considerably, especially in areas of marginal rainfall.
New harvesting machinery should help reduce harvesting
losses which can sometimes reach 5-10 percent (e.g.,
corn, sunflowerseed).
The Argentine government has set a rather ambitious
production goal for grain/oilseed of 60.0 MMT by the
year 2000 (from around 45-50 MMT currently). The
accompanying chart illustrates that with some small
increases in planted area and modest improvements in
overall yields, particularly for corn through the
greater application of available technologies, this
goal appears achievable. The expanded production will
need to come from higher yields through increased
fertilizer use and other agrochemical inputs, and
reducing the land devoted to cattle fattening on
pasture (Argentine beef production is primarily a
grazing-based system). Of the approximately 40
million hectares of arable land in Argentina (though
all is not well-suited for cropland), around 20-25
million hectares are currently under cultivation. The
rate of grain and oilseed area expansion in future
years will depend to a large extent on the prices of
these and competing enterprises, namely beef and dairy
production.
The beef cattle stock for 1997 is projected at 51.7
million head, the lowest in the past 25 years, the
result of two years of drought which reduced the calf
crop, tight returns and growing competition from more
profitable alternatives such as dairy and cropping.
This has pushed cattle to more marginal areas where
production is less efficient. However, the country's
livestock production outlook for the next five years
indicates that production will increase mainly as a
result of better export prospects once foot and mouth
disease-free status is granted. This output expansion
would be basically due to increased efficiency and
higher slaughter weights, in addition to a moderate
stock rebuilding, not a return to a larger pasture
area.
Trends in Domestic Use of Grain
Argentines have historically been one of the largest
per capita consumers of beef in the world (60 kgs.
annually vs. 44 in the U.S.), but is lower than the 80-90 kgs
per capita a few years ago. Since 1992 however,
poultry consumption has more than doubled (to 21 kgs
per capita annually vs. 45 in the U.S.), basically
driven by health concerns and a significant decrease in
broiler prices; furthermore, as beef production could
increase at a slower pace than exports, cattle prices
could increase significantly, further depressing local
demand. Poultry consumption should therefore expand as
a result of lower beef demand. Consumption of bread
and pasta products should remain stable, growing at an
annual rate of 2-3 percent.
Practically all livestock production in Argentina is
based on grazing natural or artificial pastures (mainly
alfalfa mixed with grasses), making it highly weather-dependent.
Strong grain and oilseed prices can push
cattle to more marginal areas where production is less
efficient, although most farmers are reluctant to sell
all their cattle. Crops bring liquidity and cattle are
used as savings.
The following is a comparison of gross margins (no
overhead costs), for different agricultural and
livestock producers with average yields (August 1996):
Activity: Gross Margin
($/hectare)
Cow-calf 42
Finishing 98
Dairy 268
Wheat 150
Soybeans 305
Corn 288
Estimates of yearly on-farm grain feeding (mostly
corn), usually vary from 200-300 TMT.
Feedlot production has contracted this year and its
future is not altogether certain. Although Argentina
has excellent natural resources for such a system,
grain prices and beef FOB values will be the key
factors which determine its expansion. It is likely
that the local beef sector will continue with a low-cost
grazing scheme, but feedlot production could
increase to attend niche markets: domestic high income
consumption (mainly light steers and heifers) and
exports to southeast Asian markets (mainly heavier
steers). The output for both could represent 5-15
percent of the country's total beef production.
Fresh Argentine beef exports to the U.S. have been
banned for more than 60 years due to the prevalence of
foot-and-mouth disease (FMD). The U.S. government
allocated Argentina a 20,000 MT quota in the Uruguay
Round negotiations, but made market access conditional
upon certain sanitary requirements, including
eradication of FMD. Argentina has now gone more than
two years without an outbreak of the disease and
international regulators are expected to grant the
country FMD-free status soon. Access to the U.S. will
open up many other markets to Argentine beef,
particularly in Asia, whose sanitary regulations are
similar.
Poultry production and consumption have increased
rapidly over the last five years. The main factors
behind such growth were the importation of cheap
Brazilian broilers which forced local producers to
increase production scale and reduce costs, the fact
that chicken became significantly cheaper than beef
and, to a lesser extent, dietary concerns which shifted
some demand toward leaner, lower cholesterol meats.
Almost all large poultry processors in Argentina are
vertically integrated. Most of them have feed mills
and as a result of higher feed costs, some have started
their own grain production either on privately-owned
farms or rented land. This is something which should
continue to expand in order to protect poultry
producers from higher grain costs. Estimates of total
grain use (again, mostly corn) by the poultry industry
range from 1.5-1.8 MMT annually.
Over the past five years, the Argentine milling
industry has undergone a consolidation process in which
a number of smaller, less efficient plants have either
gone out of business or been bought by larger, more
efficient, usually multinational ones. In 1995 for
instance, Cargill bought one of the largest local wheat
millers, thus positioning itself as one of the major
wheat flour producer/exporters in the Latin American
region. That year there were approximately 82 milling
firms operating in Argentina and a total of around 100
individual plants. Their combined milling capacity was
estimated at around 350,000 MT/month, which would
permit a maximum production potential of about 4.2
MMT/year. Nearly all of Argentina's wheat flour
exports go to Brazil and other Latin American
countries. The primary industrial use of corn is in
the wet milling industry for the manufacture of starch;
dry millers use smaller quantities to produce corn meal
for human consumption. Total estimated corn milling
use is around 800-850 TMT/year.
Of the roughly 3.0 MMT of wheat flour consumed
domestically each year, about 70 percent is used in
bread making, 25 percent goes to the manufacture of
pastas and crackers and the remainder to miscellaneous
uses.
Export Outlook for Grains
Because of the size of its annual grain and oilseed
production in relation to a relatively small
population, Argentina's agricultural sector is highly
dependent upon exports for marketing nearly all of its
commodity output. Over the past two decades, oilseeds
and products exports have increased sharply, displacing
wheat, corn and other grains as the dominant export
crops (in value), although the country still remains a
dominant player in world grain trade. For instance,
Argentina traditionally exports from 5.0-7.5 MMT of
wheat annually (usually ranked fourth or fifth in the
world), from 5.0-6.5 MMT of corn (second worldwide
after the U.S.), around 500 TMT of grain sorghum
(second or third worldwide) and from 6.5-7.5 MMT of
total coarse grains (second after the U.S.).
Latin America receives the largest share of Argentine
wheat exports, usually accounting for more than 80
percent of total exports and of that total, Brazil
buys roughly 80-85 percent. This trade is of course
favored by geographical proximity, lower ocean freight
charges and years of close contact between exporters
and millers, but it also benefits of course through the
waiver of the 10 percent import duty on wheat imports
from non-Mercosur countries. This year Argentine
exporters have been undercutting Brazilian domestic
wheat prices and doing it with very attractive three-six
month credit plans which have proven to be an
irresistible incentive, since many Brazilian millers
lack the money to make direct cash payments.
Other Latin American countries receiving significant
exports of Argentine wheat include Bolivia, Chile,
Colombia, Paraguay, Peru and Venezuela. As Chilean
agricultural interests become fully integrated into the
Mercosur trade pact and its own import tariffs are
reduced, more significant quantities of Argentine wheat
may be sold to Chile in the future.
The remainder of Argentine wheat exports usually go to
Asia (Indonesia, sometimes China), Africa (Kenya,
Mozambique) and the Middle East (Jordan, Iran). This
year, with some of the cheapest wheat available
worldwide, Argentina may displace some traditional U.S.
export markets, namely to Egypt, Turkey and Algeria.
Although Argentina ranks second in world corn exports,
the relatively much greater size of the U.S. crop
largely determines international prices. Argentine
export prices are generally less than U.S. prices only
during the harvest months of March to June, but when
freight costs are factored in, Argentine corn becomes
somewhat more competitive, especially to Latin American
and other Southern Hemisphere destinations. Brazil is
usually the number one export destination, followed by
Iran, Malaysia and Indonesia, with smaller quantities
going to Peru, Venezuela, Egypt and China. Japan is
also reportedly interested in diversifying its corn
import origins and has recently contacted Argentine
exporters regarding its future import requirements.
Grain sorghum is the second most important coarse grain
crop in Argentina. It is often grown as a second crop
following wheat or barley, but had been in a general
decline as low prices and weak export demand reduced
farmers' interest. In addition, sorghum competes
directly with corn as a grain and forage crop, although
corn has consistently benefitted from higher prices and
better gross margins. Production, which reached a high
of nearly 3.0 MMT earlier in the decade, slumped to as
low as 1.65 MMT two years ago, but has now begun to
recover, and this year is expected to be 2.0 MMT.
Export demand has also picked up in spite of recent
higher prices and this year, Argentina should capture
the number two position in worldwide exports of grain
sorghum, after the United States. Japan continues to
be the leading export destination (nearly 50 percent of
all exports), followed by Chile, Peru and South Africa.
Note: A discussion of Argentina's grain industry
infrastructure and its ability to handle increasing
grain flows can be found on page twelve in the
December, 1996 issue of this circular series.
For further information, please contact David Kiefner
at (202) 720-6223.
SITUATION AND OUTLOOK: COMMENTARY AND CURRENT DATA WORLD WHEAT SITUATION AND OUTLOOK The 1996/97 forecast for world wheat trade of 88.7 million tons represents a drop of nearly 4.5 million tons from the previous year and the second lowest level of international wheat trade since the 1979/80 season. Generally favorable weather has combined with a greatly expanded planted area to provide a world wheat production increase of 42.2 million tons over last year's crop. Global production will exceed consumption for the first time in four years, allowing for some rebuilding of severely depleted reserves. Nevertheless, stocks are not expected to return to levels carried in the 1980's when government inventories were extremely large. Exporters With half the market year completed, Argentina and Australia continue to set world prices at extremely competitive levels, placing Canada, the European Union and the United States under increasing pressure to move their supplies into export. Forecasted exports from Australia have been increased by 500,000 tons based on a healthy initial pace while the export forecast for Canada experienced a two million ton reduction following slower than expected business done to South Korea and China (see below). Importers Approximately 1.25 million tons bought during a four day period over a weekend instantly catapaulted India back to the status of a major buyer of imported wheat for the first time in four years. Five consecutive record harvests and a liberalization of the domestic grain trade had allowed India to emerge as a major exporter of wheat last year. However, a reduced crop for 1996/97 and rapidly diminishing stocks pushed the government to initiate significant imports ahead of the harvest in an (already successful) attempt to stem soaring domestic wheat prices. India's increased import demand has been more than offset by reductions in anticipated imports to other nations. An expected increase in purchases of wheat for feed by South Korea has failed to materialize, prompting a cut of one million tons in the import forecast there, while continued absence from the international market has resulted in an additional two million ton cut in the import forecast for China as well. WORLD RICE SITUATION AND OUTLOOK International rice prices were generally stable during the month of December. Among the major exporters only Pakistan and Thailand experienced significant price fluctuations, albeit in opposite directions. Nominal price quotes in Thailand rose $25-30 per ton during the month of December before jumping another $15 per ton during the first week of January. The primary cause of these price increases appears to be a temporary scarcity of exportable supplies as arrival of main crop rice into the market has been delayed by poor weather. In Pakistan, nominal price quotes eased steadily over the course of December and into January, falling a total of $7-10 per ton. Lack of large scale import demand have combined with record exportable supplies to provoke the decline. Meanwhile, export quotes in the U.S., Vietnam, and India have remained fairly static throughout December and into January. Exporters The calendar year 1996 estimate of exports by Thailand was raised 51,000 tons this month to 5.251 million tons. While trailing 1995 exports by almost 700,000 tons, 1996 exports were still the third highest ever for Thailand. With forecast production at a record high, Pakistan is expected to export a record 1.75 million tons of rice during calendar year 1997. Pakistan's production was boosted not only by record area for rice, but beneficial growing conditions allowed for record yields as well. Forecast 1997 rice exports by Vietnam were reduced this month to 2.75 million tons. Adverse weather conditions have led to a production decline of 750,000 tons (rough basis) compared to a year earlier. This will be the first year since 1993 that Vietnam fails to set a new record for calendar year rice exports. Importers Other Asia The calendar year 1997 import forecast for North Korea was increased this month from 200,000 to 400,000 tons. A recent increase in commercial purchases and rumored sales as well as a more favorable political climate appear to improve the likelihood of large scale aid and/or imports. Other Africa The CY 1996 import estimate for Senegal was increased 200,000 tons to 750,000 this month as the U.S. Agricultural Attache in Abidjan reports record arrivals in Dakar last year. Imports for 1997 are forecast to fall to only 400,000 as 1996's heavy imports have bolstered stock levels, limiting import demand. WORLD COARSE GRAINS SITUATION AND OUTLOOK World trade in corn in 1996/97 is expected to fall somewhat from 1995/96 levels, primarily due to increased competition from other feed grains. Forecast 1996/97 U.S. corn exports of 48.5 million tons are four million tons lower than 1995/96 exports and 10 million tons less than 1994/95 exports. China, once the world's second-largest exporter, and a net importer of nearly 1.2 million tons in 1995/96, is expected to have no net trade effect in 1996/97. U.S. export opportunities in Asia in 1996/97 are expected to remain good, as near- record import levels in the region are projected. Due to their aggressive pricing of corn for delivery later in the year, Argentina, in 1996/97, expects to export 8.25 million tons of corn, the highest export level since 1980. World trade in barley is expected to increase significantly in 1996/97. World stocks of barley, while projected to increase from 1995/96 levels, will still be below levels observed two years ago. Projected imports by the Middle East, particularly by the largest feed barley importer, Saudi Arabia, are expected to rebound sharply, due to increased feed demand. Asia continues to be a significant growth market, primarily for malting barley, as their barley imports are projected to increase to record levels in 1996/97. Importers Other Asia The 1996/97 forecast for South Korean corn imports was raised 1.5 million tons, to 8.25 million tons, as price and supply considerations are expected to result in South Korean feed millers using more corn and less feed wheat. The forecast import level is second only to the 1995/96 level of 8.96 million tons, which was the highest on record. Middle East The 1996/97 forecast for Saudi Arabian barley imports was raised one million tons, to 5.0 million tons, as approximately 3.8 million tons is believed to have been sold for arrival in the first six months of the Oct/Sept year. The forecast import level indicates a return to levels of the mid 1980s and early 1990s; it represents the fourth highest level on record. ENDNOTES TO GRAIN: WORLD MARKETS AND TRADE REGIONAL TABLES 1) Includes Canada, Mexico, and the United States. 2) Includes Central America, the Caribbean, and South America. 3) Includes Azores, Cyprus, Iceland, Malta & Gozo, Norway, and Switzerland 4) Includes Albania, Bulgaria, Czechia, Hungary, Poland, Romania, Slovakia, and former Yugoslavia. 5) Includes Bahrain, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, Turkey, United Arab Emirates, and Yemen. 6) Includes Algeria, Egypt, Libya, Morocco, and Tunisia. 7) Includes all other African countries except North Africa. 8) Includes Afghanistan, Bangladesh, Bhutan, India, Nepal, Pakistan, and Sri Lanka. 9) Includes all other Asian countries except South Asia. 10) Includes Australia, Fiji, New Zealand, and Papua New Guinea. OTHER NOTES Unless otherwise stated, stock data are based on an aggregate of differing local marketing years and should not be construed as representing world stock levels at a fixed point in time. Current and historical data on the European Union in this issue refers to the EU-15. Consumption statistics reflect total utilization, including food, feed, seed, and differences in marketing year imports and marketing year exports.
This circular was prepared by the Grain and Feed Division, Commodity and Marketing Programs, Foreign Agricultural Service, USDA, Washington DC 20250. Information is gathered from official statistics of foreign governments and other foreign source materials, reports of U.S. agricultural attaches and Foreign Service officers, results of office research, and related information. Further information may be obtained by writing the division or telephoning (202) 720-6219.
Note: The previous report in this series was the Grain: World Markets and Trade Foreign Agricultural Service Circular FG 12-96 December 1996. For further details on the world grain production, see World Agricultural Production, Foreign Agricultural Service Circular WAP 1-97 January 1997.
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