Over the past four years, Argentina’s corn  sector – the world’s second-largest exporter – has experienced difficult times: government intervention since 2006 and a severe drought in 2009-2010. Argentina only planted 5 million acres last year, the lowest in 20 years.
Nevertheless, last year saw a bumper harvest, thanks to plentiful spring rainfall. With the new corn-planting  season already started, things are looking up for Argentina’s corn growers.
Since the 1970s, Argentina revolutionized its corn production. In 1970-1971, 12 million acres of corn were planted. By 2006 corn acreage had fallen to just 7 million acres, but production increased by a whopping 170%.
“Argentina’s corn sector uses the latest technology and its approval system for new varieties is world class,” says David Hughes, a grain producer and CEO of TraulenCo, a farm-management and consulting business.
But government intervention has been the bane of Argentina’s corn growers, particularly since 2006, when the Argentine government took a more direct role in grain markets.
Besides a corn-export tax of 20%, corn also comes under the government’s grain-export licensing regime,administered by the national bureau of agricultural trade control, ONCCA, with the aim of keeping domestic prices low. Each November, ONCCA determines the minimum volumes necessary for domestic consumption. The excess can then be exported subject to the granting of a licence.
However, the licensing regime has not operated smoothly. According to Hughes, “the allocation of licenses was often arbitrary, and their issue was often suspended, when the government felt prices were rising in the domestic market.”
Stung by criticism and a decline in corn acreage, the system was operated in a better fashion in 2010. But despite this, there is a general lack of faith in it. “Many fear that the export market could be closed at will, leaving farmers unable to sell their corn,” says Martín Fraguío, executive director of Maizar, the Argentine corn chamber.
“If we didn't have government intervention in the corn market and export taxes, the area devoted to corn production would be at least 30% higher,” says Santiago del Solar, CEO of agricultural group Estancias Lauquen and non-executive president of Maizar.
Corn production will increase despite uncertainties
Despite the uncertainties arising from government intervention, the Buenos Aires Grain Exchange estimates that the area under corn will increase by 9% in the current sowing season, which is well underway.
Among the key reasons for this is good soil moisture in the Corn Belt, making sowing conditions ideal and the increase in world corn prices.
And last year, soybean  yields in some areas were affected by the fungal disease frogeye, so in these areas corn was a better crop. “Also there is optimism that export taxes for corn may be reduced,” explains Hughes.
Armando Mastrangelo of Buenos Aires grain brokers, NARI Cereales says “the excellent yields last year and the need to plant corn for crop rotation purposes” are other factors behind the increase.
Mastrangelo predicts, “that although average yields are unlikely to be as high as last year, production could still reach 23-24 million tons (U.S.), higher than last year’s 22.3 million.”
Should Argentine corn production stabilize or increase, Argentine exports would continue to eat into U.S. exports and potentially drive down prices for U.S. growers.