Required Report - public distribution

**Date:** 3/5/2004

**GAIN Report Number:** AR4013

AR4013

**Argentina**

**Grain and Feed**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Bob Hoff

U.S. Embassy

**Prepared by:**

Kari Rojas

**Report Highlights:**

Wheat production is forecast to increase slightly in Marketing Year (MY)
2004/05, up 6 percent from the previous marketing year. Total wheat
production is forecast at 14.3 million metric tons (MT). Corn, rice, and
sorghum are expected to remain stable. Production for these commodities
for MY 2005/06 is 12.5 million MT, 596,000 MT, and 2.1 million MT,
respectively. Corn feed domestic consumption is forecast to increase but
should be offset by a fall in non-feed consumption. Total MY 2004/05
domestic corn consumption is forecast at 4.1 million MT. Wheat and wheat
product exports are expected to continue increasing, as are rice
exports. Sorghum and corn exports, however, are expected to be stable or
down slightly.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Buenos Aires \[AR1\]

\[AR\]

Table of Contents

[EXECUTIVE SUMMARY 3](#executive-summary)

[PRODUCTION 3](#production)

[Wheat 3](#wheat)

[Feed Grains 3](#feed-grains)

[Rice 3](#rice)

[CONSUMPTION 4](#consumption)

[Wheat and Wheat Products Consumption
4](#wheat-and-wheat-products-consumption)

[Feed Grains Consumption 4](#feed-grains-consumption)

[TRADE 5](#trade)

[Wheat and Wheat Products Trade 5](#wheat-and-wheat-products-trade)

[Feed Grain Trade 5](#feed-grain-trade)

[Rice Trade 5](#rice-trade)

[POLICY 6](#policy)

[Income Tax 6](#income-tax)

[Export Taxes and Rebates 6](#export-taxes-and-rebates)

# EXECUTIVE SUMMARY

The forecast for the out year does not include major changes in area or
production. Wheat area and production is forecast to increase slightly.
Corn, sorghum, and rice are forecast to be stable.

The agricultural sector fared well the past year despite slow economic
growth in other areas of the economy. Producers are in a very good
financial position due to the sharp peso devaluation of early 2002,
which has made Argentine exports more competitive, and strong export
demand. Throughout the Argentine countryside, one can see new
investments in silos, fences, machinery, and inputs. The countryside is
dotted with white 'chorizos', or silo bags, as producers take advantage
of this low cost on-farm storage development. The advent of the silo bag
has also allowed farmers to better control the timing of the sale of
their crop.

While drought affected wheat production in some parts of the country,
other areas noted record level yields. Drought also delayed corn
planting and development in some areas of the country.

# PRODUCTION

## Wheat

Anticipating yields equal to the five-year average of 2.384 metric
tons/hectare (MT/Ha), Post forecasts MY 2004/05 production at 14.3
million metric tons (MT). Harvested area is expected to increase
slightly from last year's lower than expected area, a result of drought.
Post forecasts Marketing Year (MY) 2004/05 (December -- November)
harvested area at 6 million Ha; up from MY 2003/04 estimated 5.7 million
Ha.

Overall, MY 2003/04 harvest had good results. The major wheat producing
areas (Buenos Aires Province and Southern Santa Fe Province) showed
better than average yields due to rains during October -- December that
helped develop well-filled spikes. The absence of disease, which
affected MY 2002/03 production, also helped production in this area.
These higher yields offset losses from drought in other parts of the
country.

## Feed Grains

Post forecasts MY 2005/06 corn production at 12.5 million MT.

Harvested corn area is expected to fall slightly in MY 2005/06. The
decrease in acreage is mainly due to the high cost of feed grain
production relative to soybeans and the increase of corn for silage.
Most producers that own their land will continue planting corn, as it is
an important component in the rotation scheme of corn, wheat, and
soybeans. However, producers who work rented land are less likely to
plant corn because of lower costs of production for soybeans and because
they are less concerned about the long-term productivity of the land.

## Rice 

Rice production is expected to remain stable for MY 2005/06. Post
forecasts harvested area for MY 2005/06 at 170,000 hectares and
production at 596,000 MT (milled).

Harvested rice area is placed at 170,000 Ha in MY 2004/05. As of
February 27, only 41,000 Ha were harvested. The bulk of the harvest will
occur over the next 3 -- 4 weeks. Post expects average yields and
estimates rice production for MY 2004/05 at 596,000 MT (milled).

# CONSUMPTION

## Wheat and Wheat Products Consumption

Post forecasts MY 2004/05 domestic consumption at 5.2 million MT,
unchanged from the previous year. Seed use is forecast to be
approximately 720,000 MT (120 kg/Ha).

Post estimates MY 2003/04 domestic consumption will be flat at 5.2
million MT. An increase in domestic consumption is not probable as
demand for wheat products (bread, cookies, pastas) is relatively
inelastic. As income changes, the Argentine consumer does not change his
overall consumption of wheat products, although the composition of
consumption may change; i.e. he may substitute pasta for bread or vice
versa.

According to statistics published by the Argentine Secretariat of
Agriculture, 5.135 million tons of wheat was milled for flour and feed
in MY 2002/03. Durum wheat accounted for only 3 percent of total wheat
milled. Wheat milled for feed (durum and common) in MY 2002/03 totaled
approximately 4,300 MT, down significantly from 27,300 MT in MY 2001/02.
The availability of cheaper soy meal for animal feed is one factor that
led to the decrease in use of wheat in feed.

Of the total wheat milled in MY 02/03, 703,000 MT of flour, pasta, and
pre-mix (wheat equivalent) was exported. Seed use is estimated at
708,000 MT (120 kg/Ha). Total domestic consumption for MY 2002/2003 is
estimated at 5.14 million MT.

## Feed Grains Consumption

Post forecasts MY 2005/06 total domestic corn consumption stable at 4.1
million MT. Domestic feed consumption, however, is expected to increase
to 2.7 million MT.

For MY 2005/06, Post is forecasting domestic consumption will remain
stable at 1.9 million MT. Post's estimate for MY 2004/05 sorghum
domestic consumption is lowered to reflect a decrease in production.

There are 14 functioning corn-milling plants in Argentina with an
installed milling capacity of approximately 4,000 MT/day divided 75:25
percent between wet millers and dry millers. The Government of Argentina
reports 1.76 million MT of corn was milled in MY 2002/03. During the
first ten months of MY 2003/04 (through December 2003), 1.72 million MT
of corn was milled. In 2002 (January -- December), wet millers produced
about 500,000 MT (800,000 MT grain equivalent) of corn sweeteners
(glucose, dextrose, fructose 42 and fructose 55).

Dry milling is not as widespread as wet milling. Statistics on dry
milling products (flour, semolina, etc) are not readily available,
however, it is estimated only about 1 percent of corn production is
destined to dry milling.

The animal feed industry makes up the major component of domestic corn
consumption. Balanced feed rations are growing in popularity as more and
more producers are turning toward feedlot systems of production to free
up grazing lands for crop production (mainly soybean). Poultry
production, as well, is expected to increase in the next few years,
which will contribute to growing demand. Industry contacts estimate that
the poultry industry consumes nearly 55 - 60 percent of the domestic
corn supply.

There is anecdotal evidence that there has been an increase in the
amount of corn that is converted to silage and never enters the formal
marketing chain. This activity is usually carried out by producers who
are producing corn as part of a rotation to improve their soils and not
producing corn to sell in the market. The corn returns valuable
nutrients to the soil and provides feed to the producer's livestock but
does not generate enough income to justify selling it as grain. Corn
silage is not included in the calculation of domestic consumption as it
is very difficult to quantify. However, one way to estimate silage is to
look at the difference between planted area and harvested area.
According to the Argentine Secretariat of Agriculture, in MY 2002/03
only 75 percent of planted area was harvested. The 25 percent loss could
be attributed to silage, or the area may not have been harvested due to
disease.

Other industry sources estimate domestic consumption, feed and non-feed,
closer to 6 million MT. These estimates are based on calculations of
feed per animal in the livestock and poultry sectors as well as milling
rates for flour and sweeteners.

# TRADE

## Wheat and Wheat Products Trade

Post forecasts MY 2004/05 exports will continue in an upward trend as
exporters look to take advantage of the favorable exchange rate. Post
forecasts MY 2004/05 exports at 9 million MT. Brazil will continue to be
the primary export destination for wheat products, especially bakery
pre-mixes (see Policy section).

According to NOSIS, a private source, wheat and wheat product exports
totaled 6.68 million MT (wheat equivalent) in MY 02/03. The following is
a breakdown of wheat and wheat product exports in MY 02/03.

![](media/image2.wmf)

## Feed Grain Trade

Post forecasts MY 2005/06 corn exports will remain stable at 8.5 million
MT as the decrease in production and slight increase in domestic
consumption tighten exportable supply. Similarly, Post estimates MY
2004/05 corn exports will fall to 8.5 million MT.

NOSIS reports corn exports in the first eleven months of MY03/04,
totaled 10.2 million MT. Post increases its estimate of MY03/04 to 11
million MT to reflect this data.

Post forecasts MY 2005/06 sorghum exports will remain stable. In MY
2004/05 sorghum exports are expected to fall compared to MY 2003/04 due
to a fall in production.

Sorghum exports during the first eleven months of MY 2003/04 totaled
640,000 MT, in line with Post's estimate of 650,000 MT.

## Rice Trade 

Post expects MY 2004/05 rice exports will increase as a result of higher
production and stable domestic consumption. Post estimates MY 2004/05
exports at 325,000 MT, in line with USDA/Washington's estimate.

NOSIS reports during the first 10 months of MY 2003/04, Argentina
exported 121,228 MT (milled) of rice. During the same period
approximately 16,000 MT of (milled equivalent) rice were imported.

# POLICY

## Income Tax 

Changes to the income tax regulations earlier in the year require that
exporters pay income tax on the price of the commodity at the time a
sales contract is written or on the date of export, whichever is higher.
The effects of this policy change are not immediately apparent.

## Export Taxes and Rebates

Export taxes for grains and their by-products range from 5 -- 20 percent
depending on the level of processing. There has been a noticeable
decrease in flour exports (H.S. code 1101) over the past year possibly
due to its 20 percent export tax. Curiously, pre-mix (wheat flour
combined with other ingredients for bread making; mainly used in the
baking industry) exports (H.S. code 1901.20) increased significantly.
Pre-mix exports are only charged a 5 percent export tax. In Brazil, the
top market for Argentine pre-mix, there is worry that this product is
displacing local production due to its lower price. Brazilian millers
insist the product is no more than wheat flour mixed with just enough
salt to fall under the lower taxed 'pre-mix' category in the tax
schedule.

Exporters are also eligible for export rebates which vary according to
the product. Processed products are rebated at a higher rate than
primary products. These rebates are supposed to offset the taxes
collected on the product during the manufacturing process.

Export taxes and rebates are as follows:

![](media/image3.wmf)

![](media/image4.wmf)

![](media/image5.wmf)

![](media/image6.wmf)

![](media/image8.wmf)

![](media/image10.wmf)