Grains powerhouse Argentina could produce a record corn harvest in the upcoming season while wheat output shrivels, a trend that will likely deepen over the years ahead as growers balance government policy risk against zooming market demand.
A severe drought in the U.S. Midwest has put No. 2 global corn supplier Argentina in the spotlight at a time of increasing world food consumption.
Growers in Argentina's vast Pampas grains belt complain about export restrictions on corn and wheat. While they lobby for a more open market, corn is the better bet thanks to genetically modified seeds that allow for ever-wider planting; it is also easier to sell.
These factors reduce relative risks for corn growers, who have feuded for years with President Cristina Fernandez.
Despite complaints from the farm sector over her hard-to predict policies, the 59-year-old Peronist easily won a second term last year, promising to increase further the government's role in Latin America's third-biggest economy.
Chicago corn futures have, meanwhile, soared 50 percent over the last two months. That has motivated Argentine farmers to ride the rally despite the country's December-January dry spell, which has limited cash needed for seeds and other investments as farmers hunker down for September planting.
Argentina is the world's sixth-biggest wheat exporter and top supplier to neighboring economic giant Brazil. But even as wheat prices are up 38 percent in the last two months, they are not keeping pace with corn.
So the risk of abrupt changes in government policy is seen as more severe for wheat farmers than corn growers.
"When the rules are changed arbitrarily and without notice, you have to be very careful about what you plant," said David Hughes, who manages 7,000 hectares (17,000 acres) in bread-basket province Buenos Aires.
Until two years ago, Hughes planted 1,200 hectares of wheat each year. As 2012/13 sowing winds up, he has only 260 hectares of wheat but plans to increase corn and soybeans.
All factors considered -- including crop rotation, irrigation, seeds, fertilizers and other inputs -- the cost of cultivating corn versus wheat in Argentina is about the same.
The difference, and one unlikely to go away anytime soon, is that corn is a lot easier to offload.
"Wheat in Argentina has different specifications for different uses. So, as happened with my 2010/11 wheat crop when I did not have the specifications needed for the domestic market, I could not sell it. The carryover was huge," he said.
"That hurts because, due to the export curbs, I could not sell my surplus on the international market. There was no way for me to change the grain into money," Hughes added.
Argentina is sowing 3.6 million hectares with wheat this season, down 22 percent from the previous crop year, according to the Buenos Aires Grains Exchange. The government expects the 2011/12 wheat season to have produced 13.2 million tonnes, a 16 percent drop from the previous crop year.
Official estimates are not yet available for 2012/13 Argentine corn output, but global seed giant Monsanto Co sees a 40 percent jump in the upcoming season, despite concerns about farm cash flow that prompted the exchange to warn of a possible fall in 2012/13 corn area.
The U.S. Department of Agriculture is nonetheless predicting record Argentine corn production of 25 million tonnes in the upcoming season, versus 21 million in the 2011/12 crop year.
Other analysts are also calling for a record 2012/13 corn crop of more than 23 million tonnes.
NEW EXPORT POLICY
The government added incentive for corn and wheat growers this year by ditching its incremental export permit system in favor of announcing the full amount of permissible exports early each season. The switch came too late to be fully implemented for wheat this year.
Farmers said the old system hurt profits by reducing competition among buyers. They welcomed the policy change as a possible step toward freeing exports altogether.
Plagued not only by farm-policy uncertainty but by trade and currency controls that have hurt confidence, as well as inflation clocked by private economists at more than 20 percent a year, Argentina is seen by many investors as a risky bet.
"CURSED"
Backed by voters in the heavily populated communities just outside Buenos Aires, Fernandez is unlikely to turn in a markedly business-friendly direction.
But she needs to bolster the farm sector as Argentina's economy slows under fallout from Europe's debt crisis. With global food demand expected by the United Nations to double by 2050, the country will surely remain a key supplier.
"Wheat and corn are cursed by the same export limits, but within that framework, corn has a lot of benefits that wheat doesn't have," analyst Manuel Alvarado Ledesma said.
New corn seeds have become available in Argentina over the last three years that allow farmers to plant in late November, right after they harvest winter crops such as barley.
"You used to have to plant corn in September only. Now you can plant in September and then again in November, which will increase the country's output over time," Alvarado Ledesma said.
Just last week, Argentina approved the use of a new variety of genetically modified corn developed by Dow AgroSciences and Monsanto.
Some environmental groups have raised concerns about genetically modified, or GMO, foods and have accused agribusiness of pursuing profit without concern for potential environmental and human health hazards. But the Fernandez administration is seen as a firm supporter of the technology.
Corn is also more interesting to farmers thanks to a wider base of buyers, including local millers, manufacturers of feed for cattle, pork and poultry, plus the export and biofuels markets. Argentine wheat, on the other hand, has only two sources of demand: flour mills and exporters.
"Even though the last policy change (toward a single yearly export quota) seemed to be in the direction of a freer market, most of us have really stopped listening," Hughes said.
The new quota system is, however, of interest to trading companies such as Bunge Ltd and Noble Group Ltd, which have major operations in Argentina.
The risks related to Argentina's quirky policymaking came into the spotlight last week when local grains prices took a hit from market rumors, later quashed, that the government was on the verge of raising grains export taxes.