Brazil competition obliterates Argentina’s FOB Up River corn basis

17 Apr 2019 | Tim Worledge

Basis values for Argentina’s August and September loading FOB Up River corn cargoes could fall below the price of Chicago corn futures as the country’s exporters try to maintain their competitive edge as Brazil’s safrinha corn production reaches its peak.

“It is quite possible that Argentina’s corn premiums will come down to zero,” one market source said, referring to the differential between local corn prices and those seen on the Chicago Board of Trade’s corn futures contract.

The difference between the local physical market and the Chicago value is often referred to as the basis price, with some sources floating the possibility that Argentina’s basis could even dip below the values seen on the Board.

“I think it could turn negative; it depends on Brazil levels. We still need to have a big export programme for August, September and October out of Argentina,” a second source said.

Offers for August and September FOB Up River loading cargoes were heard as low as 3 cents over the September futures contract on Tuesday – down from premiums of around 20 cents over September that were circulating at the beginning of March.

Meanwhile, bids for larger panamax-sized cargoes, which tend to trade at a higher price to FOB Up River cargoes, were heard at just 2 cents over September for September loading.

While Brazil is the biggest single factor responsible for the collapse in Argentina’s values as cited by market sources, Argentina’s currency and its own huge corn crop are creating a powerful cocktail that is depressing prices.

Early April saw rumours that Brazil could be looking at a crop of up to 100 million mt, while strong yields in Argentina’s early harvest have also boosted expectations for Argentina’s final production figure – with some mooting 50 million mt as possible.

Any spike in corn futures prices on the Board could tip Argentina’s values into negative territory, while the country’s currency has laboured on international markets, losing value to the US dollar as it slumped to 42 pesos to 1 US dollar, versus 20 pesos a year ago.

“Currency depreciation brings huge pressure for premiums… if the local currency keeps losing ground against the dollar, premiums will fall,” the first source said.

“Brazil's struggles with bad logistics could stop it from going negative, but it all indicates Argentina will end in a discount,” a third source said.

“Which means nothing – what’s important is how flat prices fluctuate really, and then how the farmer sells their programs,” he said.