Argentina and Brazil now supply export markets that traditionally bought American. The U.S. is no longer the dominant corn supplier for countries like Colombia, Taiwan and the Dominican Republic. Millions of untapped arable acres and low production costs make Brazil a formidable competitor. But the story is different in Argentina, where most cropland is already under cultivation and corn competes with wheat and soybeans for acres.

How can a nation that produces less corn than Indiana be so competitive internationally?

“Argentine policy is set on controlling inflation,” explains Kurt Shultz, regional director for the U.S. Grains Council. “It’s a very funky situation where depressed internal prices [for corn] subsidize feed prices so Argentina can be very competitive on meat exports. Their government would rather export poultry and swine than corn.”

To achieve this, government policies aim to keep 8-9 million metric tons (mmt) (315-355 million bushels) in the country for domestic use. Any production beyond that will be exported under a license system that gives Argentine corn a price advantage over U.S. exports.

There’s no reliable schedule for when licenses are announced, making it hard for farmers to know how much corn will be released. Limited grain-storage infrastructure, high interest rates and a 20% tax on corn exports create a disincentive for farmers to hold grain – or to increase corn plantings, according to Jay O’Neil, of Kansas State’s International Grains Program.

“The economic incentives are to sell now, rather than wait,” he says.

“It creates a bad system where farmers get $40-50 less per metric ton ($1-1.25 less per bu.) than they would in the U.S, where Argentine farmers are just taking what they can get,” Shultz explains. “On the other hand, exporters can buy on the local market and wait for a license.

The small group of multinationals with access to licenses functions as a cartel that can set internal prices well below the world price.

“That’s why multinational grain merchandisers can afford to sell Argentine corn so much more cheaply than U.S. corn,” he says.

Argentina’s dominance in soybean meal exports also makes its corn more competitive in international markets, according to Shultz.

“They tax soybeans more than soybean meal, creating an incentive for exports to be soybean meal. It’s made them the largest meal exporter in the world, and it means they can sell 20,000 tons of corn and 5,000 tons of soybean meal on a total vessel basis, and the SBM subsidizes the corn shipping costs.”

“Under the current tax structure, I don’t see any real motivation for them to plant more corn,” says O’Neil. “I would view Argentina as a steady supplier, but I don’t see them doing much more five to ten years from now, other than what yield increases allow.

“To the extent better yields and the weather allow increased production, there’s pretty much no place for it to go but the export market. Otherwise, there’s no big, dramatic changes for Argentina.

Shultz’ assessment is similar. “They plan to build several ethanol plants in the next two years, but that won’t have a dramatic impact on consumption. But if and when Argentina changes its export tax on corn, there will be an incentive to produce more.”