Argentina is expected to help replenish global corn supplies with a record harvest this season, even as a fast-growing domestic ethanol industry puts new demands on the world's No. 2 exporter.
Ethanol output in the South American country should more than double next year as new corn-fueled plants come on line to meet demand generated by a biofuels law that says gasoline must contain five per cent ethanol.
But in contrast to top corn exporter the United States, where ethanol plants snap up a hefty 40 per cent of the harvest, Argentina's distilleries are forecast to absorb just 1.2 million tonnes -- a fraction of the country's steadily growing harvests.
The government expects a record crop this season of 24.5 million tonnes. That would mean the ethanol industry's needs represent less than five per cent of production.
Total corn exports from Argentina, which also has a big livestock industry, are set to rise to 18.5 million tonnes from 16 million tonnes in the last drought-hit campaign, according to estimates by the U.S. Department of Agriculture.
Ethanol production should rise from about 250,000 tonnes this year to 600,000 tonnes in 2013, a jump of 140 per cent, as new plants start operating, according to the state-run National Biofuels Program.
In 2011, Argentina produced just 130,000 tonnes of ethanol.
But corn industry sources in Argentina say that rather than threatening exports at a time of tight global supplies, the ethanol boom could boost plantings in areas far from ports where high transportation costs make it an unappealing export crop.
"It will stimulate corn planting and production," said Martin Fraguio, executive director of Argentine corn industry chamber Maizar.
"Corn is an excellent raw material to use near the farm. The further you have to take it, the worse it gets," he added.
In the U.S., the hefty strain placed on supplies by the compulsory ethanol blend requirement is driving U.S. state governors to push for a waiver to help cool soaring feed costs.
Argentine producers play down any threat to the country's supplies of feed for cattle feedlots, poultry and pig farms.
"In some circles, people talk about ethanol from the perspective of energy versus food. Our vision is that ethanol produces energy and food through DDGs (distillers' dried grains) used for animal feed," said Daniel Biga, president of the Argentine Co-operatives Association (ACA).
DDGs emerge once corn has been processed into ethanol and have become an increasingly popular ingredient in cattle and hog diets in the United States.
Corn will soon overtake sugarcane as Argentine distillers' main feedstock, partly because corn growers have more scope to expand plantings to cater to the new market created by the government's compulsory blending requirement.
Government incentives have already helped Argentina become the largest exporter of biodiesel, made from soybean oil.
Local energy companies are required to sell diesel containing seven per cent biodiesel and for years benefited from a favourable program of export levies. As with ethanol, the blend requirement has been phased in gradually so production could catch up with demand.
But the government stunned the industry when it decided last August to raise the export tax on biodiesel and cut its domestic price, a double-whammy that drew complaints from small- and medium-sized processing companies.
Officials later partially rolled back the changes, admitting glitches with the initial plan.
Despite lingering uncertainty caused by the regulatory reforms, most industry sources say the ethanol sector is unlikely to be undercut by similar policy moves.
"The ethanol industry has a different function, which isn't geared toward exports at the moment as was the case for biodiesel, (so) we don't expect measures similar to those of biodiesel to affect ethanol," said ACA's Biga.
ACA expects its first corn-based ethanol plant to start producing 92,000 tonnes per year at the beginning of 2014 after it invests US$110 million.
Others remained wary. "There's no consistency in government policy and if you're an investor and you're investing money long-term, like you do with an ethanol plant, you need to have a sense of consistency," said Carlos St. James of the Latin American and Caribbean Council on Renewable Energy.
Ethanol in Argentina came exclusively from sugarcane until last August, when the locally owned Bioethanol Rio Cuarto opened the first corn distillery with annual capacity of 57,000 tonnes.
Agroexport company Vicentin plans to open a facility this year with capacity to make 15,500 tonnes of corn ethanol.
-- Maximilian Heath reports for Reuters from Buenos Aires. Writing for Reuters by Helen Popper and Hugh Bronstein.