Soybean bulls have been excited over the excessive rains across Argentina’s Soybean Belt in recent weeks, but an expected flip to dry weather might wither their enthusiasm.
It’s been wet in the core soybean region in Argentina – the global leader in soy product exports. Most areas picked up between one and two inches (25 to 51 millimetres), but up to three inches (76 mm) were observed in already saturated locations like eastern Córdoba the weekend of Jan. 14-15.
The soybean market had a field day with this news the next week, as Chicago soybean futures rose to a six-month high in the most active March 2017 contract.
Traders have made the most of the weather story in Argentina this year. Soybean planting was delayed early on due to dry weather, but by the end of December, rains started to move in and ever since the turn of the year, the market has been fixated on possible flooding.
This scenario draws up memories of last year’s harvest, when excessive rainfall late in Argentina’s soybean season sent analysts into a frenzy, with many predicting losses of up to 10 million tonnes – roughly 17 per cent of the crop.
But last year’s harvest losses were closer to two million tonnes, totalling 58.8 million tonnes in the Argentine Agriculture Ministry’s latest figure. The U.S. Department of Agriculture holds a more conservative 56.8 million tonnes for the 2015-16 harvest, but still far from the low-ball estimates that were swirling around at the time.
USDA currently pegs the 2016-17 Argentina soybean crop at 57 million tonnes, similar to or slightly higher than the general analyst consensus.
But some market participants are throwing around a number closer to 50 million, which if materialized would instantly legitimize the bullish speculative position, even if neighbouring Brazil – the world’s largest soybean exporter – churns out a record crop as expected.
A loss this large could arise only under the most extraordinary circumstances, and based on the latest weather models, flooding will cease to be a concern in the near term.
The recent wet weather has many fearing that the soybean crop could be flooded out in many places, reducing harvested area and leaving the plants under significant stress – which would ultimately reduce the yield.
It has undoubtedly been wet as of late. Within the last month, many areas in the swath from eastern Córdoba to Entre Rios have recorded more than double the normal amount of rainfall.
In a side-by-side comparison, the recent accumulations over the entire core region of Argentina look very similar to those amassed by late April 2016, the only difference being soil moisture, which is relatively lower today than it was last year.
But the waterlogged fields are about to get a significant break. Forecast models are in relative agreement that the entire Agriculture Belt should be fairly dry for at least the next two weeks, which should give the water levels a chance to go down.
Temperatures are expected to be much warmer than normal for most of the same time frame, which will assist in the dry-out of saturated soils.
In its latest seasonal forecast issued at the end of December, Servicio Meteorológico Nacional – Argentina’s state weather agency – predicts that the January through March period is likely to be slightly drier than average across the core soybean production areas.
And it appears the agency does have somewhat of a track record, if last year is any indication. In December 2015, SMN predicted that the next three months might be notably wetter than average – which proved correct.
But both the short- and long-term outlooks for dry weather come as bad news for some of the peripheral areas that have been somewhat parched since planting.
About seven million tonnes of soybeans lie in the southern production regions of Buenos Aires along with the province of La Pampa, where precipitation over the past two months is only two-thirds of normal levels.
Any concern in the market regarding Argentina’s dry areas has been far overshadowed by wetness in the core region, but if rain continues to be scarce in these areas through harvest, at least 10 per cent of the crop could be affected.
But moving forward, even the areas that are extremely wet now will eventually need some additional moisture down the road, so if dryness truly does become a major theme over the next couple of months, the possibility for losses may re-enter the picture.
Word from the ground confirms that Argentina’s core is in fact wet, but considerable damage to the soybean crop is far from a done deal.
Analysts from the agriculture research group within Thomson Reuters hit the ground in Argentina last week to scout out conditions. They covered the primary soybean corridor of northern Buenos Aires, southern and central Córdoba, and southern Santa Fe – some of the most productive ground in the country.
According to senior analyst Hong Xu, ditches and streams along the route were filled with rushing water – evidence of the abundant recent rainfalls – but the soybean fields were not yet overcome with moisture.
“Whenever standing water was present, it usually appeared only in small, low-lying areas of the fields. We barely saw any fields on our route that were 50 per cent or more inundated, and even that sight was not too common,” said Xu, who added that southern Santa Fe was the wettest leg of the trip.
Based on the team’s observations, Xu does not believe Argentine harvest losses will be as severe as some analysts project, especially if the weather shifts to a more benign pattern in the coming months.
“There were some fields in which plants were yellowing, indicating moisture stress,” he said. “But for the most part, plant health looked OK, particularly in fields that were planted in the first round (first crop).”