Soybean producers who were looking for a reason to be optimistic may just have been rewarded for their patience with this week’s report from Oil World forecasting service regarding Argentina’s soybean crop citing dry soil conditions for damaging the crop’s yield potential.
Since the late fall, almost all of the soybean production news out of South America has indicated that the 2013 production would be high. Coming off drought reduced 2012 crops in both North and South America, which have lead to this past year’s record high prices, the oilseed industry is firmly focused on this winter’s Brazilan and Argentenian production expecting that a big crop in this region would alleviate some of the world’s soybean supply concerns and reduce market prices.
There has been a lot of news to suggest that we should expect bigger soybean production out of South America this coming spring. The high prices which we experienced last fall encouraged Brazilian and Argentine farmers to plant record acres of soybeans, and the Chinese decision to cancel 960,000 tonnes of American soybean purchases has been widely accepted as a sign that the South American crop looks good, so it has caught the market off guard that Oil World would reduce the expected production of the world’s third largest producer of soybeans by 1 million metric tonnes. Last week the USDA estimated the size of Brazil’s 2013 soybean crop at 82.5 million metric tonnes, (compared to 66.5 million tonnes in 2012), and Argentina’s 2013 crop at 54.0 million metric tonnes, (up from 40.1 million in the previous year). Inside of that supply framework, Oil World’s decreased estimate only represents less than a 2% reduction in the size of Argentina’s crop, and even at this reduced size it still dwarfs 2012’s production totals, but it’s the first negative news on South American crop size and if the dryness continues, further downgrades are expected.
With the summer drought of 2012 still fresh in the market’s mind, the threat of a dry spell rings all of the alarm bells. The question that Ontario soybean producers have to wrestle with is whether Oil World’s analysis represents a selling opportunity on a short-lived weather rally, or whether this is the first signal of a fundamental reduction in the world’s soybean supply? At this point, the relatively small adjustment in one country’s forecast production would suggest that this is a selling opportunity, but the fun part of weather markets is that “it is dry until it rains.”