The Van Trump Report

A Deeper Look at Argentina’s 2020-21 Soybean Crop Prospects

Argentina’s 2020-21 soybean crop continues to be debated. The USDA lowered their estimate slightly from 48.0 down to 47.5 MMTs in yesterday’s March update. But this is still more optimistic than the Buenos Aires Grains Exchange, which currently pegs total soybean production at 46 MMTs. The latest crop condition ratings show only 15% of the country’s soybeans rated in good/excellent condition, compared to 64% at this time last year. The percentage of the crop rated in poor condition was 15%, versus 1% last year.

The crop got off to an uncertain start after overly dry conditions led to planting delays, and continued moisture deficits stressed the crop in major growing regions. By January, however, it looked like things had turned around and reports of above-average yields started floating around. But as weather tends to do, the trend reversed yet again and those improvements are looking a little more uncertain.

Lingering dry conditions have led to concerns about yield potential in southern Buenos Aires. Keep in mind, the provinces of Buenos Aires, Cordoba, and Santa Fe account for more than three-quarters of the country’s soybean planted area. USDA’s Foreign Agricultural Services post in Buenos Aires says that the wet and cool conditions of January allowed for a dramatic recovery of much of the drought-stressed single-crop soybeans across Argentina, particularly in Cordoba and Santa Fe. Those soybeans got off to a late start due to the earlier dry conditions though, so harvest is expected to begin a few weeks later than normal. Most growing regions, with the noted exception of southern Buenos Aires, are believed to now have sufficient moisture levels to carry the plants into grain fill. It will take another good soaking to finish the crop and reach potentially above-average yields, says FAS.

The situation is more complicated for second crop soybeans, which are generally planted starting in late November directly after wheat harvest. The tight production window leaves the second crop even more vulnerable to weather extremes, which the country is obviously experiencing this year. FAS says that cooler temperatures in Buenos Aires have helped reduce heat stress but rain is needed soon as the plants are entering peak water consumption phases.

Interestingly, FAS raised its 2019/20 Argentine crush estimate by +500,000 metric tons to 37.6 million, which is above the USDA’s official estimate. Analysts had been expecting total crush to actually come in below USDA forecasts at one point due to Argentine farmers hoarding soybeans but higher prices convinced producers to let go of some of their old crop supplies. The Buenos Aires post also maintained a 41 million metric ton forecast for Argentina’s 2020/21 soybean crush, which is slightly higher than USDA’s most recent estimate of 40.2 million metric tons, which was lifted in the March report from an estimated 39 million in February. There are several factors that will influence this year’s volumes, though, chief among them being farmers’ willingness to sell at prices that will keep crush products competitive on the global export market. FAS notes that as edible oil prices have climbed in recent months, there is concern that major import countries like India may seek out cheaper alternatives to soybean oil.

A couple of different dynamics are at play on the price front. First is Argentina’s famously unstable peso and its currency controls. Under revised foreign currency rules designed to prop up the peso, Argentina’s government has made it more difficult for farmers to receive U.S. dollars for their soybean exports. At the same time, the government has also allowed multiple “unofficial” exchange rates to proliferate but has kept the “official” rate far stronger. Argentina has recently allowed a slow devaluation of the official rate, so farmers suspect further devaluing lies ahead. Understand that since soybeans trade in U.S. dollars, a further devaluation would mean more pesos for their beans. But the threat of devaluation means Argentine farmers don’t want to be stuck holding those pesos, either, so they are timing sales to coincide with cash needs for things like inputs or hard assets that are more resistant to inflation.
Chinese demand will also be a major factor in how big a role Argentina’s soybean meal and oil will play in the export market in 2020/21. FAS says the extent of that demand will dictate whether Argentina ships whole beans before the U.S. producers begin harvesting the new crop. The return of a differential export tax on soybeans vs. soybean meal and oil has given crushers an advantage in buying local soybeans in comparison with whole bean exporters. Higher water levels on the Parana River will also facilitate soybean exports from Paraguay, though those supplies are expected to be delayed up to a month due to weather disruptions. (Sources: USDA FAS, Platts, Bolsa de Cereales, Reuters)

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