Soyabean crop blow puts farmers and hedge funds on alert
As Argentina struggles with a drought, the world’s farmers, food producers and even hedge funds are on alert.
The South American country is the largest exporter of soyabean meal, a key source of protein used to feed chicken, pigs, cows and fish around the globe. It is also the third-largest producer of soyabeans.
A severe lack of rain in Argentina’s soyabean belt in the northernpart of the country has damaged the crop, prompting analysts to slash production forecasts and sent prices for soyabean meal to a 20-month high and those of soyabean to the highest in a year. Hedge funds have increased their bullish bets on both.
“Two-thirds of the [soyabean] belt is short of moisture and undergoing yield reduction as a result,” said David Streit, a meteorologist at the Commodity Weather Group.
The lack of rain since the end of last year in Argentina’s main growing regions has ledto cumulative precipitation at less than half the long-term average.
“Can Argentina feed the world’s chickens and pigs?” asks Stefan Vogel, head of agri commodity research at Rabobank, a leading lender to agribusinesses, pointing to forecasts that the lack of rain will continue.
The markets have been here before. Unexpected adverse weather from Argentina can wreak havoc on the agricultural markets. In 2016, grains and soyabean prices shot up after flooding in the country’s wheat regions led to a jump in the markets.
However, the drought is producing some winners. Archer Daniels Midland, Bunge, Cargill and Glencore, which turn the beans into meal and oil, have seen their profit margins widen given the price for meal has jumped more than that for soyabeans.
But as the farmers saying goes, the cure for high prices is high prices. US farmers, who will start planting in the spring, may choose to plant more soyabeans, encouraged by the market rally. More supply will lead to lower prices. Mr Vogel says: “The risk [for marketprices] is that US fundamentals will come back into play.”
Emilce Terré, head of research at the Rosario Board of Trade, which is based near the country’s major export port, expects production to fall to a six-year low. “We were first estimating 52m tonnes, but we have cut this to 46.5m,” she says.