(Reuters) - As the global soybean market continues to balance on knife’s edge amid strong demand and likely strong supply, all eyes are on South America’s growing season and Argentina in particular, where the weather has not exactly been perfect.
Argentina is the world’s No. 3 producer of soybeans, but it is best known for its soy product exports. The country supplies roughly half of the world’s traded soybean oil and soybean meal.
This past spring, Chicago soybean futures, along with soybean meal, were jolted as flooding rains threatened Argentina’s soybean harvest. Many core growing areas continued to be wet into the start of this year’s summer crop planting campaign, slowing the pace.
But some areas of the country have struggled with planting because rainfall has been relatively scarce. With the long-term forecast suggesting dryness could be a theme this season, people are starting to take notice.
Nationally, soybean planting pace lagged normal levels as of early December, but widespread rain showers allowed most Argentine farmers to make significant progress by mid-month.
In the week ending Dec. 15, soybeans were 67 percent planted, a 9 percent increase on the week prior according to the Buenos Aires Grain Exchange. This figure now stands closer to average pace.
Although the situation appears to have temporarily stabilized, Argentina is not out of the woods yet as soils remain dry in some areas and the rainfall forecast is iffy.
Unless the weather convincingly improves soon, these crops could be at high risk for the rest of the season, which could lend support to soybean prices.
Two-thirds of Argentina’s soybeans are grown in the provinces of Buenos Aires and Córdoba, and although the latter has been dry over the past week, parts of Buenos Aires have been dry for months (reut.rs/2hRWZCW).
Despite the planting-friendly rains over the last week in Argentina’s most populous province, departments in the east and south of Buenos Aires have been noticeably drier than other areas of the country. The southeast’s two main soybean-producing departments, Tandil and Tres Arroyos, account for 7 percent of national soybean production (reut.rs/2hohTWD).
Satellite-derived vegetation density – a measure of the overall greenness of the landscape – was near the 15-year low in Buenos Aires through mid-December. The vegetation index in several departments within the province mimicked those of the 2008/09 season, which was one of Argentina’s worst-ever soybean harvests.
And in many areas, the current vegetation index is worse than it was at the same point during the 2011/12 season, another troubling harvest for the South American country.
Elsewhere around Argentina, the vegetation index is nothing impressive. However, it is not wise to place too much stock in imagery readings at this point since the soybean crop is still in the very early stages and favorable rainfall could reverse Argentina’s luck heading into the new year.
Rainfall arrived at the wrong time in 2011/12 and hardly at all in 2008/09. Pending how the weather shapes up, rainfall patterns could potentially be what set 2016/17 far apart from these previous disaster crops.
The precipitation forecast for the next two weeks is mixed across the key production areas – not ideal but not terrible either (reut.rs/2hS1Nbq).
At present, the rain showers are expected to be confined in Argentina’s eastern belt, including some of the dry spots in Buenos Aires. But if the weather system materializes a bit further east or north, many of these areas could miss out.
The best rainfall chances over the next week in Buenos Aires are scheduled to arrive on Christmas Day, and some departments may receive up to an inch (25.4 mm).
Moving forward into 2017, Argentina will need more consistent moisture in order to curb further worries for its soybean crop. Since forecasting precipitation months in advance is often very difficult, we will have to keep a constant eye on the daily weather models throughout the next few months.
Many well-known seasonal forecast models appear to be baking in the La Niña scenario for Argentina’s summer, as the cool phase of the equatorial Pacific Ocean is known to suppress rainfall across the country’s key growing regions.
Argentina’s state weather agency, Servicio Meteorológico Nacional, tends to agree with this assessment as its outlook for the December through February period shows good chances for precipitation to range from normal to slightly below normal (reut.rs/2hoeKWS).
However, the dry outlook is somewhat marginal and is far from a slam dunk, especially since La Niña is in a relatively weak state.
And although dryness during planting and emergence is harmful to the plants’ health, lack of rainfall during February and March – when most of Argentina’s soybean plants are setting and filling pods – would be more than enough evidence to raise red flags on the harvest.
Reporting by Karen Braun in Chicago; Editing by Matthew Lewis