Short soybean crop in Argentina bullish for market

Cuts in Argentina’s projected soybean production are supportive for the market. That South American country’s drought resulted in the USDA’s April harvest projection for Argentina dropping six million tons to an estimated 27 million metric tons. That’s a further reduction from Argentina’s March production forecast, which also exceeded expectations. At the time of the March report’s release, Mac Marshall, vice president of Market Intelligence for the United Soybean Board, talked about the significance to U.S. soybean growers of the shrinking Argentina soybean crop.

“When you consider that Argentina, at the start of the season, was projected to produce around 50 million tons and now we’re talking about basically two-thirds of that, it’s pretty substantial,” said Marshall, during Commodity Classic. “Imagine saying that in the U.S., instead of averaging 50 bushels an acre, we’re getting 33 bushels an acre. That’s a substantial drop-off.” The USDA’s March World Agricultural Supply and Demand Estimates for Argentina were 33 million metric tons.

In an interview with the South Dakota Soybean Network, Marshall pointed out that Argentina is the world’s largest soybean crusher and is the world’s largest exporter of soybean meal and soybean oil. Argentina’s drought had already strengthened soybean meal prices leading up to the USDA’s March projection. “What this means as well, is that we’ve got another eight million tons knocked off the [March] global balance sheet. The U.S. inventory is already expected to be tight at the end of this marketing year when we close on August 31^st, going into the new-crop marketing year with overall tightness,” said Marshall. “Obviously, that’s going to be supportive for prices and the harvest-time prices that farmers are looking into, but we still have a price break between where we are in the cash market and where we are in the deferred harvest-time futures contract.”

Marshall laid out several market factors to consider, including soybean oil price pressure resulting from the EPA’s announcement of lower-than-expected renewable volume obligations. Longer-term, however, projections change. “You see meal prices coming down, you see oil prices coming back up; that’s what the market’s expecting over the next 18 months, so hopefully that’ll rebalance and if that meal price comes down and oil prices come back up, the soybean values stay strong,” said Marshall. “But we’re also allowing for more cost competitiveness for soybean meal, which is really important. Because our number one user of soy on a volume basis, even as we’re really excited about bio-fuels expansion in the United States, is animal agriculture.”