But rainfall has not been materializing as forecasted, and the dryness has caused a slowdown in plantings. There is also potential for a drought-inducing La Ni?a pattern to persist throughout most of the growing season. Argentina is the world's leading supplier of soyabean products, accounting for nearly half the global trade of soyabean meal and soyabean oil.
Chicago-traded soyabean meal futures surged 2 percent on Monday over concerns that Argentina's soy crop is at risk and commodity funds have been aggressive buyers of meal in recent sessions on the same fears. As of November 30, Argentina's soyabean plantings were 48 percent complete, similar to a year ago. The 2016 and 2017 planting campaigns ended November on the slowest note in well over a decade, but not by a lot.
In the United States, by comparison, soyabeans this year were 48 percent planted by around May 19, which would be way too early for the market to get excited about weather-related production problems. Weather in February and March will be the primary driver of Argentina's bean yields, so the recent dryness is not a guaranteed threat. However, it is serious enough to have notably slowed the planting pace, which gained just 7 points in the latest week.
The November 30 crop progress report, issued by Argentina's agriculture ministry, stated that rainfall amounts between 10 and 25 mm (0.4 to 1 inch) were necessary in the key growing regions for planting to resume at a normal speed. Argentine farmers have only about one month left before it will be too late to plant soyabeans, but they have less area to sow relative to year-ago as the plantings are predicted to drop.
Argentina's ag ministry predicts soyabean planted area at 16.8 million hectares. The Buenos Aires Grain Exchange pegs plantings at 18.1 million hectares, down from 19.2 million in 2016-17. The lower area has also driven smaller harvest estimates within the industry, though the range is variable. The ministry forecasts the harvest at 53 million tonnes while the US Department of Agriculture has a more optimistic view of 57 million tonnes.
Industry estimates peg the 2016-17 Argentine soyabean crop between 57.5 million and 57.8 million tonnes. For whatever reason, soyabean and soyabean product traders seem to have a very short memory when it comes to weather in Argentina. Any anomaly at all - wet, dry, hot, or cold - can trigger bullish feelings. It was only six weeks ago that the start to sowing in Argentina's top soyabean province of Buenos Aires was hampered by flooding, which was predicted to cause a shrink in area.
Concerns over dryness in the South American country are now the centerpiece of the soyabean and products market, very similar to December 2016 when analysts feared planting could be cut short and that emergence would be poor. Fast-forward to mid-January, which featured Argentine rains a bit too heavy for the market's liking. Chicago-traded soyabean futures had one of their biggest days of the year on January 17, and commodity funds bought soyabean meal futures and options at a record rate that week on worries that soy area and/or yield could be lost.
The Buenos Aires Grain Exchange promptly cut its 2016-17 production outlook to 52.9 million tonnes, which was ultimately unnecessary as output landed much higher last year. Something similar happened in April 2016 when analysts began dramatically slashing 2015-16 soy harvest hopes in excess of 15 percent amid flooding rains. In reality, only about 2 percent was lost and the 58.8 million-tonne harvest was the country's second-largest ever according to government data.
One standout factor this season is La Nina, the cool phase of the equatorial Pacific Ocean known to bring drought conditions to Argentina's crop-growing regions. This year, chances are good that La Nina will be stronger and longer-lasting than the weak event a year ago. This adds more validity to the market's longer-term concerns over the fate of Argentina's soyabean crop. But recent precipitation is no worse than last year.
Although a precipitation deficit opened up in November, most of the country's primary soyabean-growing provinces recorded more rainfall last month than during November 2016. Cooler-than-normal temperatures last month allowed soils to better retain that moisture. Rich sub-soil moisture that has been accumulated from heavy rain events earlier in the year is also helpful. Moisture in the deeper soils is much more extensive than usual and wetter than year ago in some cases. This means that just a little bit of rain can go a longer way.
Argentina received some rain over the weekend, but it was not very widespread and the total amounts were generally less than 25 mm (1 inch). Some of the dry areas certainly got what was needed to confidently resume planting, but most of the rainfall was concentrated west of the main production belt.