February 21 – A Secondary Assessment of Argentine Soybean Potential

If you’ve been living under a rock, Argentina is experiencing a negative-for-soybean-production La Nina event

So what does a final production number look like?

If you’ve been living under a rock, Argentina is under a La Nina event that’s very negatively impacting the production potential for both the corn and soybean crop there. 

So what does a final production number look like? 

Let’s first start with where the market is currently sitting. 

Estimates for the 2017/18 Argentine soybean crop started at around 56 – 57 million tonnes, nearly matching last year’s harvest of 57.8 million tonnes. 

However, consistently hot temperatures and the lack of rainfall from seeding through germination and now into the growing season means 56 or 57 million tonnes is certainly too high of a forecast. 

After all, the conditions have been the driest in nearly 4 decades! And thus, outlier events like this call for outlier analysis. 

We’ve seen the USDA drop from 56 million to 54 million tonnes, as of the most recent WASDE report just a few weeks ago.

Some private estimates, like the Buenos Aires Grain Exchange is pegging the Argentine soybean crop at 50 million tonnes, all the while acknowledge that with 56% of the crop rated poor-to-very poor, further downgrades were likely. 

We’re not into the back of February, which is smack dab in the middle of the pod-setting and pod-filling timeline within the growing season. For comparison, it’d like early-to-mid August for most North American soybeans.

Currently, the USDA is calling for a harvested soybean acreage number in Argentina of a little more than 45.7 million acres. But, there’s starting to be speculation that more than a few of these acres could go unharvested. 

Let’s paint two scenarios out here: 

The first is a 5% abandonment rate. This would mean 43.4 million acres of soybeans would get harvested in Argentina.

Currently the USDA is estimating that nearly 3 metric tonnes per hectare, or 45.9 bushels per acre, will average in Argentine soybean fields.

AgResource is currently using an average yield of 38.7 bushels per acre, or about 13% lower than the UDSA’s current forecast and I’m content with that number today, given the dry conditions.

Using that average, we’re now talking roughly a 45.7 million tonne crop (or around 1.68 billion bushels if you’re converting tonnes to bushels at GrainUnitConverter.com)

The second scenario is a 10% abandonment rate, meaning about 41.14 million acres of Argentine soybeans would get harvested. Again, using an average yield of 38.7 bushels per acre, this would turn out to be a 43.3 million-tonne crop. 

I’m going to throw two more scenarios at you though. 

The last time we saw a drought in Argentina was the 2008/2009 crop year. That year, average soybean yields in Argentina fell 26% from their five-year average to just under 30 bushels per acre. 

Now, in the subsequent two decades, agronomy practices and seed genetics have drastically improved, thus a 26% reduction might not be the case. 

But maybe 20% is? 

The average soybean yield in Argentina for the past five years has been 2.9 metric tonnes per hectare or 43.2 bushels per acre.

A 20% reduction from that five-average would be a 34.57 bushels per acreage, or 2.32 metric tonnes per hecatre. 

At a 5% abandonment, this is a 40.78 million tonne crop. 

At a 10% acreage abandonment, this is a 38.63 million tonne crop. 

So our range is 38.6 to 45.7 million tonnes. 

This is where volatility comes into play. Every speculator and their mother are trying out these different production possibilities and placing their bets. 

My guess, today, is, if we don’t see an improvement conditions, that we end somewhere on the higher end of this range, closer to 45 or 46 million tonnes of soybean production in Argentina. 

Today though, the market is pricing in some sporadic rains and something closer to 48 or 49 million tonnes of Argentine soybean production. 

If we lose another 3 million tonnes of production in the next two months, it’s very possible we see another 75 cents to $1.25 USD / bushel added to today’s prices. 

Should we bet the farm on this? Absolutely not, because there’s no guarantee that this could happen. But we’re content sitting at 20% sold right now, and our targets for the next sale for old and new crop remain in place (and as discussed in your weekly Sunday morning digest). 

Our targets are first, followed by where soybean prices on the futures board ended on Wednesday, February 21, 2018:

• March 2018: $10.65 ($10.323)
• May 2018: $10.75 ($10.433)
• July 2018: $10.90 ($10.528)
• November 2018: $10.65 ($10.283)
• January 2019: $10.75 ($10.315)

 

About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.