Does Argentina Really Matter?

Published on: 13:12PM Jan 22, 2009
Does Argentina Really Matter?
Sources within South America’s Argentina suggest the current dry weather represents the worst drought in recorded history, more than 100 years. Less than 24 hours ago, Argentina’s Agriculture Secretariat announced a 7.3% reduction in soybean plantings and 2.4% in corn. With the drop in soybean plantings, it needs to be noted, plantings are nearly identical to year earlier levels.
            Just how serious is the present drought? Serious enough for the USDA agriculture attaché within Argentina to begin scouting production potential in Entre Rios on January 26 and working outward through the 28th and have results on January 30th just days in front of the February  10th USDA crop report.
            The most obvious question is “does Argentina soybean production really matter?” The most immediate answer is yes, as it represents the largest exporter of soybean meal and soybean oil when compared to neighboring Brazil and the United States. Five year trends clearly indicate Argentina as a growing exporter of soybean meal, soybean oil and soybeans.
            Soybean production for Argentina has recently been tempered by drought but one must also be advised with rising fertilizer, seed cost, credit issues and declining soybean prices year on year, the overall environment is less than incentive driven. It must also be noted the friction between major farm groups and the country’s government is a far from cozy. Just as exports have been trending higher for the most recent five years, ending stocks of soybean meal and soybean oil have trended lower but continue to more than exceed those of Brazil and the US, implying a notable buffer even with the drought. In front of the attaché’s observation travel next week, news wire reports cite one of four major farm groups estimating the soybean crop from 47 million tonnes to 37 million tonnes.
            Present USDA estimates for Argentina’s soybean end stocks are 22.2 million tonnes, compared to 21.8 million tonnes a year earlier and well above 15.97 million tonnes five years earlier.
            Allendale advises the less than likely odds USDA may lower its present Argentina soybean production estimate of 49.5 million tonnes as aggressively as the Argentina farm group has, but lower is most likely in the cards. Allendale advises to use the recent strength in soybean futures to clean up remaining 2008 soybean cash sales in front of the Feb 10th USDA crop report.
            Yes Argentina is a major player in the world oilseed market, however can its losses be bridged into northern hemisphere plantings and production in 2009? Have the recent China government procurement of domestic soybeans for state reserves come at a better time? Can March soybean futures break out of its recent trade range of $9.60 to $10.60 before the USDA Feb crop report?
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