(The opinions expressed here are those of the author, a market analyst for Reuters.)

 

FORT COLLINS, Colo. - It has been no secret that Argentina’s soybean crop has been headed for potential disaster with a recent stretch of dry weather capped off by last week’s record-setting heat.

But with plentiful and potentially excessive rains expected over the next week or so, it may be tempting for some market participants to dismiss forward risk, a dangerous move considering the most important timeframe lies ahead.

Even if upcoming rains play out as expected, Argentine farmers are unlikely to reap satisfying yields. However, January moisture can be game-changing, separating tough years like this one from catastrophic ones like 2018.

Last year’s harvest may advise on possible outcomes when a rainy January spell inserts itself into an otherwise dry season. The most obvious link with last year is the presence of La Nina, which occurs when surface waters in the equatorial Pacific Ocean are unusually cool.

La Nina conditions are often associated with drought in Argentina, the top exporter of soybean products, though it does not guarantee poor yields. But all the country’s worst soy and corn outcomes occurred during La Nina episodes.

Last week, the U.S. Department of Agriculture made an unexpectedly large reduction to the Argentine soy production forecast, to 46.5 million tonnes from 49.5 million in the prior month. That is the agency’s biggest January percentage cut in well over a decade, possibly signaling a more proactive approach than in the past.

Argentina’s Rosario grains exchange also got aggressive, reducing the soybean crop forecast to 40 million tonnes last Wednesday versus the previous outlook of 45 million.  However, upcoming rainfall chances have further solidified since then.

2021 CLUES

When La Nina conditions are present, November and December rains are almost always below average, and the opposite is true during El Nino. But the same correlation is not guaranteed in the following three months.

Sufficient rainfall is most critical to Argentina’s soybean yields in February and early March, and January totals can set the tone. January 2011 and 2021 rains were plentiful despite La Nina’s presence and prominent dryness during planting.

In those years, February and March rains came in below average, and last February was particularly dry with totals nearly half of normal. Soybean yield last year dropped about 11% below the long-term trend, while the 2011 harvest was 6% off typical levels.

Those results are decent compared with yield penalties near 25% during the 2017-18 La Nina-hit effort. January 2018 was unusually dry, but the next two months were easily the driest in multiple decades, and the soy crop had no chance.

January 2022 has been extremely parched, but forecasts suggest that upcoming rains could bring the month’s total to at least average levels. If realized, this moisture could reinstate the possibility of near average soybean yields across Argentina, though crop health has deteriorated.

Crop conditions were a bit worse last year. As of Thursday, Argentina’s Bolsa de Cereales rated 31% of soybeans good or excellent versus 48% a week earlier and 14% a year earlier. Some 29% was poor or very poor compared with 13% in the prior week and 23% in 2021.

February weather can be of particular risk to Argentine soybeans during La Nina years, and that may be true this year. Refinitiv’s weather research noted on Tuesday that longer-term forecasts are hinting at the return to a dry pattern for Argentina at the end of the month, which would mark another 2021 similarity.

USDA’s yield outlook is slightly above last year’s result but about 10% below normal levels. Comparing 2021 and 2022 conditions and weather patterns implies the agency’s assessment is likely fair for now assuming the imminent rains do not disappoint.

Karen Braun is a market analyst for Reuters. Views expressed above are her own.

 

(Editing by Leslie Adler) ((karen.braun@thomsonreuters.com; Twitter: @kannbwx))