CHICAGO: It is normal at this time of year for corn and soybean traders to freak out over adverse weather conditions in Argentina, but the panic is much more warranted now than it has been in recent years.
Argentina's primary growing region has been notably dry since late last year, which slowed the second half of its corn and soybean planting efforts. The South American country is the No. 3 corn exporter and top supplier of soybean products.
When the US Department of Agriculture on Thursday dropped its Argentine soybean harvest estimate, Chicago soybean meal futures surged. Soybean futures came along for the ride, despite the fact that US soybean supply was projected to hit levels unseen in more than a decade.
CBOT corn touched 3-1/2 month highs on Thursday after USDA downsized Argentina's corn crop and sharply lifted US exports of the yellow grain as a result.
Although global inventories are more than sufficient, it is clear that the corn and soybean markets are fully dialed in to the drought south of the equator, and the situation is not idyllic.
Since Jan. 1, rainfall totals in lead bean-growing province Buenos Aires have been around 50 percent lower than in the previous three years, when the country as a whole harvested its three largest-ever corn and soybean crops. Most of the other main provinces are in the same boat.
Historically, this has led to below average harvests. Rain accumulation since the ramp-up of growing season in November has been very similar to 2011-12 in the major provinces. In 2012, Argentine corn and soybean yields fell in excess of 20 percent below the long-term average.
But this is not to say that Argentine crops will suffer the same fate in 2018. Soil moisture is much better than it was at this point in 2012, and the growing season is far from finished.
Weather models late on Thursday show the possibility for rainfall in Argentina over the next couple days and toward the end of next week. But all too often this season, forecasted rainfall slowly diminishes as the scheduled date approaches or the observed amounts prove underwhelming.
This can be characteristic of a La Ni?a environment, where the surface waters of the equatorial Pacific Ocean become much cooler than normal. Interestingly, a similarly behaving La Ni?a was also in place during 2011-12.
Argentina usually does not start harvesting soybeans in earnest until around mid-April, so there is still some time to go before deciding the country's crop has gone belly-up. But precipitation in the upcoming weeks may be the most crucial.
It might be helpful to compare Argentina's soy cycle to that of the United States. August rainfall is often considered most crucial for US soybean yields, and by comparison, Argentina's "August" falls between mid-February and late March.
The Argentine corn harvest also starts picking up in April, but it is much more drawn out than that of soy as corn is often being gathered into August. Normally, the soy harvest is mostly complete by early June.
But while the parched cropland desperately needs rain, there is such a thing as too much. To add insult to injury, some of Argentina's key provinces experienced torrential rains in February and March of 2012, and this may have cemented that year's harvest as one of the worst ever.
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