May 21, 2004

 

 

Argentina's Soybean Prices Drop As Market Volatility Continues

 

Argentine soybeans closed lower on Thursday as world commodity markets continued to ride out a wave of volatility, causing prices to oscillate in unpredictable ways, traders said.

 

Soybeans in Rosario, Argentina's main cash soybean market, sold for about 590 pesos ($1=ARS2.95) per metric ton Thursday, down from ARS650 a week ago.

 

It was unclear how many tons of soy were traded Thursday, traders said.

 

As measured in pesos, prices have declined more than 15% over the past two weeks, according to the Rosario Cereals Exchange.

 

The tailspin was interrupted Wednesday, when prices rose to around ARS605 in Rosario. But the turnaround did not last long.

 

"Prices are a mess," said Adrian Seltzer of the Buenos Aires-based brokerage Granar SA. "We're still modifying prices based on what happens in Chicago, where there is a lot of volatility. There is no trend or fixed tendency. It's just been crazy. Don't ask me to tell you where the market is going because I can't tell you."

 

Others appeared to be similarly miffed by the market's vicissitudes.

 

"The increase (on Wednesday) couldn't hold and the prices in Chicago (on Thursday) fell violently back to Tuesday's levels," Carlos Boglioli, of the Rosario-based brokerage Roagro, said in an email commentary. "Nothing changed ... just as nothing had changed the day before to justify the increase, except for technical and speculative reasons."

 

The week began on a negative note when it was reported that 16 of China's largest soybean crushing firms decided to dampen soybean imports during the remainder of 2004.

 

The news was viewed negatively in Argentina, Brazil and the U.S., the world's top three soybean exporters and all major suppliers to China.

 

But the news was only one of a host of factors that had been rattling the market recently, traders said. Among the factors that have helped to push prices lower in recent weeks are these:

 

--A stronger U.S. dollar. The price of many commodities - such as soybeans - is based on the dollar. As a result, any increase in the value of the dollar can make these goods more expensive, and thus less attractive to buyers.

 

--A probable interest rate hike in the U.S. Higher interest rates tend to draw investors out of riskier markets and into safer investments - such as the U.S. Treasury market. Given that commodities markets are very risky, they often are the first to suffer when interest rates rise, traders say.

 

--A decision by China to reject shipments of Brazilian soybeans. Some traders took this as a sign that China is becoming a tougher negotiator and "is no longer willing to pay any price" for soybeans. "They will use every tactic at their disposal to push prices down," one trader said.

 

--Positive climatic conditions in the U.S.  Good weather in the U.S. implies that the soybean harvest there is on the right track.

 

--Higher oil prices and increased uncertainty about the situation in Iraq, and its impact on the market, also exerted downward pressure on prices, traders said.

 

Despite all the concern about China, a Chinese agricultural analyst said on Friday that China will continue to demand between 15 million and 20 million tons of soybeans for at least the next five to ten years.

 

"The demand for soybeans will stabilize, probably at current levels," said Funing Zhong, dean of the College of Economics and Trade at Nanjing Agricultural University, who was in Argentina for an international wheat conference.

 

Meanwhile, on Wednesday the Agriculture Secretariat lowered its forecast for 2003-04 soybean production to 32 million metric tons, down from 33 million a month ago.

 

The Secretariat's forecast is lower than the latest estimate by the U.S. Department of Agriculture, which put output at 34 million tons.

 

If the Secretariat's estimate holds, it would put production down 8% from 2002-03, when it totaled 34.8 million, according to the Secretariat.

 

The Buenos Aires Cereals Exchange has forecast for 2003-04 soybean production at 32.5 million metric tons.

 

As of Friday, farmers had collected 73% of the 2003-04 soybean crop, according to the Secretariat.

 

CORN

 

Cash corn sold for ARS265 Thursday in Rosario, up a bit from ARS260 a week ago.

 

About 12,000 tons of corn were sold Thursday in Rosario, traders estimated.

 

As of Friday, farmers had finished collecting 67% of the 2003-04 corn crop by Friday, the Secretariat reported.

 

The Secretariat estimates 2003-04 corn output at 12.4 million metric tons and the Buenos Arise Exchange sees production at between 12.8 million and 13 million tons.

 

Argentina produced 15 million metric tons of corn in 2002-03, according to the Secretariat.

 

The USDA has forecast 2003-04 corn production at 12.5 million tons.

 

WHEAT

 

Finally, wheat for immediate delivery sold for ARS350/ton in Rosario, down from ARS360 a eek ago. Around 5,000 tons of wheat were sold in Rosario on Thursday, according to the Rosario exchange.

 

The Secretariat sees 2003-04 wheat production at 14.5 million tons.

 

Last year, the harvest totaled 12.3 million tons.

 

The Buenos Aires Exchange has estimated total production at about 13.7 million tons in 2004, compared with 12.16 million tons in 2003, according to exchange data.

 

The USDA has forecast total output at 13.5 million tons in 2004.

 

On Wednesday, the Secretariat said the planted area for 2004-05 wheat would likely total between 6.3 million and 6.5 million hectares, up from 6.036 million hectares for 2003-04.

 

As with soy, China will also be importing a lot of wheat in the future, Zhong said Friday.

 

China will need to import between 15 million and 20 million metric tons of wheat annually within the next five to 10 years, he said.

 

"I believe that in the mid-term China will return to the position it had in the 1980s, when it imported between 15 million metric tons and 20 million metric tons of wheat," Zhong said.

 

Who will China import wheat from in the future?

 

"Argentina might be a potential supplier because China might want to diversify its sources for grains, not only for political reasons but for security reasons," Zhong said. "Weather conditions fluctuate in every country, so if we rely on only one or two countries this might be to our disadvantage."