February 2, 2009

ASA Weekly: Argentina drought sinks soy futures; China soy markets quiet

The soy complex closed lower on January 29 due to scant prospects for decent rain in Argentina, according to some of weather models. On the other hand, Chinese business was quiet last week because of the Chinese New Year.

The soy and soymeal markets are seen to struggle maintaining current prices levels if they do not have Argentine crop concerns and Chinese buying to distract them from the burdensome longer-term fundamentals that they will have to contend with unless the South American crops are disasters. The fate of soyoil futures remains closely tied to that of the petroleum markets, which have been burdened by excessive supplies as the world economy shrinks. While biodiesel margins have become less negative as soy oil has been pressured by weaker soy prices, soy oil futures remain a cent or so above levels that can justified if biodiesel prices are merely the US$1.00 tax credit over conventional diesel.   March bean futures closed down US$4.41, finishing at US$356.59; May lost US$4.50, closing at US$359.26; and July was down US$4.59, ending at US$361.92. March meal decreased US$3.09 closing at US$340.28; May was US$3.09 lower, finishing at US$339.18; and July meal closed down US$3.20, ending at US$339.62. March soyoil was US$11.90 lower, finishing at US$713.63; May was down US$11.68, closing at US$722.01; and July lost US$11.90, closing at US$730.16.

Bunge: South American drought likely to increase soy prices

Soy and corn prices may rise as a drought harms crops in South America and stockpiles dwindle, Bunge Ltd. Chief Executive Officer Alberto Weisser said during the World Economic Forum in Davos, Switzerland. Drought in parts of Brazil, Argentina and Paraguay will probably reduce output after a credit crunch led farmers to buy less fertilizer than needed to strengthen plants, Though he didn't provide specific forecast for prices, he said "lower yields are likely and its "something that one needs to worry about because we already have low stocks."

Brazil and Argentina, the world's biggest soy and corn exporters after the United States, have faced a drought just as farmers need water for a critical growth period. Argentina's farming provinces, including Buenos Aires, Santa Fe, Entre Rios, Cordoba, La Pampa, Chaco and Santiago del Estero, have been hit by the worst drought since at least 1971, according to the National Weather Service.

The Buenos Aires Cereals Exchange said the Argentine soy crop would fall between 17 percent and 25 percent from last season, which would imply a crop of 34.5 to 38.2 million tonnes. To get to the low end of that range, the yield would have to drop to 2.14 tonnes, which would be the lowest yield since 1997 and about as much below trend as the disastrous 1997 crop.

Brazil may lose 10 million tonnes of corn and soy crops this year because of drought, Agriculture Minister Reinhold Stephanes said in an interview in early January.

In related news, Argentine President Cristina Fernandez announced new aid to drought-stricken farmers last week. However, farmer representatives have rebuked her offer.  "We are very far from being satisfied by this," said Eduardo Buzzi, president of the Argentine Agrarian Federation, or FAA. "If this is all the official help we get, then it's a joke," Buzzi said. The state news agency Telam reported that the moves could save farmers up to US$57 million.

Census December crush recap