Challenges in Argentina's Soybean Meal Market Amidst Prolonged Drought

Soybean Meal

United States

Published Oct 26, 2023

In Oct-23, severe drought affected 90% of soybean-producing areas in Argentina, disrupting the soybean production. The total soybean production in Argentina is expected to decline by 43% YoY, from 43.9 mmt to 25 mmt in 2022/23. Most of Argentina's soybeans are processed and exported as soybean meal or oil. However, from Jan-23 to Jul-23, Argentina's soybean meal exports decreased by 35% YoY to 5.9 mmt. This was due to the limited availability of soybeans for processing into soybean meal. The looming prospect of reduced soybean and soybean meal production in Argentina is causing upward pressure on prices. Soybean meal prices for the December contract on October 25, 2023 closed at USD 469.1/mt, marking the highest level attained in the past two months. Other alternative markets, such as Brazil and the US, are expected to step in to fulfill global supply needs. The critical role of weather cannot be overstated, as soybean cultivation depends on an adequate supply of rainfall to replenish depleted soil moisture levels and boost yields in the forthcoming months. Supply, demand, and climatic factors will continue to shape the dynamics of the soybean meal market.

The soybean meal situation in Argentina is currently facing challenges due to prolonged drought. The drought continues to cast a shadow over Argentina's ongoing soybean planting season. The extended dry spell contradicts the conventional expectations tied to El Niño, a climate phenomenon historically associated with increased precipitations in Argentina's croplands.

As of Oct-23, approximately 90% of soils in key provinces like Santa Fe and Entre Ríos grappled with drought conditions and water scarcity. Argentina's soybean growing regions require above-average rainfall to replenish depleted soil moisture levels, a need that El Niño might help fulfill if it brings abundant rainfall later in the current year. Between 100 and 170 millimeters (mm) of precipitation are needed to reach the optimal state to restore water reserves in the Argentine soybean-producing area.

Another disappointing soybean harvest in Argentina could further deplete the nation's soybean inventory. Argentina's 2022/23 soybean production is projected to be at its lowest level in a decade, with 25 million metric tons (mmt) of soybean, a 43% year-on-year (YoY) decrease.

Source: FAS USDA

Most of Argentina's soybeans are processed and exported as soybean meal or oil, making them a crucial component of agricultural exports and foreign exchange earnings. However, from Jan-23 to Jul-23, Argentina's soybean meal exports decreased by 35% YoY to 5.9 mmt. This was due to the limited availability of soybeans for processing into soybean meal.

Source: Trademap

Because of Argentina's climate challenges in soybean meal markets, there has been a surge in buying interest from Brazil. Brazil's soybean meal exports have been performing well, totaling over 15.3 mmt in the first eight months of 2023, an increase of 9% YoY. Historically the world's largest exporter of soybean meal, Argentina had to yield this role to neighboring Brazil in the 2022/23 crop. This marks the first time that Brazil has overtaken Argentina as the leading global exporter of soybean meal, marking a historic shift in the soybean meal export landscape worldwide.

Source: Trademap

Prolonged drought conditions in Argentina and higher purchasing activity in the Brazilian soybean meal export sector have propelled soybean meal futures prices to record highs. The price of a soybean meal contract for December surged to USD 469.1 per metric ton (mt) on October 25, 2023, marking the highest level attained in the past two months.

Source: CBOT

In the United States (US) market, US soybean production volumes are anticipated to drop to an eight-year low due to a disappointing soybean crop. Soybean production is forecast at 4.1 billion bushels, down 42 million bushels on lower yields. However, looking at the high demand and price for soybean meal, the US is estimated to increase soybean crushes into soybean meal by 3% YoY to 49 mmt in 2022/23.

Looking ahead, the soybean meal market is tied to the dynamics of soybean crushes in major producing regions. The looming prospect of reduced soybean and soybean meal production in Argentina is causing upward pressure on prices. Other alternative markets are expected to step in to fulfill global supply needs. The critical role of weather cannot be overstated, as soybean cultivation depends on an adequate supply of rainfall to replenish depleted soil moisture levels and boost yields in the forthcoming months. The dynamics of the soybean meal market will continue to be shaped by supply, demand, and climatic factors.