Seasonal Production Cycles
The United States produces 38 percent of the world’s soybean crop. Farmers there begin planting soybeans between late April and June, and the harvest starts in September, going through mid-November. Soybean production in Argentina, which accounts for 19 percent of world output, occurs in two phases. A first crop is planted beginning in October and lasting through the end of December. Second crop soybean plantings start in January and continue through the end of February while harvest begins in late April and ends in June. Overall, USDA forecasts production of Argentina soybeans of 57.5 million tonnes in 2018/19, up from 40 million tonnes in 2017/18.
Argentina’s soybean-production cycle occurs in two phases. The first crop is planted in October and harvested as late as May. Second-crop soybeans go in the ground in January and are harvested in June.
Factors Influencing Argentine Production
Last year, Argentina’s drought knocked the Gro Yield Model projections across all four soybean-producing provinces from between 2.86-3.1 tonnes per hectare to 2.28-2.54 tonnes per hectare at harvest. Overall, the national average in 2017/18 was 26 percent lower than the previous year. The Grain Exchange of Buenos Aires estimated the total loss at $3.4 billion, representing a 0.5 percent hit to Argentina’s GDP.
Gro’s Soybean Yield model predicts final yield of Argentine soybeans. The chart above shows those predictions for the four largest soybean-producing provinces—Buenos Aires, Santa Fe, Córdoba, and Entre Rios—as yields succumbed to drought conditions in 2017/18.
Looking forward to 2018/19, evapotranspiration, which measures moisture lost through evaporation from soil and transpiration from plants, can give an indication of crop conditions at the time of planting and over the next few weeks. This month, evapotranspiration anomalies, or how far evapotranspiration has deviated from a historical norm, for Buenos Aires and Santa Fe were 105 and 91.1 percent, respectively. This indicates good planting conditions, at least for the first crop currently going in the ground.
The chart above shows evapotranspiration anomalies for the four largest soybean-producing provinces in Argentina. In Buenos Aires and Santa Fe provinces, where soybeans are currently being planted, current evapotranspiration anomalies are indicating favorable planting conditions.
Another indication of soybean grower confidence is area devoted to soybeans in soybean growing provinces. Farmers typically max out soybean acreage in first-crop provinces Buenos Aires and Santa Fe. But in Entre Rios and Córdoba provinces, where planting begins in January, farmers can sometimes choose to grow other crops—corn and wheat—instead of soybeans. The more land that is devoted to soybeans in these provinces, the lower the overall yield at the end of the season. That is because as soybean acreage expands, more and more marginal lands prone to suboptimal yields are used.
A heat map of evapotranspiration anomalies for Argentina’s four main soybean-producing provinces—Buenos Aires and Santa Fe, which produce a first soybean crop, and Córdoba and Entre Rios, where a second crop is grown. Green color indicates a higher level of moisture.
Sixty percent of Argentina’s crop area is covered with soybeans, and the USDA projects that production area devoted to soybeans will increase for the 2018/19 market year by 3 percent over the previous year, with expansion coming especially during the second crop starting in the winter. Another factor: The glyphosate/seed ratio is expected to fall to 0.95, 14 percent below average, lowering cost of production and signalling a possible boost in second-crop soybean acreage in 2018/19. Overall yields are expected to return to normal to about 3 tonnes per hectare in 2018/19, compared with 2.32 tonnes per hectare in 2017/18.
Argentine Soybean Inventories
Most Argentine farmers tend to sell their corn and wheat crop soon after harvest to recoup production and financing costs. Soybean farmers, however, tend to hold onto volumes longer, using stored beans as a source of liquidity protecting against periods of political uncertainty, high export taxes, and exchange volatility. While Argentina is thought to have a total storage capacity of 52 million tonnes, precise estimates of ending stocks in Argentina are hard to come by. Because of the poor weather conditions in 2017/2018 that reduced yields, the USDA placed ending stocks at 32 million tonnes. For 2018/19, the USDA projects soybean ending stocks to rise to about 36.3 million tonnes. To hedge against lost revenue, Argentine farmers have generally been holding onto more of their soybean stocks in recent years as the peso has severely depreciated and political uncertainty has continued. Stock volumes help to determine how much product is free for export and/or domestic uses.
Soybean ending stocks help to determine how much product is free for export. In Argentina, ending stocks have been on a mostly rising trend in recent years.
In 2015, President Mauricio Macri was swept into office, promising, among other changes, to reform Argentina’s agricultural policy through the elimination of export taxes. Several export-tax reductions were introduced since then, but, in a policy reversal announced on Sept. 3, he and Economy Minister Nicolas Dujovne said soybean export taxes in effect will no longer be eliminated as the country attempts to reduce its gaping fiscal deficit, for which it has sought help from the International Monetary Fund.
Under the new plan, Argentina will cut export taxes on soybeans and soybean oil from 25.5 percent and 23 percent, respectively. But it will also impose a 4-peso retention fee per US dollar of export income, essentially nullifying the export-tax reductions.
The Argentine peso has been hit hard by the country’s deteriorating fiscal situation. In October 2013, one US dollar was worth 5.88 pesos. Today, a dollar equals 36.64 pesos. Depreciation of a country’s domestic currency typically puts positive pressure on exports. In the case of agricultural commodities, the gap between the cost of domestic farm inputs and the expected export revenues widens, ,incentivizing farmers to devote greater volumes for export markets.
The Argentine peso has dropped sharply against the US dollar over the past decade, as the country attempts to manage its gaping fiscal deficit.
Gro Yield Model Performance
The Gro Argentine Soybean Yield Model forecasts final yield for 464 relevant Argentine subprovincial political units. With online maps of normalized difference vegetation index, or NDVI, values in early 2018, Gro subscribers were able to see large drought- stricken areas spanning the three largest soybean producing provinces of Buenos Aires, Córdoba, and Santa Fe. NDVI, a measure of vegetative health, also caused our model to predict final yields well below the generally accepted numbers. Then, as reports of extreme dryness trickled in during the season, the authorities progressively lowered their yield estimates, narrowing the gap with the Gro model. At every monthly report, Gro’s yield model remained below the consensus, helping traders to be consistently long through a profitably bullish period.
Performance of a yield model can be assessed in several ways. Looking at financial trading results is one way. For example, the WASDE report, from the US Department of Agriculture, was published four times over the course of Argentina’s 2017/18 crop cycle—12 January, 8 February, 8 March, and 10 April. At each date, a one-day trade at the close would have made 10.50, 4.75, -1.25, and 3.00 cents per bushel, respectively, for a total of 17 cents/bushel over four days of trading.
As farmers plant the 2018/19 crop, we look forward to another successful year for the Gro Yield Model. Subscribers will begin receiving daily updates in January of 2019.
In 2017/18, the Gro Intelligence Argentine Soy Yield Forecast Model consistently projected a lower yield than did the USDA WASDE reports. USDA projections eventually declined to mirror those of Gro.
While the Argentine Gro Yield Model projections for 2018/19 are not published yet, we expect even better performance this year. As soybean planting across Argentina continues to ramp up, it is unclear how well yields and production will bounce back from the droughts experienced last year. But as the machine- learning algorithm incorporates crop-production patterns with every passing season, our models will become increasingly more accurate. Whether you’re a financial trader or a physical trader, Gro provides value for subscribers participating in all aspects of commodity markets.