Argentina is suffering its worst drought since 1961, raising the possibility of severe crop damage in the world’s third largest soybean producer.
The problem is already lifting oilseed prices, including canola, and could present the opportunity for western Canadian farmers to make cash sales at $10 per bushel.
“It is not a hype. It is a real problem in Argentina,” said Thomas Mielke, publisher of Oil World, the influential vegetable oil newsletter and market information service.
“More than 50 percent of the Argentine agricultural area, grains and oilseeds, at this moment is in real, real trouble.”
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The drought compounds Argentine farmers’ problems. They have an ongoing dispute with the government about taxing soybean exports and the global credit crisis made it hard to pay for inputs at seeding. Fertilizer use in this crop was down by one third, Mielke said at Crop Production Week in Saskatoon Jan. 14.
The following day, Larry Weber of Weber Commodities also drew attention to the dire Argentine situation, adding it will likely give farmers their third chance to sell 2008 crop at $10 per bu.
Few farmers locked in prices for their canola at last year’s high points in spring and early summer and a lot of it is still unpriced.
Even current prices are not bad in an historical context, which is remarkable given the record acreage, yield and production of the 2008 crop, Weber told growers Jan. 15.
“When the world wakes up and finds out we have a problem occurring in South America I believe soybeans are gong to go on a run to $12 (per bu.) sometime in the next three or four months and they will pull canola up with them,” he said.
“For those of you who haven’t sold canola at $10, you are going to get a third chance to do it and for God’s sake this time do it.”
Key parts of No. 2 soybean producer Brazil were also dry earlier in the season but have since received rain, but Weber believes some crop won’t recover to its full yield potential.
Looking ahead to the 2009-10 crop and marketing year, Weber said profits in growing canola is attainable.
“But it is not going to be like last year where it was a steady ride up and you had three months to make a decision and three months on the way down to make a decision.
“You will have a minute amount of time to make a decision.”
He advised farmers to get pricing orders in so that sales are automatically triggered on market increases, avoiding the possibility of missing them because attention was diverted on seeding or other production issues.
Weber believes that because rotations have been pushed to the limit and input costs are high, Canadian farmers will trim canola acreage by 11 percent from the record set in 2008.
It is hard to predict growing season weather, but moisture conditions might be a concern early in the 2009 seeding campaign, he said.
At freezeup, stubble subsoil moisture was low in several parts of Saskatchewan’s prime canola growing zones north of the Yellowhead highway. He added that snowfall in much of Alberta has been less than average.
As for demand, Cargill’s crushing plant expansion at Clavet, Sask., should be complete by this summer and add to domestic demand.
Exports will continue to be helped by low ocean freight rates, Weber said. But the weak global economy will work against commodity price rallies.
Last year, crude oil’s rush to a peak of more than $145 per barrel helped push crop prices higher.
After a brief rally early this month, oil has fallen again and could go as low as $25 before it bounces back, and several energy analysts have scaled back their price projections.
The credit crisis has had a far deeper reaching effect than anyone imagined and put the world economy in a tailspin.
“I don’t see the economy getting better for a couple of years.”
