Nidera Australia’s Peter McMeekin

PRODUCTION machinations in South America (SAM) seem to be the talking point at the moment, especially in Argentina. First it was lack of rain in the south of the country, leading to drought and a downgrade in the forecast area planted to soybeans and now it is floods further north, particularly in the states of Cordoba and Santa Fe, that are jeopardising summer crop production.

Some reports are suggesting that 60 per cent of Argentina’s primary summer cropping regions have received in excess of 250mm of rain since Christmas. Some of these areas will have to be replanted, but the window is closing and the soils are still saturated making the task extremely difficult.

It is only early days and as always with these events there is a decided lack of consensus on the final impact on planted area and resultant loss in production. The many estimates emanating from Argentina in recent days suggest the soybean losses are in the 2 to 4 million metric tonne range. However, as we saw in Australia last year, the residual benefits of moisture can often compensate for production losses elsewhere.

The initial reaction on futures markets has been upward with the March soybean contract rallying around US$0.78 per bushel since Christmas. This move has dragged corn and wheat along for the ride with Chicago wheat futures rising around US$0.38 per bushel over the same period. The annual fund rebalancing has also been adding some support to wheat. Unfortunately, for the Australian grower there has been a 420 point rally in the Australian dollar (0.7595 as I write) against the United States dollar in the past month wiping out much of the futures increase in Australian dollar terms.

Meanwhile, north of the equator Uncle Sam has just inaugurated Donald Trump as its 45^th president. No sooner had the small inauguration crowd dissipated on Friday, then Trump swung into action killing off the Trans-Pacific Partnership.

What will he do next? His protectionist trade policies certainly have governments across the globe anxiously observing developments in Washington. Trump plans to “crack down on those nations that violate trade agreements and harm American workers in the process” and he has been highly critical of Chinese trade practices and has threatened to impose punitive tariffs on imported Chinese goods.

His theory is that tariffs would protect American jobs and promote American business. The more likely outcome, though, is that new tariffs would set off a cascade of global economic consequences – mostly negative.

This would undoubtedly impact agricultural markets. Who is the world’s biggest importer and consumer of soybeans each year? China. Who is one of the world’s biggest producers and exporters of soybeans each year? The United States. And we have seen the way China plays in world markets with the genetically modified corn issues of recent years.

Like in agriculture, no year (or President) is ever the same in politics and global trade. It is a world game and maybe it will be whoever holds the joker that comes up trumps. In the meantime it will most likely be weather issues and production concerns in SAM that are the major agricultural market drivers in the near term.

Source: Nidera weekly market report