Just like last season, there is now an above-average chance that the weather pattern of La Niña will occur in the southern hemisphere. This has consequences for South America and Australia and therefore also on crop production. This indirectly influences the raw materials market, which is ultimately noticed on the feed market.
The chance of a La Niña in the 2021-22 season is 55% according to the World Meteorological Institute. This weather pattern lasts from December to February. It is the counterpart of an El Niño and causes sea surface temperatures in the Pacific Ocean to rise or fall, depending on the location. It causes above-average rainfall in Australia and dry weather in parts of South America. The southern and central US can also experience drought due to the weather pattern, as is the case now.
Less soy, more rapeseed
We know from the past that soybean production in Brazil, Argentina and Paraguay is lower due to drought as a result of a La Niña. This in turn means a skewed ratio between production and use and smaller closing stocks. All factors that increase the market price. Australia actually produces more rapeseed due to more precipitation in a La Niña year.
It is currently dry in parts of Brazil, especially in the south. About a quarter of the soybeans have been sown. The pace is therefore slightly behind last season. If it does indeed remain dry, the soy crops will be affected when the pods need to fill. This takes place in December and January. In Argentina, soy sowing has yet to start and La Niña occurs in the middle of the growing season. Here too, soy production is negatively affected.
Vegetable oil market
After a season with high market prices for soy, the soy area in South America will expand next season. The situation during sowing and in the growing season can be dry. That cannot be said with great certainty, but there is a 55% chance that this is the case. All these factors – together with the weather in Indonesia and Malaysia – influence the vegetable oils market.
In the US, commodities rose again on Monday afternoon, August 23, after closing lower last week. New figures on soybean and corn yields are lower than expected and that supports the market. The net long position of traders on corn (expectations that the price will increase) is particularly large. On Friday, August 20, the soy price on the CBoT fell to its lowest level in almost 2 months. Export orders are not forthcoming and rainfall in the Midwest provided some relief.
Soy stops price drop
Another reason why the soy price has fallen sharply is due to American legislation on biofuels. Fuel producers may not be obliged to blend more biofuel. After the futures market closed, the news turned out to be off again. It is possible that more biofuel will be added in 2022 and that currently supports the price level. News of soy exports to China and Mexico – along with hot weather in the Midwest this week – is also a factor supporting the market.
The exact size of the American soy harvest will remain a guess for at least another month. This partly depends on the growing conditions in the coming weeks, which are currently dry. If South American production is disappointing, the grain market is once again looking at a very strong soy season. Ultimately, we also notice this here through rising prices for products such as soy meal and soy meal.