Ongoing drought in Argentina linked to La Niña event: Grain market daily

• UK feed wheat futures (May-25) closed at £189.80/t yesterday, down £0.30/t from Tuesday. The Nov-25 contract fell £0.40/t to £193.50/t.
• Domestic wheat futures dropped following Chicago wheat prices, albeit not to the same extent, due to the weakening of sterling against a basket of currencies. US markets fell due to the strengthening US dollar and market adjustments in anticipation of the USDA's World Agricultural Supply and Demand Estimates (WASDE) report, which is set to be released tomorrow. A pre-report poll by Reuters, suggests analysts are expecting an increase in the US 2024/25 ending stocks.
• May-25 Paris rapeseed futures rose to €525.00/t yesterday, up €7.75/t from Tuesday.
• Paris rapeseed futures gained support from the overall strengthening of the vegetable oil complex yesterday. Both Chicago soyabean oil and Winnipeg canola futures (May-25) closed higher. The market was supported by increased export demand, stronger soyabean oil prices, and a relatively weak Canadian dollar.

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The ongoing drought in Argentina has been a key topic in the market over the past week, with current forecasts suggesting the situation could get worse. Argentina is the world's largest exporter of soyabean oil and meal, the third-largest exporter of maize, and a leading supplier of wheat (USDA).

The weather situation has played a big role in the recent market fluctuations.  From 23 December 2024 and 2 January 2025, Chicago maize and soyabean futures (May-25) rose by 3.0% and 4.2% respectively to close at $376.62/t and $183.95/t, respectively. This also supported Chicago wheat futures (May-25), which gained 1.2% over the same period.

Last week, the Buenos Aires Grains Exchange reported that the drought is starting to damage the 2024/25 soyabean and maize crops. Water stress with potential yield losses in southern maize crops, and the area of soyabeans with sufficient water has decreased by 7 percentage points to 81% of the total planted area.  However, the Exchange noted that the two main crops are doing well due to adequate moisture from rains in last months of 2024.

Is the dry spell surprising?

Typically, summer in Argentina runs from December to February. However, the current dry spell has been linked to the La Niña climate pattern predicted by most major weather organizations last year. A La Niña event occurs when the South Pacific temperature drops more than 0.5°C below normal, leading to hotter and drier conditions in South America. The American weather forecaster NOAA predicted a 65% chance of La Niña developing from July to September and an 85% chance from November to January.

Heavy rains in November 2024 provided excellent growing conditions for maize and soyabean crops in Argentina and mitigated the usual effects of La Niña. But in December, there was little rain. Forecasts suggest that the dry conditions may worsen in the coming week.

Summary

While the main crops are currently doing well as reported by the Buenos Aires Grains Exchange, yield prospects may be affected if the dry outlook continues. Argentina's very worst soybean yields are historically linked to its driest Januarys. This situation might lead to higher prices for soyabeans and maize, which could also influence the prices of wheat and rapeseed.  However, timely and strong February rains could potentially salvage the situation.

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