Drought Threatens the Harvest, Putting Argentine Soybean Oil Processing in Peril

Buenos Aires: According to a report released by the head of the nation's largest grains processing chamber, Argentina's Soybean crushing facilities are running at the lowest capacity in history as a result of the effects of a ferocious drought. Given the lack of rainfall and high temperatures, Argentina, the top exporter of Soymeal and Soybean Oil, is expected to have a Soybean output of only about 26.5 million tonnes this season, the lowest in almost 25 years. Argentina's primary source of foreign exchange in 2022 was the sale of soy by-products, including Soybean Oil, worth $18.619 billion.

Farmers have been cautious about selling stored grains, including Soybean Oil despite the fact that harvesting for the 2022-2023 season has not yet begun. They are worried that a small yield following the historic drought will cause them to exhaust their reserves. In light of the high degree of uncertainty that the ensuing situation will entail, this has caused producers to halt Soybean Oil sales positions. According to information from the agriculture ministry, producers sold 621,300 tonnes of Soybeans to the milling industry in February 2023. This represents a decrease of almost one-third from the 1.6 million tonnes of Soybean Oil sold in the same period in 2022.

About 6 million tonnes of Soybeans from the 2021/22 cycle remain in the stockpiles of Argentine producers, which is less than usual given that many farmers accelerated their sales in the second half of 2022 due to a government-proposed advantageous exchange rate for Soybean Oil exports. An increase in Soybean imports from Paraguay and Brazil, which would not exceed 8 million tonnes, could result from a fall in grain, including Soybean Oil exports to Argentina. Although it is only a palliative, at least it gives the manufacturers some breathing room so that the domestic Argentine traders will not have to close them.

As per the ChemAnalyst database, the price of Soybean Oil would be further accelerated in the domestic market of Argentina. A significant portion of the farming region continues to experience losses in yield as a result of the drought and high temperatures.