Drought Forces Argentina to Cut Its Soybean Production Estimates

Climate in Argentina will continue to play a pivotal role in what soybean prices will do for the rest of 2023, and a drought could push prices even higher amid elevated inflation. It presents a perfect opportunity to hedge rate increases despite the notion that central banks will slowly loosen monetary policy.

“Argentina’s Rosario grains exchange (BCR) on Wednesday cut its 2022/23 soybean harvest estimate to 34.5 million tonnes from the previous 37 million tonnes, which would mark the lowest production of the grain in the last 14 years,” a Successful Farming article noted.

Factoring in the forces of supply and demand, this could give soybean prices another push higher. Russia’s invasion of Ukraine last year provided the geopolitical boost, and now an Argentina drought could add another price elevator.

“Argentina is the world’s top exporter of soybean oil and meal, but its 2022/23 crop has been hit hard by a drought that began in mid-2022,” the article noted.

“Unfortunately, as warned in January, the area of losses was strongly adjusted, especially in second-class soybeans,” the BCR said in its monthly grains report.

Get Easy Access to Soybean Exposure

Investors looking at soybeans as a potential portfolio diversifier can look to exchange traded funds (ETFs). While there are several ways to get exposure to soybean prices, an easier, all-inclusive alternative is to opt for the Teucrium Soybean Fund (SOYB). SOYB can essentially provide similar exposure to what investors could obtain by trading in soybean futures contracts themselves.

Inflation will continue to be a hot topic heading into 2023, with the U.S. Federal Reserve being the main focus of interest. The prevailing expectation is that the Fed will tighten rates at a slower pace with the hope that inflation will eventually dissipate.

Nonetheless, if the Fed continues an aggressive path, it helps to get commodities exposure as not only an inflation hedge, but also a portfolio diversification tool. For investors looking at ways to mute the impact of inflation, commodities may also be beneficial for inflationary periods, according to experts, making them a valuable hedge against the surge in the prices of goods and services over the past year.

For more news, information, and analysis, visit the Commodities Channel.