Soybean Investors Will Want to Keep an Eye on Argentina's Rainfall

South America will continue to play a major role in the direction of soybean prices as climate conditions unfold for the rest of 2023. In particular, rainfall in Argentina could affect supply and push prices higher if it turns out to be less than expected.

“Argentinian weather has been the major price driver in the soybean market, with drought conditions leading to a downward revision to crop estimates,” a Mintec article said. “According to the Rosario Board of Trade (BCR), the Argentinian soybean crop for the 2022/23 marketing year (MY) (December to November) is expected to decline by 12% year-on-year (y-o-y) to 37 million metric tonnes.”

“The US crop estimate for this season was also revised lower by the USDA, down by 1.6% from the December 2022 estimate, further compelling bullish sentiment in the soybean market,” the article added.

On the flip side, heavy rainfall in Argentina could put downward pressure on soybean prices. In effect, this will allow supply to keep up with demand, lowering prices that were pushed higher last year due to not only agricultural forces, but also macroeconomic forces like rising inflation.

“However, a positive outlook to rainfall for the rest of the month in Argentina has now pressured soybean prices, as this is expected to limit further crop losses. Also, expectations of a record crop in Brazil, another major South American producer, has capped further price gains,” said the article.

Get Convenient Soybean Exposure

Of course, if prices manage to stay afloat, it should appease soybean bulls. Higher consumer prices in 2022 spilled over into the soybean market, making them an ideal hedge for investors looking to parry the effects of inflation.

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 offer 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.