The Debts of the Spenders: Argentine Soy Crop Worsens on Weather; Shorts Scramble to Cover

As always, weather continues to remain a critical factor in the grain pits. Soy broke multi-month highs today based on technicals as well as this type of news. Rumors that the Chinese were no longer sourcing Argentine supply as "too unreliable" did not help the bears either (funds had accumulated a substantial short position per the Commitment of Traders report) who were forced to short cover.

Argentina Soy Quantity, Quality Drops On Drought-Ag Secretariat

With the bulk of the 2007-08 soy harvest complete, the crop continues to show extensive drought damage that has hurt quality and quantity, the Agriculture Secretariat said Tuesday in its weekly crop report.

The soy “crop has suffered weather problems from planting to harvest. The persistent drought and high temperatures have affected yields, which are under historical levels. Samples from the harvested fields are showing a low weight and high amount of green seeds,” the Secretariat said.

In March, the Secretariat forecast soy production at 37 million to 39 million metric tons, but revoked that forecast immediately after releasing it due to what it called “errors.”

However, sources in Argentina’s Agriculture Secretariat expect the 2008-09 soy crop to total a dismal 33 million metric tons, according to a report in local daily Clarin last week. Both the Buenos Aires Cereal’s exchange and USDA forecast production of just 34 million tons, down sharply from the early expectations of about 50 million tons.

Despite a record area planted with soybeans this season, the forecast of 33 million tons marks a decrease of over 13% from last season. Early forecasts had pegged 2008-09 output at a record 50 million tons, which indicates that about a third of the crop was felled by drought.

As of May 7, 84% of the 2008-09 soy crop had been harvested, up five percentage points from the same date last year. As of May 7, 79% of the 2008-09 corn crop had been harvested, up 12 percentage points from this point last season.

The corn crop was seriously affected by drought this season. The Secretariat forecasts final production at 12.5 million to 13.8 million tons, the smallest crop in over five years.

Source: CME News for Tomorrow