NAPERVILLE, Illinois, Jan 7 (Reuters) - It seems that Argentine farmers simply cannot catch a break.

Despite much-needed rainfall during planting, bone-dry conditions are set to grip the country's farmland through at least mid-January, greatly increasing odds that soybean yields will disappoint for a sixth consecutive season.

The dryness is not terribly surprising given the presence of La Nina, the cool phase of the equatorial Pacific Ocean. La Nina-induced dry spells have recently damaged multiple Argentine soybean harvests, most notably in 2023.

November rainfall across Argentina's grain belt was 30% above normal, seemingly bucking the La Nina doom. But December totals fell right in line with the typical pattern at just 79% of normal.

Risks have already been flagged. Both Argentine grains exchanges said last week that the recently hot and dry weather has started to damage crops.

Unfortunately, current forecasts suggest the situation could get worse. At best, monthly rainfall across Argentina's grain belt after the third week in January may amount to only a third of normal levels.

If that outlook is realized and no relief is seen by the end of the month, crop prospects could quickly turn grim. Argentina's very worst soybean yields also coincided with its driest Januarys.

However, only one of Argentina's exceptionally dry Januarys occurred within the last decade (2018). If Argentine soybeans are better at resisting dry conditions now versus ten-plus years ago, this would weaken the relationship between dry Januarys and poor yields.

In theory, strong February rains may be able to rescue the soy crop from a bad January, but that may come down to timing.

For now, the newly planted soybeans are in decent shape. Exchange data last week showed 53% of the crop in good or excellent condition, a five-year high for the week. Only 4% is in poor condition, more than the year-ago 2% but well below the double-digit readings from the prior three years.

However, satellite data shows that vegetation health was in worse shape at the end of December versus a year ago across much of the core grain belt.

Soybean yields last year were disappointing despite the normally favorable El Nino pattern, though the crop was nearly twice as large as the prior year, the catastrophic 2022-23 season.

SWEATING BEARS?

Global soybean and soybean meal prices were already historically high and rising throughout late 2022, so the early 2023 Argentine crop disaster did not significantly shift already-very-bullish market sentiment.

Soybean meal prices spiked more than 20% between early December 2022 and mid-February 2023 given Argentina's role as top exporter, and gains for soybeans topped out around 9%.

However, speculators late last month forged a record net short position in Chicago soybean meal futures and options, and they have held bearish views in soybeans for a year now. CBOT soybean meal has recently flirted with some of the lowest prices of the last decade.

While Argentina's current soybean crop is extremely unlikely to suffer a fate as bad as two years ago, the dry forecast is plenty reason to make soybean and especially soymeal bears a little uncomfortable for now.

Karen Braun is a market analyst for Reuters. Views expressed above are her own.

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https://www.reuters.com/markets/commodities/argentinas-soy-belt-may-be-an-alarmingly-dry-january-2025-01-08/