South American Drought puts the world's soybean supply in jeopardy, Sending Prices to 9-year highs

Soybean prices have risen to a nine-year high as harvest prospects in South America becomes less promising, putting global supplies at risk. In Chicago, futures rose as much as 2.4 percent to $16.75 a bushel, the highest for a most-active contract since late 2012. This happened with the recent drought in the Southern parts of United States that hampered production. The drought has harmed the production outlook in key South American growing regions, including Brazil, Argentina, and Paraguay, which together account for more than half of the world's soybean supply. Harvests are expected to be smaller this crop season.

As a result of the severe drought that began in November, many agricultural organizations and consultancies have already lowered their forecasts for soybean output in 2021/2022. Furthermore, soybean futures on the Chicago Mercantile Exchange hit a nine-year high in February, owing to concerns about unfavorable harvest weather in South America and Russia's recent military invasion of Ukraine. This contract has been the most expensive since 2012, surpassing $16 per bushel, with all signals pointing to a tightening of global supply in the first half of 2022, in addition to the effects of the Russia-Ukraine war. Snarled supply chains, workforce shortages, and rising energy costs are all contributing to the likelihood of global food and livestock feed inflation.

The losses in Brazil, the world's greatest producer and exporter, are focused primarily on the country's southern states, such as the Rio Grande do Sul, Paraná, and Mato Grosso do Sul, where the La Nina phenomenon caused summer drought. Argentina, the world's leading soybean oil and meal exporter, is also in a bad spot, with a drought affecting practically the whole country since November. The situation is even more dire in Paraguay, which is the world's fourth-largest soybean exporter. If the unseasonably warm weather caused by the La Nina phenomena worsened in February, additional crop damage and soybean production would be incurred. As a result of the shortages, more purchasers are shifting to the United States. Other important oilseeds, such as palm and canola, are in limited supply around the world, driving up vegetable oil costs.

According to an industry analyst, the crisis in Eastern Europe has also pushed soybean prices to new highs since further escalation could constrain Ukraine's sunflower-oil shipments.