31/08/2009 (Bloomberg) - Argentina may produce a record 50 million tons of soybeans in the next harvest as rains forecast for the next three months break the worst drought in a century.

Downpours created by El Nino, a weather system that forms in the Pacific Ocean and influences climates worldwide, will sweep across eastern agricultural areas this week and spread over most Argentine farmlands by November, said Eduardo Sierra, a climatologist at the Buenos Aires Cereals Exchange.

A record crop from the world’s third largest producer would help ease a global shortage of soybeans, said Anne Frick, senior oilseed analyst for Prudential Bache Commodities LLC in New York. The Argentine harvest slumped by almost a third this year to the lowest since 2004 as lack of moisture damaged plants.

“We really need to have those South American crops next spring,” Frick said in an Aug. 28 telephone interview. “U.S. supplies are going to be depleted.”

The driest weather in a century devastated Argentina’s most recent soybean, corn and wheat harvests and caused planting for this year’s wheat to fall to a record low.

“Drought conditions are going to disappear over a large area between the middle of October and November,” Sierra said in a telephone interview. “The drought will only persist a little longer.”

Argentina’s soybean output peaked at 47.5 million tons in the 2006-2007 season before dropping to 46.2 million the following year, the exchange said. The 2008-2009 harvest, which was gathered between February and June, was cut by the drought to 32 million tons.

Price Drop
Soybean futures for November delivery dropped 31.50 cents, or 3.1 percent, to $9.795 a bushel in Chicago today. The commodity fell on concern a lending slowdown in China may curb demand in the world’s largest oilseed consuming country, said Dale Durchholz, a grain analyst at Bloombington, Illinois-based Agrivisor LLC.

Argentina exports more than 95 percent of its soybeans in the form of unprocessed grains, meal for animal food, edible oil and biofuel.

El Nino is “our glimmer of hope,” said Martin Otero, who runs Hillock Capital Management, a Buenos Aires-based investment fund that manages 36,000 hectares (88,956 acres) of farmland in Argentina and Uruguay.

Given adequate moisture, Argentina may harvest more than 50 million metric tons of soybeans this crop year, Ernesto Crinigan, President of the Buenos Aires Cereals Exchange, said in an interview. He declined to give an estimate of this year’s soybean planting.

“Soybean prices are going to remain above the average price of the last few years,” Crinigan said.

Decline in Corn
Farmers are likely to increase soy planting at the expense of corn, which is more expensive to produce, said Hugo Biolcati, President of the Argentine Rural Society, the country’s largest farm group, in an Aug. 27 interview.

The cereals exchange said last week that corn planting, which started this month, will decline 20 percent to 2 million hectares from 2.5 million last year and 4.2 million in the 2007- 2008 crop year. Lack of moisture caused this year’s corn harvest, which was completed in July, to drop to 13.2 million tons from 22 million tons the previous season.

Though the area planted to soybeans will probably rise, yields may be less than normal because lower income from drought-hit harvests have left growers short of cash to buy fertilizers, insecticides and machinery, Biolcati said at the Society’s Buenos Aires headquarters.

“The drought hit farmers really hard,” Biolcati said. “That brings them a lot of difficulties in the planting season, which will lead to them using less technology.”

Farm Protest
Biolcati is one of Argentina’s four farm leaders organizing a protest against the government’s veto of a law that would have provided tax breaks to drought-hit farmers in Buenos Aires province. The one-week action, which ends on Sept. 4, includes roadside demonstrations and the withholding of grains and livestock from markets.

Only 24 trucks carrying grain reached crushers and ports on the Parana River, compared with an average of 2,361 vehicles a day last week, according to the Rosario Board of Trade.

The tax-exemption proposal would have been “impossible to comply with,” Cabinet Chief Anibal Fernandez told reporters in Buenos Aires on Aug. 26.

Last year, government plans to increase the 35 percent levy on soybean shipments provoked demonstrations by farmers who withheld produce from markets and blocked highways, creating food shortages in Buenos Aires.

Markets Last Week

Last week, the yield on Argentina’s benchmark 5.83 percent peso bonds due in 2033 rose 1.13 percentage point to 14.17 percent, according to JPMorgan Chase & Co. The bond’s price declined 7.7 centavos to 79.8 centavos on the peso. The peso declined 0.1 percent to 3.8508 per U.S. dollar from 3.8469 on Aug. 21.

The Merval stock index was little changed at 1,797.02 points from 1,797.33 last week. Banco Macro SA (BMA AR) led gainers, climbing 13.7 percent to 8.65 pesos, while Telecom Argentina SA (TECO2 AR) lost the most, declining 0.9 percent to 11.4 pesos.