The Christmas season this year resembled the fourth of July last summer: a long holiday weekend with poor crop conditions in Argentina as well as rains in the forecast and an uncertain extended forecast. Sound familiar?

As U.S. producers have finished their 2022 harvest and make plans to plant their next crop in the spring, another weather market has developed in South America. The unpredictable nature of weather markets can play in a producer's favor by presenting attractive pricing opportunities as traders pump risk premiums into commodities in an attempt to stay ahead of supply limitations.

A disciplined marketing plan can help take advantage of these opportunities as they can be short-lived. Forecasts change quickly from day to day and even from hour to hour, and a 3-day weekend can feel like an eternity. The holiday season can exaggerate these moves even more as traders reduce their trading activity leading prices to exceed one’s expectations.

Markets watch Argentina's weather

On Friday, March 2023 soybeans closed +12^4 at $14.84^4, near the upper end of the range futures have been trading since July ($13.25 - $15.08). Traders will be watching the updated forecast as markets start the week with Argentina’s weather as one of the primary drivers. Dryness continues to hamper production expectations throughout much of the region as analysts have already ratcheted estimates 4-10 MMT lower than the USDA’s estimates in December. USDA will likely revise their estimates lower in the January WASDE report as soybean crop conditions dropped this week to 12% good to excellent vs 19% last week and 73% last year.

Delayed planting will make it difficult to achieve desired yields with Wednesday, December 21 being the longest day of the year. Still, an estimated 40% of the Argentina crop is yet to be planted which typically leads to shorter plants and less time for pod-fill as the days get shorter.

Overall production for South America will likely still exceed last year’s production shortfalls by nearly 20 – 25 MMT with Brazil and Paraguay experiencing better growing conditions, but Argentina needs to be monitored.

If unfavorable weather persists into the pod fill season, the risks of production shortfalls can become reality, which will lead prices to rally rapidly in an effort to balance demand with reduced supplies. Being able to take advantage of favorable prices today while maintaining upside can be done by utilizing options to reduce a producer’s exposure to price risk.

Build your marketing plan

The soybean market is in a unique position where old crop prices have struggled to break through resistance at the $15.00 level yet continue to find support due to production concerns in Argentina. This is an ideal opportunity to price old crop soybeans and utilize a call option to participate in a break-out to the upside.

If the current dry weather pattern continues and lower yields are realized across Argentina, production shortfalls could be the catalyst to break through the $15.00 mark, and your call will increase in value. On the other hand, if the weather pattern should pivot over the next month and bring more moisture throughout the region, prices could struggle to maintain their trend higher as traders reduce risk premium out of the market.

Most of us over the years have seen that soybeans can be very resilient going into pod-fill as late-season rains can make a crop. By having your soybeans sold, your market risk will be limited to the premium of the call you purchase.

It is also worth noting that new crop soybeans can benefit from the same strategy as November 2023 futures closed Friday at $13.93^4, which is the highest price for November soybean futures ever at this time of year. 

I wish everyone a happy and prosperous 2023.

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The risk of trading futures and options can be substantial. All information, publications, and material used and distributed by Advance Trading Inc. shall be construed as a solicitation. ATI does not maintain an independent research department as defined in CFTC Regulation 1.71. Information obtained from third-party sources is believed to be reliable, but its accuracy is not guaranteed by Advance Trading Inc. Past performance is not necessarily indicative of future results.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress.