Does El Niño Impact South American Production?
Meteorologists continue to point to a better chance that the El Nino warming of equatorial waters will be in effect this winter. The Nino 3.4 Region sea surface temperature (SST) anomaly as of October 8 was recorded at +0.8°C, demonstrating a marked warming trend even since the last update one month ago. This means that weak El Nino conditions have arrived, which will likely become official soon from NOAA as long as conditions remain stable.
While the presence of El Nino will likely bring widespread attention in the media, what impact can we glean from a likely El Nino winter?
For the U.S., an El Nino would suggest a warmer-than-normal winter across the majority of winter wheat regions. Big rain events have helped give a lift to soil moisture levels in the southern Plains areas so the threat from warmer temperatures should be minimal.
For South America, the El Nino cycle is expected to peak in the December to February time period, right in the key growing stage for corn and soy crops.
For Brazil, there is not a very strong association between December to February El Nino readings (x-axis) and better than normal yields (y-axis). Indeed, based on the data, it is about a coin-flip chance that yields will be better than trend if we are in an El Nino phase (positive x-axis value). But for Argentina, the odds are slightly better.
Years when there has been El Nino see a 75 percent chance of soybean yields being above trend yield and 65 percent chance of above-trend yield for corn.
El Nino likely spells average to slightly above-average expectations for South American production this year.
However, as the above data suggests, there is no guarantee that yields will be clearly better or worse than normal simply based on an El Nino growing season. Argentina, which tends to see a slightly better than average chance of good yields in an El Nino year, is still feeling the effects of last year’s drought. Soil moisture levels are running at five-year lows, so moisture demands will need to be met with adequate rainfall.
Copyright © 2018 FBN BR LLC. All rights Reserved. FBN Market Intelligence is distributed by FBN BR LLC. Contact 877-472-4607 for more information. For the purposes of quality assurance and compliance, phone calls to and from FBN BR LLC may be recorded.
We do not guarantee customers will receive specific benefits or value from participating in FBN BR LLC; results will vary. The data in this article is being supplied as a courtesy by FBN BR LLC. The risk of trading futures and options can be substantial and may not be suitable for all investors. All information, publications, and reports, including this specific material, used and distributed by FBN BR LLC shall be construed as a solicitation. FBN BR LLC does not distribute research reports, employ research analysts, or maintain a research department as defined in CFTC Regulation 1.71. This article contains information obtained from sources believed to be reliable, but its accuracy is not guaranteed by FBN BR LLC. Past performance is not necessarily indicative of future results.
Disclaimer: Futures and Option trading involves substantial risk, and may not be suitable for everyone. Trading should only be done with true risk capital. Past performance, either actual or hypothetical, is not necessarily indicative of future results.