La Nina: An early turkey or a genuine threat?

A repeated phrase in agricultural markets is that you don’t look at Latin American weather for price direction in corn and soybeans until after the US Thanksgiving holiday - starting this Thursday.

That adage is meant to reflect a combination of the reliability of short-term weather forecasts with the crucial mid-December period for soybeans and corn in Latin America when they need the most moisture to produce good yields.

Yet, this year, agricultural analysts fear an impending La Nina weather front, which generally spells wetter weather in Australia and drier weather for Latin America and the Midwest, could start to impact the soybean crop, particularly in Argentina.

On Monday the International Research Institute for Climate and Society at Columbia University said the tropical Pacific was already reflecting weak La Nina conditions, while the current status of the National Oceanic and Atmospheric Administration is that there is a 65-75% of the phenomenon developing over the Northern Hemisphere winter.

According to MDA, a US weather analytical firm, Argentinian corn and soybean yields can fall during the phenomenon year by as much as 6.3% and 3.3% relative to normal years, while US corn and soybean yields can fall by 4.3% and 3.2%, respectively.

This is why rain in Argentina is attracting a lot of attention – particularly from those that trade soybean meal, of which Argentina is the world’s largest exporter.

Argentina is a relatively small exporter to soybeans on the global market – exporting around 8 million mt a year - equivalent to around 5% of global trade.

However, the US, which can be badly impacted by La Nina, is the biggest, shipping 61 million mt abroad.

According to Rabobank, which released a report this week entitled Outlook 2018: Good buy, low prices, the last La Nina to dry out the Americas created widespread droughts across the US Midwest leading to an increase of $18/bu in soybeans and $8/bu in corn.

Wary
Yet analysts are wary of reading too much into what has essentially been a dry couple of weeks in Argentina, particularly as there were signs of a weak La Nina at this time last year.

“Like at the end of 2016 – where 2017 crops in South America were a record, production in the US performed much better than expected, and South East Asian palm production returned to more normal levels – the event could pass us by with very little fanfare,” Rabobank authors Carlos Mera and Stefan Vogel wrote in the report.

Added to that is the fact that Brazil, which has 73% of its soybean crop in the ground, is suffering no problems with the weather.

Indeed, weather analysts say soil moisture should be good in Mato Grosso, after the state - Brazil's biggest producer of soybeans - received a good dousing of rain.

But the relative moisture of the Pampas in Argentina will continue to be the focus of trade analysts who seek to predict the next big shock, despite the fact it has barely planted 25% of its expected sowing area.

Key figures to look out for will be the USDA’s next forecast of global soybean production, out next month.

Perhaps the old adage is right – you do need to wait until after the Turkey has been digested.