September 3, 2015

El Nino Risks and Rewards

Much-needed precipitation through the U.S. heartland this year has replenished soil moisture, refilled ponds and promises to boost crop yields, thanks to the weather phenomenon known as El Niño, according to Iowa State University agricultural climatologist Elwynn Taylor. And the benefits for the Midwest may continue into 2016.

El Niño is associated with a warming of Pacific Ocean water, and tends to bring warmer, drier conditions to the northwest United States and cooler, wetter conditions to the Plains.

The conditions are a far cry from the recent La Niña – the opposite of El Niño, which brought drought to the central U.S., said Taylor, who spoke at the recent Kansas State University Risk and Profit Conference. “We’ve just come out of the second strongest La Niña in recorded history, about 200 years, and that brought us a disastrous drought. That’s the drought we had in the Corn Belt in 2012. That’s the first widespread drought that we’ve had in the Corn Belt since 1988.”

He likened the El Niño-La Niña phenomenon to a pendulum that swings from one extreme direction for a 14-month period and then to the extreme in the opposite direction.

“Because of the rainfall and mild temperatures in the central U.S., an El Niño gives a 70 percent chance of an above trend line yield for corn and soybeans in the Corn Belt, if other factors don’t come into play,” he said, adding that when corn yields are high in the Midwest, wheat yields in northwest states tend to be below average, because El Niño tends to bring drought to those states.

It’s unclear how long the current El Niño will last, but in similar situations where one has followed a strong La Niña, the El Niño has lasted a full two years rather than 14 months, which is average.

“If it goes 14 months, that it gets us well into 2016. It could get us off to a good start with the crop, but it could go bad after that,” Taylor said, noting that El Niño has sometimes gone on for 24 months – even 36 months, but that’s rare. “In ancient history, they’ve gone on for four or five years, but we don’t expect to see that this time around,” he said.

“With El Niño, we tend to have closer to average conditions than extremes. That is, the summer’s not oppressively hot, the winter’s not bitterly cold, and that is good news for people with cattle outside and people with winter wheat,” he said.

Taylor said scientists who study El Niño and La Niña have a good record for knowing four or five months in advance what conditions are coming: “That’s good news, but it doesn’t get you all the way through a growing season.”That’s why people should pay attention, he said, adding, “We don’t get a sudden change from La Niña to El Niño. That’s a gradual one over months – a gentle change. But, when a strong El Niño ends, it can suddenly go to a La Niña condition, such as the major drought we had in 1988 that began just weeks after we went into La Niña.”

That’s why risk management is so important, he said, adding that after El Niño, growers have to be ready for yields and prices to change quickly.

“We need to pay attention to what’s going on in the Gulf of Alaska. If we have a high pressure system in the Gulf of Alaska, we’ve just cut off the rain in a line from Kansas City to Chicago and everything north of that. That’s a good chunk of Nebraska and Kansas,” he said.

El Niño is the friend of the Midwest farmer, as well as the Argentine farmer, and those in southern Brazil and Uruguay and adjacent areas, he added. It is not the friend of the extreme northwest United States or the adjacent Canadian farmer, or farmers in northern Brazil.

“In fact some Brazilian farmers try to cover this by owning as many acres in northern Brazil as in southern Brazil,” Taylor said. While one is suffering from El Niño, the other is benefiting from El Niño. That’s a form of risk management, by having farms in two locations.”

“Also, if the Australian farmer has an enemy, it’s El Nino,” he added.

 

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Grain Prices Thumped

Prices plunged in the grain and oilseed sector on Wednesday after USDA raised its outlook for U.S. crop production and yields this fall.

The Ag Department pegged corn output this autumn at 13.686 billion bushels on yields of 168.8 bushels per acre.

USDA estimated soybean production at 3.916 billion bushels on yields of 46.9 bushels an acre.

Some traders called the numbers ‘a shocker’. Adverse weather in parts of the Farm Belt this summer had led to expectations that the government would trim both its corn and soybean projections.

Relentless rains in June helped fuel a spike in futures prices, but analysts say it now looks like weather concerns will move to the backburner – if not eliminated altogether.

To get a handle on the numbers, analysts say you can examine production from west to east across the nation’s midsection. Weather was conducive for corn and soybean fields in western Corn Belt states like Iowa, while Mother Nature wasn’t as kind in eastern areas like Indiana.

Folks are said to be having a hard time gauging total production when the far western belt was so good, and the far eastern belt is so bad.

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Crop Conditions Unchanged Heading Into Crop Production Reports

Grain traders and farmers alike are looking ahead to tomorrow’s USDA report, the first that will use actual field conditions in its yield projections. Those conditions have been a matter of debate for some time, but according to yesterday’s weekly Crop Condition ratings, we’ve haven’t seen much change. USDA Meteorologist Brad Rippey:

Rippey 1

When it comes to corn

Rippey 2

The most impressive crop right now continues to be spring wheat, and harvest is moving right along:

Rippey 3

USDA’s reports tomorrow will be Crop Production and World Supply and Demand Estimates, both of which will be released at 11 am central time.

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