Markets Gird for El Nino, as Battered Farmers See Withered Winter Wheat

May 15, 2023

Coming off a rough winter, farmers looking forward with anxiety to a potential El Nino.

Wall Street Journal:

El Niño hasn’t even landed yet. That hasn’t stopped it from moving commodity markets around the world. 

The hard-to-predict climate pattern, when powerful, can usher in intense drought or rainfall, upend output from the world’s breadbasket regions, and whipsaw the prices of commodities. Brazilian sugar producers, American grain farmers and international traders are bracing for the phenomenon. But the cyclical shift in ocean temperatures can just as easily be a dud. 

El Niño occurs when trade winds moving west across the Pacific Ocean weaken and warmer-than-normal water sloshes toward the west coast of the Americas. Meteorologists at the National Oceanic and Atmospheric Administration on Thursday gave 80% odds of at least a moderate El Niño appearing in the Northern Hemisphere by year’s end, with a 55% chance of a strong event. 

Firms from Peru to Singapore have in recent weeks said that they are girding for potential fallout—or upside—with measures such as new drainage infrastructure on farms or teams of analysts to monitor food supply and demand. Some speculators are betting on a strong El Niño, injecting volatility into markets for crops that wind up in cereal bowls, livestock feeders and fuel tanks around the world. 

Nonfuel commodity prices have historically risen about 5.3% globally within a year of the pattern beginning, according to the International Monetary Fund. As surface temperatures warm in the eastern Pacific, turning La Niña into El Niño, droughts in parts of Asia can curb production of Indian sugar, Malaysian palm oil and Australian wheat. In South America, wetter weather can boost farms or cause floods that disrupt harvest seasons. 

The U.S. has previously experienced a mix of El Niño impacts, with more precipitation in southern states and hotter, drier weather in the Plains.

“A tiny, tiny shift in where the line between wet and dry is will make a huge difference,” said Paul Pittman, executive chairman of Farmland Partners, which owns or manages nearly 195,000 acres around the U.S. that produce mostly row crops such as wheat. 

Should El Niño come on fast and furious as some analysts project, that could extend a string of bad luck for farmers such as Evan Hultine.

Mr. Hultine, who grows corn and soybeans on 1,300 acres in Illinois, battled flooding that swept across the region in 2019 and pushed farmers to tap crop insurance to cover a record number of acres they couldn’t plant.

Above, NOAA Drought Monitor from October 2022 shows then-extent of severe drought in the midwest.

Yahoo Finance:

America’s wheat fields have become so plagued by drought that farmers are now poised to abandon crops at the highest rate in more than a century.

Producers are expected to harvest about 67% of their planted acres, the US Department of Agriculture said Friday. If realized, that would be the lowest harvest ratio since 1917, the agency said in a monthly report.

Years of dry conditions on the US Plains have taken their toll on America’s famed fields of grain. Some wheat plants this season were so stunted by a lack of moisture that they won’t produce so-called heads of grain, leaving little reason to harvest them. Farmers can instead file crop-insurance claims for failed acres, or choose to plant something else. Next week, an annual tour in the top wheat-growing state of Kansas will allow analysts to survey fields and make production estimates.

“We’ll see short wheat, thin stands, some wheat that looks really good and a lot of fields that aren’t going to be harvested,” Justin Gilpin, chief executive officer of the trade group Kansas Wheat, said of next week’s crop tour.

The USDA forecast that the high rate of abandonment will drag US wheat supplies to lower levels than analysts were expecting. That could keep domestic prices elevated, even with rival producers such as Canada and Argentina likely to boost output.


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