I have been asked this question several times now, and it is something that is mentioned in many commentaries. For the most part it is brought up as an unknown, but some are painting it as a bullish savior of grain prices. This is something that is so infrequent that impacts are hard to study. Grain markets, production practices and global grain trade are very different today than they were the last time an El Nino of this magnitude affected global weather patterns. So don’t bet the farm on the information that follows, El Nino is after all a weather pattern. Typically markets trade weather that is actually occurring combined with the 10-14 day forecast. The measurable piece that defines an El Nino event is Pacific Ocean temperatures extending off the North West Coast of South America that are significantly above average. The warmer they get, the stronger the El Nino rates. This water temperature has significant impact globally, and there are measurable trends. Few, if any, are certainties though. It is important to consider the seasonality of El Nino impact as well. El Nino has it’s greatest impact during our winter, from November through March. Weather we have experienced this crop year (2015) are indicators of El Nino occurring, not necessarily effects of El Nino pattern. By June of 2016 the pattern will be complete (it is possible, but not likely to re-occur next year). Therefore rather than attempting to predict what the impact to weather will be, let’s instead focus on what areas are most likely to be affected, what sort of crop production is happening there, the size of the player in global grain trade, and lastly what impact El Nino is likely to have in that area.

Moisture global graphic

*Please keep in mind I make no attempt to predict whether or not we will see the historical El Nino weather impact that I was able to find. What I am attempting to do is to give context of what implications to global grain trade might be if these patterns do occur. Even if everything plays out as predicted it is also possible that outside political, economic or other commodity trends could trump these impacts.

North America:

Always easiest to start at home. The only grain crop in production from Nov-Mar is Winter Wheat, and weather in Sept/Oct and April/May is far more impactful than during the winter. The amount of subsoil moisture at freeze-up, and in April  have much greater impact than how much snow we get or how warm/cold the winter is. Kansas, Oklahoma, and Texas have by far the greatest number of Winter Wheat acres in North America. An El Nino pattern would bring a warm, dry pattern to Northern US and Western Canada and a wet, cool pattern to Southern United States. The Winter Wheat States mentioned fall right in the transition zone. If weather follows this pattern it would likely produce an above average crop of Winter Wheat. This area has a strong influence of North American Wheat futures from breaking dormancy in March/April to harvest in June, a good crop there could reduce likelihood and amplitude of spring futures rallies. But before we get too bearish for next spring we have to see first how many acres are seeded this fall. With depressed prices, high inventory, and a late Soybean crop at this moment I expect acres to be down.

In the big picture due to timing of El Nino I can’t find measurable production impact for North America. If there is anything there for us it is a higher than normal risk of being dry in Western Canada and in the grain belt of the US through winter and leading into seeding time. As we all know it is what happens after the seed is in the ground that makes or breaks the crop, not what happens before.

South America:

This is where I believe El Nino will have it’s greatest impact on global grain trade. Brazil and Argentina are huge in Soybean trade, Brazil grows a significant amount of Corn, and Argentina supplies Wheat to all of South America. Brazil alone produced 96 million mt of Soybeans last year, compare that to 108 million mt in the United States. Argentina could surpass 50 million acres this year, vs the United States projecting around 86 million acres next year. Brazil produced 78 million mt of Corn last year, the US produced 332 million mt last year. Crops in South America matter to everyone. They are the United States biggest competitor for export Soybeans, Soy Oil, and Meal to China. They can swing from net exporter to net importer of Corn and are huge ethanol producers. As Wheat acres decline in Argentina they can become important Wheat customers to Canada or the US.

Brazil is closest to the “source” of El Nino. The warm ocean temperatures should have greatest impact on their weather. It is no coincidence that their crop is also produced during the height of the El Nino influence from Nov to March. Argentina is next closest to the warm Pacific waters, and their production cycle is similar, delayed by about 1 month vs Brazil.

Brazilian Crop Calendar: (Source: soybeansandcorn.com)

October

  • Wheat harvest and corn planting underway in southern Brazil.
  • Soybean planting in full swing in southern Brazil, continue corn and soybean planting in central Brazil.
  • Rainfall frequency picks up in Brazil, rains 1-2 times a week, distribution may be uneven.
  • Temperatures remain very hot in central Brazil, warming up in southern Brazil.

November

  • Early November is main soybean planting period in Brazil, full season corn crop should be all planted by now.
  • Earliest planted soybeans may start flowering by end of the month.
  • Early planted corn begins pollination.
  • Rainfall now more frequent, 3-4 times a week, temperatures remain very hot in central Brazil.

December

  • Finish soybean planting, early-planted soybeans flowering and setting pods.
  • Begin spraying to control soybean rust.
  • Corn crop completes pollination and begins grain filling.
  • Cotton planting begins in central Brazil.
  • Rains every day, especially in central Brazil, southern Brazil not quite as wet.
  • Cloud cover and rain holds temperatures in the 90’s.

January

  • Soybeans flowering and setting pods.
  • Some very early soybeans in central Brazil may be harvested this month.
  • First harvested soybeans shipped to processors.
  • Continue spraying to control soybean rust.
  • Corn in grain filling phase.
  • Peak of the rainy season, rains 2-3 times a day in central Brazil, overcast, very hot and humid, greenhouse-like conditions.

February

  • Main pod filling month for soybeans.
  • Early soybeans being harvested, corn harvest begins.
  • Harvested soybeans arrive at ports, soybean exports begin by early February.
  • Soybean rust control now focused on later maturing soybeans.
  • Safrinha (second corn crop) planted after early soybeans are harvested.
  • Can still be very rainy in central Brazil, rainfall less frequent in southern Brazil.

Argentine Crop Calendar: (Source: soybeansandcorn.com)

October

  • This is the main corn planting month, especially in central Argentina.
  • Finish sunflower planting.
  • Begin early soybean planting in central Argentina.
  • Wheat is moving from heading to grain filling phase.
  • Temperatures warming up to the 80’s or hotter.
  • Rainfall can be variable.

November

  • Corn planting finishes in central Argentina.
  • Corn pollination starts in northern Argentina.
  • Soybean planting at full steam.
  • Wheat moving from grain filling to maturity.
  • Sunflowers are flowering.
  • Temperatures now at summertime levels, can have heat waves as well.
  • Summertime rains usually become more abundant.

December

  • Last corn planted in southern Argentina.
  • Corn beginning to pollinate in central Argentina.
  • Corn in northern Argentina moving from grain filling to maturity.
  • Finish planting full season soybeans.
  • Main month for harvesting wheat.
  • Start planting double crop soybeans after wheat is harvested.
  • Temperatures now approaching maximum summer highs.
  • Rainfall usually abundant, but can have dry spells.

January

  • Early corn in northern Argentina approaching maturity.
  • Corn moving from pollination to grain filling in central Argentina.
  • By end of month, some early corn and sunflowers are starting to be harvested.
  • Finish wheat harvest by early January.
  • Finish planting double crop soybeans by early January.
  • Full season soybeans flowering and starting to set pods.
  • Maximum summer temperatures.
  • Summer rains usually abundant, but can have dry spells.

February

  • More corn and sunflowers now being harvested.
  • Corn in central Argentina entering grain filling phase.
  • Full season soybeans setting and filling pods.
  • Double crop soybeans flowering.
  • Sunflower harvest in full swing.
  • Temperatures can still be very hot, but starting to cool by end of month.
  • Rainfall usually getting lighter.

El Nino would bring a warm, dry pattern to Brazil in Sept-Nov which would intensify in Dec-Feb. Current depressed Soybean and Corn prices are not profitable for Brazilian farmers, it seems unlikely that acres would decrease, but it could result in less of an increase than trend line would indicate. Farmers are also likely to decrease use of fertilizer and fungicides which if drought occurs would lead to further reduced production. The most impacted areas actually lie to the NW of Brazil, outside of core crop area, but the variance from normal precipitation during Dec-Feb appears significant. For Argentina El Nino would bring a cooler, wetter pattern. Argentinian Wheat crop will already be made, but this pattern could bring harvest delays and quality issues, also delaying seeding of second crop Soybeans on Wheat stubble. Variance from normal is slightly less in Argentina than what has been seen in Brazil in past events.

Crop damage in South America is exactly what world grain markets need. Particularly for Soybeans, it has been a multi-year slide in Soybean futures. A significant supply reduction is needed for Soybeans to recover, particularly if Chinese demand does decline this crop year due to economic growth slow-down. With Canola crop being less than average in Canada a spark in Soybean futures would immediately benefit Canola.

Australia:

At the Western side of the line of warm Pacific water that defines El Nino is Australia. Australia would be second most important grain production area in the Southern hemisphere. Their crop is produced slightly earlier than South America, but the impact of El Nino is also stronger early on. Australia appears to have the greatest variance from normal precipitation of any crop producing areas in the world. Drought starting in June-Aug, intensifying in Sept-Nov and persisting through Dec-Feb should be in order for the Aussies. In global grain trade terms Australia is an important exporter of Wheat with logistical advantages to us to deliver into key markets India and China. Australia also produces for export a few million mt Canola, and exports Malt quality Barley. Australia also grows peas, lentils, oats, beans and chickpeas. Crop area there is seeded in a wide window starting in March in the North and ending in July in the South. Therefore the majority of the crop is harvested Oct-Jan. If historical El Nino patterns do occur we will start hearing of drought soon, and their yields should be severely impacted. Focus on Australian production from traders will peak in November and December. Drought conditions in Australia are most supportive of Wheat on the global stage.

India:

India is important to Global grain markets for several reasons. Population growth has brought increased import demand for Wheat and Pulse crops in particular. They also produce 2 crops each year, the size of which indicates the volume of imports required. They harvested a disappointing crop in Feb-April (Rabi) which has been clearly seen here in Lentil and Pea demand and prices. Most of their Wheat is also grown in the Rabi season and Wheat demand there is noteworthy. Russia and Ukraine have such a logistic advantage that they would have to be short (and they are not) for us to benefit directly. Indirectly, big picture, demand from anywhere is good. El Nino patterns would bring continued drought intensifying from June to November, returning to normal precipitation in Dec-Feb. Kharif harvest will occur in Oct and November. It is the Karif harvest supplies which often displace Canadian exports of Peas and Lentils which is a key factor in the “harvest” pressure we typically see to our prices. If Pea and Lentil bids remain high (they have been resilient so far) that is a good indication that their second crop has not replenished reserve grain inventories. Demand for imports will pick up ahead of their Rabi harvest next Feb/March and then dip again when their Rabi harvest supplies become available next spring. El Nino impact aside the potential for pre-harvest demand ahead of both their Rabi and Kharif crops is a significant part of why I tend to focus on Pea and Lentil marketing in Feb-Mar and Aug-Sept.

EU, Russia, Ukraine, China, and Canada:

These countries did not show in the studies that I found a significant variance from normal precipitation or temperature related to El Nino that would impact their production. The anomalies that I could find mostly occurred in winter months for the previously mentioned areas. Winter weather for Northern Hemisphere crops has minimal impact to crops, and therefore minimal impact to market prices.

We certainly have lots to watch for in the Southern Hemisphere crops this winter though. IF El Nino pattern has the effects that history indicates it is possible that we will go into seeding next year with better demand and decreased global supplies which is exactly what is needed to turn these markets around. IF we do experience the dry winter predicted by El Nino it is possible that dry North American seeding conditions will take the grain trade headlines next April-May. It appears that the most significant impact would be on Soybeans (Canola) due to Brazilian crop production/weather and to Peas, Lentils and Chick Peas due to Indian production/weather. The Wheat crop in Argentina and Australia could have some impact, but by far the majority of Wheat is produced in Northern Hemisphere so impact is likely less. Corn production is also heavily weighted to Northern Hemisphere countries so impact there is likely smaller relative to Soybeans and Pulse crops.