La Nina may cause bearish global wheat and corn prices to soar
The El Nino Southern Oscillation (ENSO), which could lead to the emergence of La Nina this year, could serve as a catalyst for an increase in global wheat and corn prices. The forecast comes amid bearish pressure on cereal prices, according to analysts.
Corn and wheat prices are currently at a four-year low on the global market.”…we observe that any significant increase in global prices is likely to be contingent on a significant decrease in harvest forecasts for one or more of these major producers. The El Niño Southern Oscillation (ENSO) weather pattern may cause a shift in harvest expectations, according to research agency BMI, a unit of Fitch Solutions.
Previous La Nina experience
“Wheat prices are declining due to harvest pressure from the northern hemisphere. Fresh supplies from the southern hemisphere are doing the same for maize prices, despite the fact that harvests in Argentina and Brazil are expected to fall short,” according to the UN Food and Agriculture Organization’s Agricultural Market Information System (AMIS).
On the Chicago Board of Trade (CBOT), benchmark wheat futures are trading at $5.24 per bushel ($192.53 per tonne) and corn futures at $3.80 per bushel ($149.59 per tonne). Prices for both cereals have dropped by more than 20% year on year.
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During the 2022-23 season, the previous La Niña resulted in a 9.1% decrease in corn and a 9.5% decrease in wheat production compared to the previous year in the United States. As a result, we will continue to monitor how the ENSO cycle develops,” said BMI.
According to the research agency, climate change is affecting agriculture, with El Nino weather having an impact on farming in Asia, particularly India and South-East Asia.
Weak La Niña?
El Nino ended in April, and ENSO is currently in a transitional phase. Various global weather agencies predict that La Nina, which brings heavy rains and floods to Asia and India but causes drought in the Americas, will emerge 70% of the time between October and December 2024.
Quoting the US Climate Prediction Center, BMI stated that La Nina is expected to peak between October and December, with a 50% chance of developing into a moderate event.
“Current Projections do not point to a strong La Niña. Nonetheless, if these projections shift, it could have a significant impact on agricultural output forecasts, particularly in the United States,” it said.
During a La Niña event, critical wheat and corn production areas in the US may experience prolonged drought and high temperatures, according to the research agency.
Bearish signals
The 2024-25 season (August-June) is expected to have an ample supply of wheat and corn, supported by strong production in key markets such as the United States, Brazil, Argentina, and Russia, according to the report.
ING Think, the financial and economic wing of the Dutch multinational financial services firm ING, stated that the USDA has increased its 2024-25 US corn production estimates to 15.1 billion bushels due to expectation of high acreage.
The USDA’s World Agricultural Supply and Demand Estimates (WASDE) report indicated a bearish outlook for wheat. “The USDA reported higher supplies and exports for 2024-25. Estimates for US wheat output are 2,008 million bushels, according to ING arm.
Based on higher domestic production, the USDA Economic Research Service forecasts a season-average farm price of $5.70 in 2024-25. Corn prices were also projected to fall.
According to BMI, wheat prices settled at $5.49 per bushel on July 30, down 7.1% from June. “This marked downturn has had a notable impact on the year-to-date average price, which now stands at $6.12./bu, marginally above our forecasted annual average price, which we maintain at $6.05 per bushel,” it stated.
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Corn Price Forecast
According to the research agency, the corn market has been more stable month to month, with second-month corn prices closing at $4.05/bushel, representing a 0.5% decrease.
“Nonetheless, after reaching a high of $4.634 on June 13, corn prices have fallen by 12.6%. The year-to-date performance shows a significant contraction of 16.3% since January 2024, highlighting the market’s strong bearish sentiment throughout the year, according to the research agency.
BMI said it maintains its average corn price forecast for 2024 at $4.30 per bushel, which is lower than the current year-to-date average of $4.437 per bushel. “For both wheat and corn, our forecasts reflect our view that the bearish sentiment is likely to continue through the remainder of 2024”, it stated.
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