US corn, soybean futures rally as La Nina looms

OREANDA-NEWS. June 09, 2016. Growing concerns that a hot, dry La Nina weather pattern could damage US crops this summer have driven corn and soybean futures up by more than 15pc.

US farmers this planting season endured one of the strongest El Nino events in recent history, which brought multiple waves of severe storms to the Southern Plains and Corn Belt regions. With the current El Nino episode slowly transitioning to La Nina, traders and farmers are wary of higher temperatures and drier weather conditions potentially damaging the 2016-17 crops.

La Nina is associated with lower-than-normal water temperatures in the equatorial Pacific ocean, which typically fosters dryer weather and higher-than-normal temperatures in the US' major growing regions. US Department of Agriculture meteorologist Brad Rippey said the US will see La Nina characteristics no later than September, which could spell trouble for just-planted corn and soybeans on the heels of a wet spring.

Grain and oilseed traders have driven up new crop futures prices in reaction to the La Nina potential as well as drought-induced lower production estimates from South America. Contracts for December corn and November soybeans have increased by 16pc and 24pc, respectively, since late spring after the national weather services of Australia and the US announced that the El Nino was weakening. December corn prices hit an 11-month high at \\$4.44/bushel on 8 June, while November soybeans climbed to \\$11.59/bushel, up by \\$3.09/bushel from the lowest point in September 2015.

The price rallies are typical during La Nina years as fears of acreage and yield loss permeate the market. La Nina events have helped spark large crop price rallies in 1983, 1995-96, 2007-08 and 2010-2012. In the spring of 1983, heavy flooding throughout major US growing regions pushed planting later in the season. But by July 1983, a hot dry weather pattern developed and left the crops parched for the rest of the growing cycle, sending crop prices to then-historical highs.

"What happened in 1983 and 1995 in particular is we had a wet spring and then it was a switch flipping in July," Rippey said. "Although it was 30 years ago, that flip switch took a huge hit on corn and bean supplies during the transition to La Nina."

For 2016, regions that planted late in the season could be the most affected by a La Nina drought. Crop development in Michigan, Indiana and Ohio could be adversely affected by drier weather because of delayed seeding in the spring.

Rippey said additional weather phenomena, combined with La Nina, could also create dry weather conditions in the Midwest.

"We've seen some pretty stagnant weather patterns," Rippey said. "We have this heat wave that's been building in the west. We don't foresee this, but if some mechanism were to lock that heat in place, we could be in trouble."