May 31, 2010

US grain traders to assess La Niña risk

Grain traders are concerned that a La Niña weather event could produce hotter, drier weather in the US Midwest this midyear, potentially lowering crop yields.

During La Niña, a cooling of sea surface temperatures in the equatorial Pacific Ocean alters weather patterns around the globe. Grain traders associate La Niña with warmer and drier conditions in the US Midwest crop belt.

The exact likelihood of summertime La Niña is unclear. But the US Climate Prediction Centre, a unit of the National Oceanic and Atmospheric Administration, said in a report last week that the emergence of a La Niña event in the second half of 2010 was a growing possibility.

NOAA is set to release an updated monthly outlook on June 3.

Prospects for a La Niña have raised a degree of uncertainty in the Chicago Board of Trade (CBOT) corn and soy markets, making it a bullish background factor - even though the US corn crop is off to a very good start and current weather conditions are nearly ideal.

''It's very much in the market. People have been tracking it carefully,'' Rich Feltes, senior vice president with MF Global Research in Chicago, said of the La Niña risk.

Timing is critical for crop planting as July is the critical month for the US corn crop, while August is the important month for soy. If La Niña developed after that, the crop impact would be minimal, and might even help hasten the harvest if conditions turned dry.