January 20, 2011

 

Global La Nina phenomenon to support grain prices

 

 

The global La Nina weather phenomenon, which has caused dry weather in Argentina and brought Australia its third-wettest year ever, is projected to support grain prices in the coming weeks.

 

Indicators for La Nina, which involves reduced ocean temperatures and is usually accompanied by higher-than-normal rainfall in some regions and dry weather in others, show the phenomenon is likely to continue until the Southern Hemisphere's autumn.

 

At least half of the wheat harvested in eastern Australia has been downgraded to feed grade due to excessive moisture, tightening the supply for milling wheat.

 

In Argentina and southern Brazil, dry weather has affected corn and soy crops. After a series of inclement-weather episodes across the globe, consumers had pinned their hopes on the South American harvest, due to start next month, but it appears it will fall below previous expectations.

 

Since early 1970s, all except two La Nina events have resulted in dry weather in Argentina, said Abdolreza Abbassian, secretary for the Intergovernmental Group on Food grains at the United Nations Food and Agriculture Organization.

 

A drought in Argentina would complete a bad-weather cycle that started with a devastating drought in Russia last June.

 

Weather will dictate the price direction for grains, said Jay O' Neil, the senior agricultural economist at Kansas State University.

 

Investors are setting up more long positions in CBOT grains futures, because any disruption in supply from Argentina will push up demand from the US, where supply is already tight, said a Singapore-based executive at a global trading company.

 

Near-month corn futures on the Chicago Board of Trade are at a 30-month high around US$6.60 a bushel, and traders expect prices to break above US$7/bushel in the next few weeks.

 

CBOT March soy reached around a two-year high at US$14.29/bushel, and traders expect the contract to test US$14.70/bushel this month.

 

Costlier corn is pushing up prices of wheat, which Wednesday (Jan 19) increased above US$8/bushel for the first time since January 6.

 

Russia, which exported 18 million tonnes wheat in 2009 to 2010, is no longer in the market, due to a devastating drought last summer. The Russian shock was absorbed by drawing upon large inventories in the US, but the market fears that another bad weather event may create shortages.