The El Nino Southern Oscillation (ENSO), which could result in La Nina emerging this year, may be a potential catalyst for a rise in global prices of wheat and corn. The forecast comes amidst a bearish pressure on the prices of the cereals, analysts say.
Corn and wheat are currently ruling at a four-year low in the global market. “...we note that any substantial rise in global prices would likely be contingent upon a considerable downturn in harvest forecasts for one or more of these principal producers. A potential catalyst for such a shift in harvest expectations could be the El Niño Southern Oscillation (ENSO) weather pattern,” said research agency BMI, a unit of Fitch Solutions.
Previous La Nina experience
“Wheat prices are ebbing under the harvest pressure from the northern hemisphere. Fresh supplies from the southern hemisphere are doing the same for maize prices, even as harvests in Argentina and Brazil are likely to fall short of expectations,” said the Agricultural Market Information System (AMIS) of the UN’s Food and Agriculture Organisation (FAO).
Currently on the Chicago Board of Trade (CBOT), benchmark wheat futures are ruling at $5.24 a bushel ($192.53/tonne) and corn futures at $3.80 a bushel ($149.59/tonne). Prices of both cereals have dropped over 20 per cent year-on-year.
“For context, the previous La Niña, which took place across the 2022-23 season, contributed to a 9.1 per cent decrease in corn and a 9.5 per cent reduction in wheat production year-on-year in the US. Consequently, we will remain vigilant of how the ENSO cycle develops,” said BMI.
The research agency said climate change has been affecting agriculture with farming in Asia, particularly India and South-East Asia, being affected by the El Nino weather.
Weak La Nina?
El Nino ended in April and ENSO is now in a transitional phase. Various global weather agencies have predicted that La Nina, which brings heavy rains and floods in Asia and India but leads to drought in the Americas, has a 70 per cent chance of emerging during October-December 2024.
Quoting the US Climate Prediction Center, BMI said that La Nina is expected to peak during October-December, with a 50 per cent probability of developing into a moderate event.
“The current projections do not indicate a high likelihood of the emergence of a strong La Niña. Nonetheless, should these projections shift, it could significantly influence agricultural output forecasts, especially for the US,” it said.
Critical wheat and corn production areas in the US are often hit by extended periods of drought and heightened temperatures during a La Niña event, the research agency said.
Bearish signals
During the 2024-25 season (August-June), projections are for an ample supply of wheat and corn, underpinned by strong production in key markets such as the US, Brazil, Argentina, and Russia, it said.
ING Think, the financial and economic wing of Dutch multinational financial services firm ING, said the USDA has raised its 2024-25 US corn production estimates to 15.1 billion bushels due to expectations of higher acreage.
It said the World Agricultural Supply and Demand Estimates (WASDE) report of the USDA was relatively bearish for wheat. “The USDA’s numbers showed higher supplies and exports for 2024-25. US wheat output estimates are 2,008 million bushels,” the ING arm said.
The USDA Economic Research Service projected the 2024-25 season-average farm price to be $5.70 based on larger domestic production. Corn prices were also projected lower.
BMI said as of July 30, wheat prices settled at $5.49/bushel, marking a 7.1 per cent reduction 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/bushel,” it said.
Corn price forecast
The research agency said the corn market, on the other hand, has displayed greater stability on a month-to-month basis, with second-month corn prices closing at $4.05/bushel, showing a minimal decline of 0.5 per cent.
“Nonetheless, after reaching a peak on June 13 at $4.634, corn prices have retreated by 12.6 per cent. The year-to-date performance shows a significant contraction of 16.3 per cent since January 2024, which underscores the strong bearish sentiment that has enveloped the market throughout the year,” said the research agency.
BMI said it maintains its average price forecast for corn in 2024 at $4.30/bushel, below the present year-to-date average of $4.437/bushel. “For both wheat and corn, our forecasts reflect our view that the bearish sentiment is likely to persist through the remainder of 2024,” it said.