Monday, September 12, 2011

Signs of La Niña emerging, so another wet harvest?

It seem that Eastern Australia will see another wet harvest whilst WA will swelter through another dry summer, according to the NOAA. In its latest forecast the US National Oceanic and Atmospheric Administration states that La Niña has re-emerged in the Pacific Ocean and is forecast to gradually strengthen and continue into our summer. Current conditions reflect a re-development of the June 2010-May 2011 La Niña episode. While the Australian Bureau of Meteorology (BOM), which measures La Nina slightly differently, reports conditions are trending that way and a return to full-scale La Nina conditions before the end of the year cannot be ruled out.

Whilst the east coast of Australia copped heavy rain in December, the strong 2010-11 Niña contributed to record winter snowfall across the Canadian prairies and northern US states. The subsequent thaw resulted in large scale spring flooding. While in the southern states dry conditions during sowing this time last year continued into 2011 resulting in wheat production being halved in Texas, Oklahoma and southern Kansas. The resulting drought and extreme temperatures made it one of the worst on record.

If La Nina does emerge by the end of the year and current conditions continue dry in the US, the odds are drought conditions will be deepen further during the ensuing four to five months. This will severely impact winter wheat sowing and emergence for the second year in a row. If La Nina lasts too long next year there will be potential for dryness throughout the southern United States to lift northward during the growing season impacting a larger part of nation, but more importantly early season corn and beans crops may be threatened with drought early in the 2012 growing season.

Back home, when La Nina brings heavy rains across Eastern Australia is does bring extreme volatility in prices. Take for instance last harvest, when up to 150mm fell across most regions in the first week of December. APW1 prices after averaging $265 through most of November, surged $67 in a couple of days. The H1 spread ballooned out to $117, after being $50 the week before and FED1 discount was out to $123.

With high protein wheat and durum balance sheets at tight levels both domestically and internationally the trade doesn’t want another year like last. With new season multi-grade wheat spreads currently at historical average levels, make sure when you take out a MG contract if the spreads are floating or locked in.

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