All forecasters now seem to agree that La Nina could occur again in 2021/22, for a second consecutive year. Although La Nina was certainly not responsible for all the weather events around the globe last season, it clearly impacted production in the major areas of the southern hemisphere. As such, we should consider that risk is on – again!
It is a fact that long term weather forecasts are not reliable. However, the now well-known La Nina weather event is more predictable as it is linked to slow, temporary changes in Pacific Ocean temperatures. The impact is usually positive for Australian crops but negative for Argentinian and Brazilian production, two of the world’s main grain and oilseed exporters.
La Nina was not the only reason that prices went up so strongly in 2021, but its consequences were major with, for instance, a loss of 25Mt from the Brazilian corn crop! Furthermore, this region, where drillings are due to start in 2 weeks, is already suffering from their worse drought in 100 years.
Thus, we cannot afford at this stage to ignore the increasing risks for South American production. Farmers, already worried by higher costs, lower margins, and their very recent crop disaster, have lost some of their risk appetite. Will they finally manage to drill, in time, what is expected to be a record crop area? Will weather allow crops to develop well?
The answer will certainly depend on weather conditions in the coming month. A lack of rain would take our markets to much higher levels. World stocks cannot afford any new production incidents, they are already at historical lows.
Interesting times ahead, let’s be ready for another volatile season!