- HEADLINES: El Niño climate pattern is now underway; Midwest drought builds with 45% of corn and 39% of the soybeans involved; Soyoil rallies above its 50-day moving average for the first time since February; Cash corn/soybeans stay strong.
- El Niño has officially returned and is likely to yield extreme weather later this year, from tropical cyclones spinning toward vulnerable Pacific islands to heavy rainfall in America to drought in Australia. After three years of the La Niña climate pattern, which often lowers global temperatures slightly, the hotter El Niño is back in action, according to an advisory issued on Thursday by the U.S. National Oceanic and Atmospheric Administration’s Climate Prediction Centre. El Niño is born out of unusually warm waters in the Eastern Pacific near the coast of S America, and often accompanied by a slowing down or reversal of the easterly trade winds.
- “In May, weak El Niño conditions emerged as above-average sea surface temperatures strengthened across the equatorial Pacific Ocean,” the advisory said.
- The last time an El Niño was in place, in 2016, the world saw its hottest year on record. Coupled with warming from climate change, 2023 or 2024 could reach new highs. Most experts look to two agencies for confirmation that El Niño has kicked off, NOAA and Australia’s Bureau of Meteorology (BOM). The two agencies use different metrics for declaring El Niño, with the Australian definition slightly stricter. NOAA calls an El Niño when ocean temperatures in the eastern and central equatorial Pacific, have been 0.5℃ higher than normal for the preceding month, and has lasted or is expected to continue for another five consecutive, overlapping three-month periods. The agency also looks at a weakening of the trade winds and cloud cover. Australia’s BOM needs things to be hotter, with the key regions of eastern Pacific 0.8℃ warmer than average.
- On Tuesday, Australia issued their own bulletin, noting a 70% chance of El Niño developing this year. NOAA said there is a 56% chance that when this El Niño peaks in strength, normally during the N Hemisphere winter, it will be a strong event, meaning that Eastern Pacific Sea surface temperatures are at least 1.5℃ higher than normal.
- This could yield more intense impacts, from drought to cyclones, across the world. Still, impacts vary, and El Niño come in “two flavors”, said an atmospheric scientist. Those with their warmest waters near the west coast of S America are deemed Eastern Pacific events, such as the strong 1997-98 El Niño. The other arises in the Central Pacific, near the equator around Hawaii, as was the case in the most recent 2015-16 event. Weather anomalies can be more extreme depending on where waters are warmest, making things drier or wetter in certain regions. Some forecast models predict the 2023-24 winter to be a Central Pacific El Niño.
- Early signs of hot, dry weather caused by El Niño are threatening food producers across Asia, while American growers are counting on heavier summer rains from the weather phenomenon to alleviate the impact of severe drought. The El Niño could lead to winter crop production falling 34% from record highs in Australia, and also impacting palm oil and rice production in Indonesia, Malaysia, which supply 80% of the world’s palm oil, and Thailand. In India, a country that largely depends on the monsoon rains for its summer crop, impacts from El Niño could be offset by the Indian Ocean Dipole, or the Indian Niño, yet below normal rainfall was expected over north-western parts of the country.
- Chicago grain futures are slightly higher as the midday GFS weather forecast has shifted drier and now is more like overnight EU weather model as the amount of crop involved in the 2023 flash drought continue to grow. The US Drought Mitigation Centre Indicated that 45% of the US corn and 39% of the soybean crops are involved in a D1 (moderate) or worse drought. This is well above the level of the last dire drought when 16% of the corn and 12% of the US soybean crop were impacted. The point is that with Midwest subsoil moisture in freefall, that the need for rain is immediate with producers reporting poor germination and seed death of corn/soybeans that were planted after mid-May. Crop yield potential could drop quickly without a needed Midwest rain.
- The USDA will be out with the June Crop Report Friday. We look for WASDE to raise global 2022/23 wheat/soybean trade to record large levels based on the offtake to date, along with making downward reductions to Argentine corn/soybean production due to actual reported harvested yield. The surge in world wheat/soybean trade has been away from the US, which is why WASDE could trim its US corn/wheat export estimates slightly. We do not expect that WASDE will cut its soybean trade forecast just yet.
- The July/November soybean spread has pushed out to a new contract high this morning at a $1.93 premium while July/December corn has followed to a new rally high of $0.81 premium. This is the highest price for the July/December corn spread since June of 2022. The widening old/new spreads argues that old crop cash supplies are tight heading into first notice day against July futures. Central IL soybean basis is bid at $0.70 over July with Central IL corn bid at $0.50 over. There are reports of higher basis being paid for sizeable quantities of old crop corn and soybeans. The point is that the March US stocks report argued that NASS has overstated the 2022 US soybean crop by 75-85 million bu while US corn feed/residual use was understated by 100-150 million bu. Cash bids back up the theme that US old crop corn/soybean stocks are in strong hands and extremely tight. This will maintain upward pressure on July futures with the transition to the new harvest being bumpy with elevators being empty.
- US corn, soybean and wheat sales for the week ending June 1 were seasonally slow with just 6.8 million bu of old crop corn and 7.6 million bu of old crop soybeans being sold. US 2023/24 wheat sales stand at 139.1 million bu on June 1 (down 28 million bu from last year). Brazil is exporting record tonnages of soybeans/corn, which is stealing US export demand. This is not surprising. Yet, there was a cargo of US soybeans that was sold to Germany with the soyoil likely to be drawback to the US on a shortage of soyoil for renewable diesel. This follows a like drawback for 3 cargoes of US soybeans sold to Spain earlier this week.
- The midday GFS weather forecast model run was drier and like the overnight EU model on rainfall. A storm system for Sunday/Monday is forecast to produce 0.1-1.25” of rain across the Midwest with locally heavier amounts across E Wisconsin and Michigan. The Central Plains will see an additional 0.5-1.50” of rain on the weekend. Dry weather follows on Tuesday which lasts into the weekend. The next chance of meaningful rain is hard to define until the 11–15-day period when a hurricane is forecast to reach the TX Coastline. The GFS forecast remains erratic from run-to-run with rainfall placement, but it is wet in the 11–15-day period. Our confidence that far out is low, and we remain highly doubtful of a TX landing hurricane with none of the other models in agreement. Our bias stays drier than normal Midwest weather with budding heat after June 20.
- We look for a 2-4% fall in US corn/soybean good/excellent ratings on Monday with the coming rain not being enough to reverse the ratings downtrend. And Northern European and Russian spring wheat crops are also suffering which is tugging 2023 world wheat production lower by 5-9 million mt. Russian 2023 spring wheat is estimated by USDA at 23 million mt with the drought cutting yield by 10-20%. With funds sizeable shorts, it is premature to be bearish. Soaking rain is needed NOW.