Maize in the US – the world’s largest producer – is in its reproductive growth phase and is sensitive to adverse weather. Historically, El Niños have adversely affected the country’s maize output, and a poorer crop this year could counter the bumper Brazilian second harvest that has just completed, driving price increases.
With Brazilian and Argentine soyabean harvests complete, the market’s attention is now on the US crop, which is in its reproductive growth phase. Brazilian soyabean production was at an all-time high, while Argentina’s output came close to last year’s record crop. The US’s 2015-16 production year is likely to follow suit and drive prices lower.
You may wonder why wheat, maize and sugar prices have been falling rather than rising in response to El Niño. It is true that the supplies are plentiful and existing stocks present a hangover, but this weather event should help tighten supplies looking forward.
Meteorological organisations were predicting an El Niño throughout 2014 but it did not materialise until this year. The market appears fatigued with gloomy production predictions, when in reality harvests have been strong.
This El Niño is unlikely to go away until spring 2016, though we are more likely to see the impact on crops now.
Nitesh Shah is associate research director at ETF Securities
