Sizing up La Niña: Big Impacts for South America?
Planting season will kick off in a few weeks in South America as farmers in parts of Brazil take to the fields. The bulk of planting generally takes place in October and stretches into November. This year, farmers in Brazil are expected to increase both corn and soy plantings thanks to exceptionally strong prices, while Argentina farmers face different economics as export taxes are pushing farmers to plant less corn and more soybeans.
The other key event to watch this season will be the possible evolution of a La Niña weather event. The El Niño/La Niña weather phenomenon, or ENSO phase, which is associated with the warming or cooling of waters around the equator, is a key driver of global weather patterns. The current ENSO classification is “neutral,” with neither El Niño or La Niña, but in the next few months meteorologists expect an official classification of La Niña to be likely. Indeed, the last several months have seen cold waters around the equator, signaling La Niña-like conditions, but to be officially classified as a La Nina requires three consecutive months.
With La Niña seeming likely in the coming months, what can we say about the potential impact on yields in South America?
1. The Argentina corn crop has the highest risk of low yields from a La Niña. Based on 40 years of yields and readings on the ENSO phase, we found that the most apparent correlation between yields and the state of the El Niño/La Niña cycle was for Argentina’s corn crop in years of a La Niña, Argentina on average suffers about a 5 percent corn yield loss.
2. A La Niña can definitely change the odds, putting a greater chance for lower yields. For example, with soybeans in Argentina, there is minimal risk of sizable yield losses when the ENSO phase is neutral or in El Niño—the bottom part of the boxes on the right-hand chart shows that only 25 percent of the time do we expect yield losses of 5 percent in a neutral phase and we expect a 25 percent chance of falling below trend-line yields in an El Niño phase. But with La Niña, there is a 25 percent chance of yield losses being 15 percent. So a La Niña can skew the chances of lower yield even if the mean is pretty similar.
3. The last major La Niña event to hit was in the 2017/18 growing season. In that season we saw Argentina corn yields off 25 percent and soy yields off 22 percent.
4. Early-season moisture readings heading into planting are mostly dry in key South American growing regions. The two largest states for Argentina show well below normal precipitation. Brazil is split on the other hand with Parana to the south seeing widespread rains, but number one producer Mato Grosso has not registered any rains in the past 60 days.
FBN's take on what it means for the farmer
Without a doubt, La Niña is a better weather event than an El Niño to see production losses in South America. While La Niña is still uncertain, the odds seem good that it will happen, and the impacts are likely to be felt for corn growers in Argentina. FBN believes this could continue to be a supportive element to add to strong export sales to China and a weaker dollar as we get past harvest.
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