Commodity Insight: The coming El Niño is worrisome

The wild card for the U.S. and global agriculture markets is Mother Nature. That is how it has always been and that is how it will always be.

And in my view, the ultimate wild card for Mother Nature is an El Niño, which takes place on average every two to seven years.

Each of the most intense drought years in the United States — 1956-1957, 1972-1973, 1997-1998 and 2012 — were El Niño years. And that is why I view the coming El Niño this summer as worrisome.

From the National Oceanic and Atmospheric Administration: “During normal conditions in the Pacific Ocean, trade winds blow west along the equator, taking warm water from South America towards Asia. To replace that warm water, cold water rises from the depths — a process called upwelling. El Niño and La Niña are two opposing climate patterns that break these normal conditions. Scientists call these phenomena the El Niño-Southern Oscillation cycle. El Niño and La Niña can both have global impacts on weather, wildfires, ecosystems and economies. … El Niño means Little Boy in Spanish. South American fishermen first noticed periods of unusually warm water in the Pacific Ocean in the 1600s. The full name they used was El Niño de Navidad, because El Niño typically peaks around December.”

And from CNN a week ago with a headline that blared, “The oceans just reached their hottest temperature on record as El Niño looms,” the article touts the astonishment of scientists that have watched ocean temperatures that have risen over the past several years with record warmth the past four years.

The article has this eye-opening quote: “The incredible trend worries experts about what could lie ahead, especially as forecasts predict El Niño is on its way starting this summer — and along with it, impacts like extreme heat, dangerous tropical cyclones and a significant threat to fragile coral reefs.”

Most experts agree that the 1982-1983 — when soybean prices rose from $5.65 to $9.42 a bushel — El Niño was the strongest and most devastating of the century, perhaps the worst in recorded history.

From the Woods Hole Oceanographic Institution: “It caused weather-related disasters on almost every continent. Australia, Africa and Indonesia suffered droughts, dust storms and brush fires. Peru was hit with the heaviest rainfall in recorded history — 11 feet in areas where 6 inches was the norm. Some rivers carried 1,000 times their normal flow.”

Reuters also had a recent headline that stated “U.S. forecaster says El Niño could arrive by summer 2023.”

It wrote: “The El Niño phenomenon is a warming of ocean surface temperatures in the eastern and central Pacific, sometimes causing crop damage, flash floods or fires.”

Eight years ago in 2015, Fortune Magazine posted a piece entitled, “Commodity markets braced for El Niño impact.”

Fortune wrote: “The severity of the 1997 El Niño, which parched crops and triggered droughts, had significant impact across a range of commodity markets, causing billions of dollars worth of agricultural damage in the U.S. alone.”

What makes this year even more explosive to the upside for the U.S. ag markets are these facts. Prices for corn, wheat and soybeans have never been this high in price for this time of the year with the growing season at hand.

The cattle market is in the same situation as prices have doubled in value since early 2020 and now hugging new all-time historic high prices.

An El Niño that is historically potent could send a host of commodity markets to nosebleed levels never before seen.

In 1982-1983 in the midst of the most devastating El Niño in history, soybean prices rose 67%. With soybean prices this week hitting $15.22 a bushel, a 67% gain would equate to $25.42 a bushel.

And if soybean prices traded at such lofty levels, where would corn, wheat, cattle and host of other ag markets head to the upside out of sympathy? It has to be asked, how high is high if soybeans visit $25 a bushel or higher?

My former boss, Roy W. Longstreet, author of the classic, “Viewpoints of a Commodity Trader,” often said: “In the commodity markets, all things are possible.”

Keep that in mind when you think that $25 a bushel of soybeans is simply not possible. In the commodity futures markets, all things are possible.

The Guardian stated this week: “Some models are raising the possibility later this year of an extreme, or ‘super El Niño.’”

Right now, today, with supplies of soybeans, corn, wheat and cattle historically tight, the growing season has to be near perfect.

History shows clearly an El Niño can have a dramatic impact on ag markets of all kinds. And that is why I view the coming El Niño as more than worrisome.