Prairie Grains Nov 97

Issue 10
November 1997
How may El Nino affect our weather, markets?

By Stephanie Sorensen

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Prairie Grains is the
official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain
Growers Association,
South Dakota Wheat,
Inc., and the
Minnesota Barley
Growers Association.

There's been no shortage of speculation about El Nino, especially after the erratic weather that has affected crop production in Southern Hemisphere countries like India and Malaysia. All the hype over this strange, recurring warming pattern in the tropical Pacific Ocean makes it hard for Northern Plains farmers not to speculate about how El Nino may affect grain prices, or even their own crops next growing season.
The short answer: it's too soon to tell; we'll have to wait and see.
After the 1982-83 El Nino, the most recent that compares in scope to the current warming pattern, the North Dakota wheat crop was hurt by drought. On the other hand, yields in areas of Minnesota that year were quite good. This kind of localized effect makes predicting next year's crop season nearly impossible.
Typically, the cooling phase that occurs after El Nino peaks (usually in December or January) will determine the weather pattern's effect on the subsequent growing season. Leon Osborne, director of the University of North Dakota's Aerospace Regional Weather Information Center, says we will probably "see the signature of this El Nino after the first of the year."
Our winter temps will probably be warmer than normal, Osborne says. But he points out that it's the overall average temperature that will be up slightly, meaning that for each warmer-than-normal day, there may be a nasty day lurking around the corner. "Rest assured, there will still be plenty of bouts with 20 below," he says.
There's no question that the markets have been affected by El Nino-fueled by both reality and speculation. Expect market jumpiness to continue as long as El Nino creates uncertainty, says George Flaskerud, North Dakota State University extension ag economist.
El Nino could cause far southern states and southern winter-wheat growing areas to experience above-normal moisture levels this winter. The system could be positive and negative for winter wheat development; moisture would benefit the crop but erratic weather that could prompt plants out of dormancy could leave some winter wheat areas more vulnerable to winter kill.
Don't make El Nino the center of your marketing plan, Flaskerud advises. If you think there might be potential for El Nino-related production losses next summer, consider selling inventory this fall and winter-then, buy call options for the 1998 crop, says Flaskerud. Another tool to consider is minimum price contracts.
Apart from minimizing losses, an El Nino-influenced market may actually provide scale-up price opportunities, says Flaskerud. "Sell a little bit of your wheat, corn or soybeans using put options every time the price moves to a higher level. But keep in mind," he warns, "that gambling with rising prices based on the fear of El Nino may leave the market vulnerable to a sharp drop if the fear isn't realized."n

Copyright Prairie
Grains Magazine
November 1997

Issue 10 November 1997	How may El Nino affect our weather, markets? By Stephanie Sorensen

Library Home E-Mail Back Prairie Grains is the official publication of the Minnesota Association of Wheat Growers, North Dakota Grain Growers Association, South Dakota Wheat, Inc., and the Minnesota Barley Growers Association.	There's been no shortage of speculation about El Nino, especially after the erratic weather that has affected crop production in Southern Hemisphere countries like India and Malaysia. All the hype over this strange, recurring warming pattern in the tropical Pacific Ocean makes it hard for Northern Plains farmers not to speculate about how El Nino may affect grain prices, or even their own crops next growing season. The short answer: it's too soon to tell; we'll have to wait and see. After the 1982-83 El Nino, the most recent that compares in scope to the current warming pattern, the North Dakota wheat crop was hurt by drought. On the other hand, yields in areas of Minnesota that year were quite good. This kind of localized effect makes predicting next year's crop season nearly impossible. Typically, the cooling phase that occurs after El Nino peaks (usually in December or January) will determine the weather pattern's effect on the subsequent growing season. Leon Osborne, director of the University of North Dakota's Aerospace Regional Weather Information Center, says we will probably "see the signature of this El Nino after the first of the year." Our winter temps will probably be warmer than normal, Osborne says. But he points out that it's the overall average temperature that will be up slightly, meaning that for each warmer-than-normal day, there may be a nasty day lurking around the corner. "Rest assured, there will still be plenty of bouts with 20 below," he says. There's no question that the markets have been affected by El Nino-fueled by both reality and speculation. Expect market jumpiness to continue as long as El Nino creates uncertainty, says George Flaskerud, North Dakota State University extension ag economist. El Nino could cause far southern states and southern winter-wheat growing areas to experience above-normal moisture levels this winter. The system could be positive and negative for winter wheat development; moisture would benefit the crop but erratic weather that could prompt plants out of dormancy could leave some winter wheat areas more vulnerable to winter kill. Don't make El Nino the center of your marketing plan, Flaskerud advises. If you think there might be potential for El Nino-related production losses next summer, consider selling inventory this fall and winter-then, buy call options for the 1998 crop, says Flaskerud. Another tool to consider is minimum price contracts. Apart from minimizing losses, an El Nino-influenced market may actually provide scale-up price opportunities, says Flaskerud. "Sell a little bit of your wheat, corn or soybeans using put options every time the price moves to a higher level. But keep in mind," he warns, "that gambling with rising prices based on the fear of El Nino may leave the market vulnerable to a sharp drop if the fear isn't realized."n
Copyright Prairie Grains Magazine November 1997

How may El Nino affect our weather, markets?

Copyright Prairie Grains Magazine November 1997

Copyright Prairie
Grains Magazine
November 1997