Baby boys and girls were a factor in markets last week, driving grain prices higher, which was against the direction that fundamental information indicated.
The babies were El Nino and La Nina, the weather trends sparked by warming and cooling of the Pacific Ocean.
El Nino, Spanish for boy child or the infant Jesus, is the name given to the warming trend in Pacific Ocean water that sometimes is apparent at Christmas.
La Nina, or the girl child, is the opposite trend.
Private and government weather forecasters in the last couple of weeks have said that the El Nino that has been ensconced for the last year or so is officially over. The trend in the Pacific is now neutral, but there is a stronger than normal chance that a La Nina might develop quickly.
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The effect of a La Nina can vary in strength and results. As we know, long-term weather forecasts are notoriously uncertain.
But generally a La Nina is associated with a wet spring in the Midwest followed by a drier than normal summer. The dryness could also affect the U.S. plains winter wheat crop.
These possible effects are what caught the attention of grain traders. They know that to accommodate growing ethanol demand, the U.S. must produce a record corn crop. That will require an early spring so that seeding can take place in the late April to early May window that encourages the best yields.
A wet spring in the Midwest could delay seeding past the ideal dates or force a switch to other crops.
None of this is certain, but it was enough for traders to bid up futures prices in corn, which in turn caused soybeans and wheat to rise.
This went against price negative information that also came out last week. The International Grains Council raised its forecast for global wheat production in 2007-08. India’s agriculture minister said that country’s production, which was threatened by dry weather in January, has been salvaged by recent rain. The drought in Australia appears likely to lift as the El Nino ends.
In other years this kind of news would likely pressure prices lower. But with the focus so much on the need for record U.S. corn production, any forecast that indicates trouble for that crop is likely to lift the entire futures market.
Winnipeg canola futures would normally have rallied alongside the U.S. markets but the rail strike and its negative effect on exports kept the oilseed’s price lower.
The impact of a La Nina on the Canadian Prairies tends to be negative for crops with a correlation to dry summer weather, but that is not always the case.
Environment Canada’s long range forecast calls for below normal temperatures from February to April. It also sees below normal precipitation over that period in Alberta, but greater than normal precipitation in Manitoba with normal precipitation in most of Saskatchewan.
