Australian weather scientists have increased their estimate of the likelihood of an El Nino developing in the second half of the year.
We hear about El Nino and La Nina a fair amount. The former is a warming of the equatorial Pacific and the latter is a cooling of those waters.
The last El Nino events occurred in 2002 and 2006.
In both those years, Australia’s average wheat yield fell to about 14 bushels per acre compared to a little less than 24 bu. last year.
The U.S. Department of Agriculture now forecasts Australia will produce 23 million tonnes of wheat in 2009-10. But if the El Nino is severe and affects Australian crops as it did in 2002 and 2006, producing similar yields, then production would be closer to only 12 million tonnes.
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Of course El Nino is not a certainty, but this week the Australian Bureau of Meteorology put the odds of an El Nino at better than 50 percent.
“More evidence of a developing El Nino event has emerged during the past fortnight, and computer forecasts show there’s very little chance of the development stalling or reversing,” the bureau said in a statement.
The question is, if a severe El Nino slashes Australian production, will it push up wheat prices?
Rabobank, a specialist in agribusiness, thinks it won’t, noting the prospect for strong northern hemisphere production and forecasts of rising stocks by the end of 2009-10 by the International Grains Council and USDA.
However, stocks might wind up less than now forecast.
For example, the USDA’s June world outlook forecast Canada’s wheat and durum output at 25 million tonnes. But in 2002, a drought year similar to this year, Canada produced only 16.2 million tonnes of wheat, although the misery that year was compounded by a difficult and extended harvest.
The USDA forecasts Argentina will produce 11 million tonnes of wheat in a partial recovery from last year’s drought-slashed 8.4 million tonnes.
However, drought still grips the South American country and wheat seeding is well behind the pace set last year. The Buenos Aries Grain Exchange forecasts farmers there will cut wheat acreage by 40 percent from last year.
Wheat overestimated
With problems in Canada, Australia and Argentina, it is not hard to think that USDA’s forecast of a world wheat crop of 656 million tonnes could be overly optimistic and might be too large by 10 to 15 million tonnes.
If true, and if demand is little changed from the current forecast, stocks by the end of 2009-10 would not increase from the 2008-09 level.
We fervently hope there are no crop disasters, but at this point in the year there are significant threats to production.
As the U.S. harvests an average winter wheat crop, traders have become complacent in their belief of adequate stocks. That calm might be shattered by fickle weather.
