La Nina Could Jeopardize Soybean Production In 2017

| About: Teucrium Soybean (SOYB)

Summary

The weather phenomenon known as La Nina will occur already at the end of this year with a probability of 61%.

The records of the past La Nina observations indicate a high probability of 10% reduction in the soybeans production in the U.S.

The soybeans production in Argentina and Brazil may also decrease as a result of the weather abnormalities caused by La Nina.

The strongest El Nino over the past 30 years is nearing completion. According to the CPC, the sea-surface temperature in the equatorial Pacific exceeded the average by only 0.7 degrees during the period from April to June. Most likely, July is El Nino's final month. This means a high probability of imminent formation of La Nina and the beginning of the period of severe weather risks, which could affect the key global regions of soybeans production.

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According to the current ENSO forecast, La Nina will occur with a probability of 61% already at the end of this year. Over the past 30 years, there have been recorded only two cases of El Nino, comparable in the severity to the one in 2015-2016. It is worth noting that in both of these cases the completion of El Nino was followed by a protracted La Nina. Therefore, I believe that the potential impact of La Nina should be taken into account in the projections for 2017. Moreover, in my opinion, we should be prepared for the fact that La Nina will last at least throughout the whole 2017. This means that this weather phenomenon will most likely affect all the key soybeans growth stages in the United States, as well as in Brazil and Argentina.

Source: ENSO Forecast

In the United States, specifically, La Nina is usually characterized by overly cold and wet weather in the North of the country, together with a high probability of formation of droughts in the South. Anyway, as will be shown below, in most cases, the weather anomalies caused by La Nina have a negative impact on soybeans production in the United States.

From 1980 onwards, the soybeans production in the United States was steadily increasing, partly due to the expansion of area under crops and partly due to the increased yield associated with the technological improvements.

Click to enlargeInterestingly, if you compare the U.S. schedule of deviations of the actual soybeans yields from the trend index with the schedule of El Nino and La Nina activations, you can highlight a number of patterns.

For example, from 1980 onwards, there have been six La Nina manifestations, in five cases accompanied by a decline in soybeans production. In four cases the yields was below the trend index by 10% on average.

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There is another interesting pattern that is worth noting. Since 1980, there were no cases in the United States, when the actual soybeans yield exceeded the trend index for more than three consecutive years. If the current USDA forecast proves true, in 2016/17 the U.S. soybeans yields will exceed the trend index for the third consecutive year. Given that La Nina will almost certainly occur during the next year, this observation at least set on the alert.

The analysis of the soybeans production history in Brazil and Argentina gives similar results. Over the past twenty years, La Nina intensification periods in these countries have always been accompanied by a persistent decline in the soybeans production. In such cases the average decrease in production relative to the trend level amounted to 11.5% in Brazil and 25% in Argentina.

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Conclusion

In my opinion, the weather difficulties that the soybeans producers in Brazil and Argentina have faced this year are just the beginning of the global weather problems La Nina probably will bring in 2017. As a minimum, you, probably, shouldn't expect another record global soybeans production in the following year.

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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.