Top five weather risks for grain markets in 2018

At this point in the northern hemisphere’s winter, the immediate weather risks are largely limited to logistics and winterkill. At the same time, markets are watching for extremes of weather that could upset yield projections in the southern hemisphere.

Dr Rory Deverell reports that there is, on average, a major yield decline (typically weather-related) somewhere in the world every one in every three seasons. We are now heading into the fourth season without a major yield upset and this would indicate that we are overdue some form of yield disruption.

1 Drought in Argentina: planting is now under way in Argentina where conditions are described as being dry. In the major growing province of Cordoba, rainfall amounts are currently 15% below normal for the time of year. This is certainly one of the more immediate risks in the market. Last season also started drier than ideal but decent rains in January and February rescued yield potential.

Soya bean meal will most likely feel the brunt of any upward price movement if rainfall conditions do not improve in the coming weeks. However, should weather conditions improve for yield (rain), those who have forward bought will be exposed to the downward price risk.

2 Temperature extremes in southeast Asia: the next weather risk that Rory mentioned relates to southeast Asia and palm oil supply. Extremes of temperature in the major palm oil-producing regions of south-east Asia in 2016 had a negative effect on palm oil output, which in turn affected vegetable oil markets up to fairly recently. We are now entering the key window of weather risk for this area and the next three months of weather (temperatures in particular) in that region will affect supply for the next 18 months.

3 Expanding drought in north America: the area affected by drought in north American is still expanding and this is creating a supply risk for next harvest. While it is still early in the season, the area declared as drought-affected continues to increase and is creeping into the corn and soya bean belts. However, its greatest impact to date is in the wheat areas of the US. In addition to this, the current cold weather and the absence of snow cover present a winterkill threat to US winter wheat in the southern states.

4 Unseasonably mild weather in Russia: this time last year we witnessed an increase in prices on the back of some very cold temperatures in the Black Sea region but December 2017 was the second warmest in the past 10 years.

Right now, there is no weather or logistical risk in the Black Sea region. Should the winter there continue to be mild to warm, it is inevitable that crop production estimates will increase further in the months ahead, that is providing there are no winterkill related losses.

5 Wet conditions in Europe: wet in the northern regions of Europe has downgraded EU crop production prospects for 2018 due to a reduction in the area planted to winter crops. A wet and difficult latter half to the harvest in Europe in 2017 is reducing grain supplies out of the Baltic countries in particular and will have the longer-term consequence of reducing production estimates for 2018 because of lower winter crop plantings (wheat and rapeseed).

Rory estimates that winter wheat area in Germany alone is down by around 5% ,while the Baltic countries further north will have suffered even higher area reductions. In contrast, Rory reported that soil moisture reserves in France are at a multi-year low following their very good harvest but only time will tell if this has any permanent consequence for crop yields.