La Nina takes center stage
The commodity exchanges have given traders a full three day weekend for Christmas. Traders will not even have to focus on electronic trading on Monday night. Given the weather market that has developed for corn and soybeans, this means an uncomfortably long period of time (and many weather model runs) before the next chance to trade.
Therefore, look for wild trade on Tuesday based on weather forecasts. And look to do it again over the New Year’s holiday weekend. It is definitely a change after a period of time where Europe, the dollar and weak economic growth were the persistent factors affecting commodities trade.
Now La Nina has taken center stage with the potential to cause supply reductions in Argentine and Brazilian corn and soy crops. A classic La Nina will affect southern areas the most—Argentina and Rio Grande do Sul in Brazil. For reference, the last time this happened was in 2008-2009. It was not bone dry during that growing season and it did rain in the crucial month of February. However, Soybean yields in Argentina were down 1/3 from the previous year. Brazilian yields were not affected that much—the northern yields offset the poor crops in the south.
Of course, corn is the most vulnerable right now, since this is the timeframe for pollination in Argentina. Serious concerns about soybean yields have not surfaced. Just for perspective, there are areas where weather and soybean production are great. There are large parts of the northern areas of Brazil that have had good rains. An organization in Mato Grosso, Brazil, just estimated that state’s soy crop at 22.2 mmt, up 1.7 mmt from last year. Stay tuned to see how similar 2011-2012 is to the 2008-2009 season.