2021 Grains Outlook Part III - Weather

2021 Grains Oultook

The Big Shift

Part III - Weather

Potential Weather Challenges

Weather challenges appear likely to extend beyond 2020 and confront farmers across the globe again in 2021. Furthermore, these challenges may be exacerbated if the current La Niña weather pattern strengthens.

NOAA confirmed La Niña in September 2020 and recent forecasts show that the pattern is likely to remain in place through spring 2021. Typically, La Niña occurring between June and August leads to drier weather in southern Brazil and northern Argentina (see Charts 8–9). La Niña occurring between December and February results in cooler but not necessarily dryer weather for Brazil. However, should La Niña continue on through June and August 2021, we would expect continued dry conditions in Brazil and Argentina which could negatively impact grain production in both countries.

Chart 10

Chart 11

The La Niña weather pattern is also likely responsible for dryness impacting US winter wheat farmers as well. Remember, impacts during the winter months when winter crops are in dormancy can be minimal but will grow in importance once those crops start their final growth stages in the spring. That said, current drought conditions extend far beyond the areas typically affected by La Niña in the US.

The most recent US Drought Monitor shows severe, extreme, and exceptional drought across midwestern states stretching down from North Dakota through Texas.

Chart 12

NOAA is forecasting above normal precipitation for northern states this winter, and below normal precipitation for southern states. If realized, this means states such as Kansas, Oklahoma, and Texas, which are already experiencing drought, will only get drier over the next few months.

Chart 13

As mentioned, the most immediate La Niña-influenced weather impact is on US winter wheat farmers. The US winter wheat crop condition ratings have taken a hit with 43% of the crop rated “Good to Excellent” versus 52% rated “Good to Excellent” last year.[1] Wheat prices, however, are as likely to be heavily influenced by production in Russia, the world’s largest wheat exporter. The wheat trade is watching weather conditions in Russia and the Black Sea region more broadly as dryness has been a concern in key growing areas. According to the Russian agricultural consultancy Sovecon, 22% of the Russian wheat crop is in poor condition and in the worst shape since 2009–10.[2] Despite all of this, global wheat production is forecast to exceed demand for the 2020–21 crop year.

While weather may be the critical factor impacting grain prices in the year ahead, one cannot overlook geopolitics, the weakening US dollar, the potential for inflation.

More to come in Part IV. Stay tuned....

[1] USDA NASS Crop Progress Report November 29, 2020.

[2] DC Analysis Weekly Grain Outlook 12/11/2020