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La Nina's effect for Aussie grain markets

La Nina's effect for Aussie grain markets

This is branded content for Advantage Grain.

The recent La Nina update from the Bureau of Meteorology (BOM) has a lot of people talking, with the BOM confirming what seems clear to all - that it's very wet!

But how many of us actually know what a La Nina is; the criteria needed to officially declare a La Nina and the impacts they have on Australian grain markets.

The El Nio Southern Oscillation (ENSO) outlook has been raised to La Nina, which means the typical climatic pre cursors of La Nina have reached their 'La Nina thresholds'.

La Nina events always vary in strength and intensity, so while we can assume continued above average rainfall will be a high probability based on past La Nina events, the duration of the event is the unknown.

The current model outlooks suggest this event will persist until late summer or early autumn 2022, with all models meeting La Nina thresholds in December and January, with a majority also show it continuing into February.

La Nina's effect for Aussie grain markets

Average rainfall for the 13 La Nina event that have occurred since 1910. The majority of Australia's east coast received rainfall in decile 8, which indicates an above average rainfall. Source: http://www.bom.gov.au/climate/updates/articles/a020.shtml

How does it happen?

For a La Nina event to occur, a number of interacting climatic and atmospheric factors must be in place and be within specific La Nina thresholds.

Although all of these factors interact with and influence each other, the most important indicator of La Nina is the Tropical Pacific sea surface temperatures.

Cooling sea surface temperatures in the Central and Eastern Pacific along the equator are used as the main way to identify a La Nina event forming.

Sea surface and sub surface temperatures have been cooling since the end of winter and have now broken the La Nina threshold of at least 0.8 below average.

La Nina's effect for Aussie grain markets

Sea Surface Temperature anomalies in the Tropical Pacific as of November 24.

The deep blue band of water along the equator indicates temperatures of as much as -2 below average. Source: http://www.ospo.noaa.gov/Products/ocean/sst/anomaly/

The other main indicators of La Nina are increased strength of the trade winds and an increase in the southern oscillation index (SOI) values.

Trade winds are winds that blow east to west across the Pacific.

During La Nina events, these winds increase in strength, blowing cloud and moving the warmer surface water west towards Australia.

When trade winds are consistently above average speeds for three or more months, they are considered to have reached their La Nina thresholds.

Average trade wind speeds are around 17-20km/hour (although this average varies between seasons). Trade winds have been showing clear La Nina patterns since the end of winter.

The SOI measures the difference in surface air pressure between Tahiti and Darwin and is a key indicator of how weak or strong a La Nina event will be.

Generally, SOI values above +7 are indicative of La Nina, and the higher the SOI value, the more intense the event will be. SOI values for July, Aug, Sep, Oct were +15.9, +4.6, +9.3 and +6.7 respectively.

These SOI values, combined with sea surface temperatures in the Indian Ocean are the main reason the BOM and other models are predicting the event to continue through to early 2022.

What does it mean for Australian grain markets?

La Nina weather patterns have global effects and as such, we can expect some reaction from global grain markets to the formation of a La Nina.

La Nina's effect for Aussie grain markets

Internationally, La Nina can result in milder winters in Northern Europe and the UK during their growing season.

While La Nina typically results in increased rainfall for eastern Australia, the opposite can be expected in Canada and the United States, where La Nina patterns often result in decreased rainfall and increased temperatures, particularly in south-eastern United States.

If this La Nina is strong enough to produce another tough winter in Canada and the United States, we could see reduced wheat tonnes harvested come July - August, further tightening an already tight global wheat balance sheet.

However, if we see this event fizz out and weaken sooner than expected, and global weather patterns return to neutral phases we may see improvements in global production.

Recent rain brought on by the current La Nina is welcome for some but has frustrated and devastated many growers who were looking at fantastic crops very close to the finish line, and are now subject to significant delays, downgrades with wide grade spreads and or abandonment in some instances.

Wet weather has been welcome for sorghum and dryland cotton crops in Queensland and New South Wales however even the summer crops are now at a point where we could start to see flood damage if there is any more rain.

What do we do now?

All eyes will be on the skies now, with forecasts showing further rain for December and early January on Australia's east coast, adding to the frustration of many growers with unharvested crop still in the paddock.

The ensuing volatility within markets as a result of current weather can be an opportunity if managed prudently, particularly the larger volumes of feed grades that are emerging. The global market will need time to process and digest the quality profile of this crop however global demand for Australian grain remains very strong and all grades of wheat will find demand over time.

There are ways to benefit from market rallies if they occur, and utilising an index selling program such as the Advantage pools means you are exposed to market rallies and protected from the market slumps over the period in which you choose to market your grain.

For more information on Advantage Grain pools and how we can help protect your returns, visit advantagegrain.com.au or call 1300 245 586 to speak to the team.

This is branded content for Advantage Grain.