Impacts of El Niño on soybean and corn production in the USA, South America and the Black Sea

After several years with an active La Niña on the market's radar, 2023 is the year of El Niño. When it comes to soybeans and corn, the regions affected by the phenomenon include the USA, South America and the Black Sea, highlights hEDGEpoint in the report “El Niño and its effects on the commodities market”. "Starting with the USA, the effects of El Niño are felt more intensely during the winter months. This is because it affects the position of air currents over the country, influencing the climate as a result", observes Pedro Schicchi, grains analyst and Oilseeds from hEDGEpoint Global Markets.

The expert highlights that, during the summer months, one of these currents, the Polar Jet Stream, is already further north, minimizing the effects on the Midwest of the USA. While significant for crops like winter wheat, this is not a relevant window for corn and soybeans. "However, saying that the effects are smaller during the summer is not the same as saying that they are non-existent", he points out.

Among the top ten producing states in the United States, the correlations are not very high anywhere, meaning that the effects, while there, are small. The good news is: they were mostly positive this year. The only states where a more consistent negative effect is seen are Ohio and Indiana. In these years, corn proved to be more susceptible to variations in productivity than soybeans.

"Particularly for corn, the U.S. is targeting the 180+ bu/ac mark nationally, and for a few seasons in a row, poor weather has dampened those expectations. At least at first, it looks like we may have the conditions to make that happen." happen this year. Planting started early and the weather conditions of recent El Niño years proved to be beneficial for crops", says Schicchi.

Moving on to South America, two windows are relevant to be analyzed: autumn/early winter -- when we have winter corn developing in Brazil -- and spring/early summer -- when we have soybeans in Brazil and soybeans and corn in Argentine. First, in the Brazilian autumn/winter (March-August), El Niño is associated with warmer temperatures in Brazil, as mentioned for other commodities. The general logic is also similar: the risk of frost is lower and growth is favored (as long as temperatures are not excessively high).

"Given this context, there is a very clear division between productivity in the south of Brazil and Argentina, in relation to the rest of Brazil. El Niño had a positive influence on the first group and neutral on the second", observes Schicchi. "However, we fall back on the same nuance: because El Niño is not as correlated with precipitation in the Midwest, it can veer either way. As such, this becomes a decisive factor that can pull the harvest up or down. Obviously, with the likelihood of hot weather in the region, the impact of water stress on productivity is greater", adds the analyst.

Thus, in years when precipitation is good, winter corn productivity also tends to be higher. However, when it fails, high temperatures can lead to losses. The issue is that winter is already the driest season in Brazil and, in this cycle, several states planted corn outside the ideal window, which puts even more pressure on crops. "2022/2023 still has a great chance of being a good harvest", predicts Schicchi, "but the not-so-good news is starting to accumulate and could prevent Brazil from reaching the upper limit of expectations".

In the Black Sea, Ukraine could experience warmer temperatures and drier conditions during an El Niño event, which could lead to drought and lower crop productivity. The first official estimates for the 23/24 season already point to a harvest almost half of pre-war levels (42,1M tons in 21/22 against 21,7M tons in 23/24) and stocks in the country, previously inflated by low exports, are returning to pre-conflict levels. This means that any impact on productivity due to El Niño could lead to a very difficult situation in the Ukrainian production sector.

"Although estimates already indicate lower yields due to the difficulties of the war, the projection of 6 mt/ha remains above that observed in other El Niño years, such as 2009 and 2015, showing that there is still room for deterioration", indicates Schicchi. The situation is no longer alarming because the European Union - a major importer of Ukrainian corn - will likely recover from last year's crop failure, and the weather phenomenon brings a positive precipitation anomaly to most EU countries, so they would be less dependent on Ukrainian supply, according to the expert.