El Niño Weather Pattern Continues Developing (CORN, SOYB, DBA)

The US Climate Prediction Center continues to forecast the formation of an El Niño weather pattern in the eastern Pacific Ocean in August and September, and now Japanese forecasters have added their voice to the prediction. If an El Niño should form, rainfall could be severely lower in Australia, parts of Africa, India, and Southeast Asia, putting even more upward pressure on food prices.

For North America, an El Niño typically yields a wetter, warmer winter but even if the pattern develops over the next six weeks it will come too late to make any difference to the drought-stricken US corn crop. The soybean crop, which is harvested after corn in the US, could see some benefit from the El Niño weather.

The dismal forecast for this year’s US corn crop is leading to calls for waiver of the renewable fuel mandate that 9% of the US fuel supply come from renewable sources. Without the waiver, about 40% of the US crop will be processed for ethanol that would be blended with gasoline. That would hit US consumers with both a food price increase and a fuel price increase.

The spot price for ethanol today is $2.62/gallon, still well below the high of $2.94/gallon from last summer, but the climb has been steady from just under $2/gallon in early June. As the corn harvest gets closer, that price is likely to continue to rise.

Corn prices have fallen today on a stronger dollar to just under $8/bushel. Soybean meal and oil prices are also lower. The Teucrium Corn Fund (NYSEMKT: CORN) is down -1.25% at $50.72 in a 52-week range of $35.23-$52.14. The Teucrium Soybean Fund (NYSEMKT: SOYB) is down -2.2% at $26.42 in a 52-week range of $18.27-$27.58. The PowerShares DB Agriculture ETF (NYSEMKT: DBA) is down -0.9% at $29.67 in a 52-week range of $25.70-$34.21.

Paul Ausick