La Nina 2012 Is Nearing Its End

As La Nina fades, the odds are improving for favorable crop weather in 2012.

Published on: Mar 16, 2012

The latest La Niña event is nearing its end, with most indicators now approaching or already at neutral values. Climate models surveyed by the Bureau of Meteorology as of March 7, 2012 suggest that the Pacific Ocean will continue to warm over the coming months, with a neutral El Niño/Southern Oscillation (ENSO) state expected to persist at least through the second half of spring period in the northern hemisphere.

The following explanation and information regarding what this latest development in the weather outlook may mean for crop prices in 2012 is provided by Steve Johnson, an Iowa State University Extension farm management specialist.

La Nina 2012 Is Nearing Its End
La Nina 2012 Is Nearing Its End

Odds improve for favorable crop weather in 2012

ENSO is believed to be the most important coupled ocean-atmosphere phenomenon to cause global climate variability on inter-annual time scales. Researchers with the National Oceanic & Atmospheric Administration (NOAA) attempt to monitor ENSO by basing the Multivariate ENSO Index (MEI) on the six main observed variables over the tropical Pacific. These six variables are: sea-level pressure (P), zonal (U) and meridional (V) components of the surface wind, sea surface temperature (S), surface air temperature (A), and total cloudiness fraction of the sky (C).

Source: Taylor, ISU Ext. Climatologist, March 2012
Source: Taylor, ISU Ext. Climatologist, March 2012

Source: Wolter, U of CO, NOAA, March 2012

The declining state of the La Niña is evident in several indicators. Sea surface temperatures across the central tropical Pacific Ocean are now near normal and the Southern Oscillation Index (SOI) has been in the neutral range since late February.

According to Dr. Klaus Wolter, Research Associate with NOAA, the possibility of La Niña persisting into June has diminished from 50% to 30% according to statistical odds, based on changing atmospheric conditions. Wolter goes on to state, "In fact, there is a distinct possibility that we could see a switch to El Niño by mid-2012."

Source: Wolter, U of CO, NOAA, March 2012
Source: Wolter, U of CO, NOAA, March 2012

Wolter notes that all of the ten two-year La Niña events between 1900 and 2009 ended up either as a continued La Niña event for a third year (four out of ten), or switched to El Niño (six out of ten). None of these events ended up as ENSO-neutral.

Impact on 2012 crop yields and national prices

Using this latest ENSO forecast, Elwynn Taylor, ISU Extension climatologist forecasts the odds for the national average corn yield per acre in 2012.

The Preliminary 2012 Risk Wheel is influenced by odds of El Niño vs. La Niña conditions. The latest risk factors increase the odds to 60% of above trendline corn yields, 10% chance of neutral conditions and simple trendline yields and 30% chance of below trendline corn yields.

Taylor then combines his national average corn yield forecasts and probabilities of occurrence with the likely December 2012 corn futures price at harvest as forecast by Dr. Robert Wisner, ISU biofuels economist. Wisner's latest forecasts were released on February 9, 2012 and can be viewed at: www.extension.iastate.edu/agdm/info/outlook.html

As of March 9th, the forecast probability of national average corn yields and price are as follows:

  • 30% chance of 148 bu/A and $6.60/bu corn futures
  • 10% chance of 164.2 bu/A and $5.15/bu corn futures
  • 60% chance of 168 bu/A and $5/bu or less corn futures price during the 2012 harvest.

Wisner's balance sheet forecasts for 2012 corn and soybeans

These forecasted futures prices at harvest in 2012 are based on the assumption that U.S. farmers plant 94.5 million acres of corn for grain in 2012. Approximately 87.7 million acres (92.8% of planted) are harvested for field corn.

The demand for U.S. corn ranges from 12.9 to 13.25 billion bushel as ending corn stocks drop to 716 million bushel by August 31, 2012, the end of the 2011-12 marketing year.

Comparable numbers for soybeans using Wisner's balance sheets would be as follows:

  • 30% chance of 41 bu/A and $11.75/bu soybean futures
  • 10% chance of 43.5 bu/A and $10.50/bu soybean futures
  • 60% chance of 45.5 bu/A and $10.25/bu or less soybean futures price during the 2012 harvest.

These forecasted futures prices at harvest in 2012 are based on the assumption that U.S. farmers plant 77.5 million acres of soybeans in 2012. Approximately 76.4 to 76.7 million acres would be harvested and these numbers are larger than many private analysts are currently forecasting.

The demand for U.S. soybean ranges from 3.65 to 3.85 billion bushel as ending soybean stocks drop to 271 million bushel by August 31st, 2012, the end of the 2011-12 marketing year.

Conclusion: While weather forecasts extending through the 2012 harvest have a large margin of error, the decline in the La Niña event is significant. It is during La Niña influenced growing conditions in the Corn Belt that the odds of below trendline corn yields increase as was evident in both the 2010 and 2011 growing seasons, especially for national corn.

With the distinct possibility that we could see a switch to El Niño conditions by mid-2012, the odds of an above trendline corn yield and a December corn futures price of $5/bushel or lower increases. A similar outcome could occur with soybean prices, but planted 2012 acreage remains a large unknown.

For those that elected Revenue Protection (RP) crop insurance coverage in 2012, combining pre-harvest marketing of "insurance bushels" might be considered as a part of price risk management.

The 2012 projected prices for crop insurance products are now known; $5.68/bu for corn and $12.55/bu for soybeans, respectively. Capturing both new crop corn and soybean prices when December corn and November soybeans are at or above these levels is a reasonable strategy. Again, this combines forward cash contract and hedge-to-arrive strategies in combination with selling "insurance bushels" covered by Revenue Protection crop insurance.

For farm management information and analysis, go to ISU's Ag Decision Maker site www.extension.iastate.edu/agdm and ISU Extension farm management specialist Steve Johnson's site www.extension.iastate.edu/polk/farmmanagement.htm.