Fundamentally Speaking

Corn and soybeans have run to at least six-year highs in unrelenting bullish action after feed grain and oilseed output was far less than expected in the Black Sea countries, Europe and the U.S. this past summer. Fears are that now South American output may be well-under expectations. First attention was on Brazil but now Argentina and the southern regions of Brazil are under the gun and La Nina is thought to be one of the culprits.

La Nina is a phenomenon that describes cooler than normal ocean surface temperatures in the Eastern and Central Pacific Ocean, regions close to the equator off the west coast of South America. In some parts of the world, La Nina causes increased rainfall, while in other regions, it causes extreme dry conditions such as in parts of South America.

In technical terms the Oceanic Nino Index (ONI) measures the 3-month running mean of the sea surface temperature (SST) anomalies in the Nino 3.4 region. Negative readings are associated with La Nina with larger negative numbers implying a strong La Nina event.

This graphic shows the percent that Argentine and Brazilian corn and soybean yields deviate from their 30-year trend on the left axis vs. the yearly average of the Oceanic Nino Index -ONI on the right axis.

The latest three-month average reading is for the Sep-Nov 2020 period with a reading of -1.2 which is the lowest ONI reading since January 2011 which started a strong La Nina year where the year average was -0.8.

The ONI index was 0 as recently as the AMJ 2020 period but has decreased rather steadily from then signifying a strengthening La Nina event.

Looking at the graph one can see that often in a La Nina year, Argentine corn and especially soybean yields come in below trend, sometimes significantly so.

It does appear that Brazilian row crop yields are not as impacted by the heat and dryness associated with strong La Nina events. This should somewhat assuage concern about both Brazil and Argentina having below par corn and soybean crops at a time when the global balance sheet demand the opposite.

Note the correlation between the yearly averages ONI is 39.1% for Argentine corn and a very high 46% for Argentina soybeans whereas for Brazilian corn it is only a 13.6% correlation and a negative 15.6% for Brazilian soybeans. Some of the best Brazilian soybean yields have occurred in La Nina seasons.

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