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Will the climate reverse the direction of the markets?

Ще обърне ли климата посоката на пазарите?

The El Niño weather phenomenon currently in effect is a key risk to yields in many places around the world, most notably in Brazil. It is characterized by unusually high sea surface temperatures (SST) in the South Pacific, which leads to patchy precipitation and warmer temperatures in South America.

However, its effect in the South Pacific is already beginning to wane. There is a 73% chance that SST will return to a neutral phase between April and June 2024, according to the US National Oceanic and Atmospheric Administration. This could reduce climate risks on Brazilian corn yields in 2023/24, which normally start harvesting in June.

Looking ahead, the latest models predict that after this short period of neutral conditions, there may be a transition to another La Niña phenomenon, around July to September 2024.

This weather phenomenon occurred between 2020 and 2023 when Australia's grain production rose to record levels. But this period also saw production shortages in parts of South America. This includes the collapse of Brazil's second maize crop in 2020/21 and the destruction of Argentina's 2022/23 soybean and maize crops after the worst drought in 60 years was recorded.

The meteorological phenomena El Niño and La Niña are also related to changes in weather patterns in other parts of the globe. But generally speaking, this upcoming weather event (La Niña) in late 2024 will mean that Southeast Asia, India and Australia are likely to be wetter, while the Americas will be drier.

All of this has the potential to shake up the global grain and oilseed markets, which will inherently affect prices.

There could be price pressures in 2025 from a surplus of Australian grains and oilseeds. On the other hand, drought in South America has the potential to push the market upwards in late 2024.

It is too early to tell exactly what will happen, but as the year progresses there will be clearer predictions of what these weather events may bring.

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