Global weather patterns appear to be transitioning from a “very strong El Nino” to a La Nina phenomenon that could provide corn and soybean producers with at least some opportunity of pricing their crops at higher levels this year.

That was one of the more optimistic comments that came out of The Great 2016 Grain Marketing Debate, sponsored by Channel, Farm Futures and Corn & Soybean Digest at this year’s Commodity Classic. (The latter are sister publications to Delta Farm Press.)

For the latest on southwest agriculture, please check out Southwest Farm Press Daily and receive the latest news right to your inbox.

There’s no doubt corn and soybean farmers are in a supply-driven market that is being weighed down by surplus stocks, said Bryce Knorr, senior grain market analyst for Farm Futures. Knorr, Ed Usset, grain marketing specialist with the University of Minnesota, and Matt Bennett, farmer and grain marketing consultant for Channel Seed, were speakers at the event.

“When you take a look at the coarse grains, and that’s basically feed grains, stocks-to-use ratio around the world, it doesn’t look as high as it’s gotten in some of our past bear markets,” says Knorr, referring to a figure of about 19 percent compared to 27 and 35 percent in past years.

“But the thing to remember is we’ve moved to a just-in-time world,” says Knorr. “And users have become comfortable knowing that not only do we grow the stuff, but it’s grown on virtually every continent around the world, and everyone else has gotten good at it, just as good as you guys are.”

FIRES IN INDONESIA

Despite the oversupply of coarse grains and other crops such as soybeans, growers overseas are continuing to expand their acres. Knorr showed a slide of fires burning in Indonesia where farmers are clearing more rain forest to put in more palm oil plantations. In the dry conditions resulting from the El Nino, the fires have spread out of control in some areas.

“The El Nino warming in the equatorial Pacific is coming to an end,” he said. “Current forecasts are that we will move to a neutral reading probably by summer. There’s a 50 percent chance of that, and a 30 percent chance that by fall we will actually enter a La Nina cooling of the equatorial Pacific that has been associated with some of the bigger droughts we’ve had.”

The problem, he says, is “these are complex dynamic systems. You need a super computer just to run the numbers and, even with that, they’re so complicated that no one can make a really good forecast for them.”

One of the models Knorr follows is calling for warmer temperatures in the upper Midwest and lower than normal precipitation. “So there are some possibilities for weather rallies based on this type of scenario.”

He has looked at records from past years when the world was transitioning from a strong El Nino to a La Nina weather pattern and compared how the shift from El Nino to La Nina and from El Nino to neutral impacted corn and soybean yields and how prices reacted.

LAW OF AVERAGES

“We’ve had three consecutive years of above-average corn and soybean yields,” he said. “We’ve only had four straight years of above-average soybean yields once, and corn has averaged higher yields twice since 1970. That doesn’t mean it can’t happen again, but the odds are starting to favor more normal yields.”

Those may not be good as the yields of the past two years, he said, “which, again, could cause at least some hope for some rallies. When we’re talking just a shift to neutral, there’s a 75 percent chance of below average yields.”

The chance of a significant or more than 5 percent reduction in yields is 45 to 50 percent, which is more than average “but still not a slam dunk, and you don’t want to be betting your marketing plan or your farm on this,” he said.

“When you look at all the numbers, there’s at least a 75 percent chance we could get to $4.40 on December corn, which would give you the opportunity to make some profitable sales.”

Soybeans are less likely to feel an impact on yields from the transition to a neutral or La Nina weather pattern, he says, but there is a possibility soybean futures could rise above $10 a bushel, depending on how big a reduction in yield might occur.

China continues to be a big factor in the market because of the roles its played in building up its corn stocks while becoming the world’s biggest importer of soybeans. But problems with China’s stock market, which collapsed last August, continue to over hang the U.S. commodity markets, he noted.

“The People’s Congress starts next week (March 7). The government has been buying the stock market to prop it up. They don’t want the stock market to crash during the People’s Congress. They just went through the Lunar New Year, and they didn’t want to spoil everyone’s holidays. The question is what happens after that Congress is over?”

To see a summary of the presentations at the 2016 Great Grain Marketing Debate, click http://goo.gl/MDSEkT