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CICC: Super El Niño May Boost Global Agricultural Commodity Prices
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CICC Research, as reported by East Money, analyzes the potential impact of a developing 'super' El Niño event on global agricultural commodity prices. NOAA forecasts suggest this El Niño could be the strongest on record. CICC finds that historically, strong El Niño events have led to reduced global corn and palm oil production, while soybean production may increase. The report notes that the global agricultural supply-demand balance is already shifting from loose to tight. This, combined with factors such as restricted shipping through the Strait of Hormuz driving up oil prices, increased planting costs and biofuel substitution demand, and disruptions to Black Sea grain exports, creates a convergence of supply-demand factors, geopolitical tensions, and weather conditions that catalyze price increases. Under neutral assumptions, CICC expects CBOT corn and soybean prices to rise by 20% and 10% respectively over the next 3-6 months. The report also notes that China's wheat and rice supplies are ample, limiting the impact of extreme weather there.
Source report
CICC Research
NOAA forecasts that a "super" El Niño event—potentially the strongest on record—may develop. Our analysis shows that since 1960, strong and super-strong El Niño events have likely led to reduced global corn and palm oil production, while soybean production may increase. Currently, the fundamental supply-demand balance for global agricultural products is shifting from loose to tight equilibrium. This, combined with restricted shipping through the Strait of Hormuz driving up oil prices, planting costs, and biofuel substitution demand, along with disruptions to Black Sea grain exports, creates a convergence of supply-demand factors, geopolitical tensions, and weather conditions that catalyze price increases.
Summary
This Round of Super El Niño: Warming May Reach Historical Peaks
An El Niño is a natural phenomenon caused by abnormal warming of sea surface temperatures in the central and eastern Pacific Ocean:
- Temperature and precipitation: Global temperatures are generally higher than average, with increased rainfall in the Americas and pronounced droughts in Southeast Asia. China's Yangtze River basin may face flood risks in the following year.
- The peak relative sea surface temperature anomaly in the Pacific during this El Niño episode may set a new historical record.
Historical Impact on Agricultural Commodities
- Corn: All three previous super El Niño events resulted in reduced production. Past declines were primarily driven by Brazil; in two of the three historical super events, Brazilian corn planted area decreased by 17–18%.
- Soybeans: Two of the three previous super El Niño events resulted in increased production. The impact of El Niño-induced drought in northern Brazil and excessive rainfall in southern Brazil tends to offset each other regarding soybean production, with historical data showing a higher probability of positive yield outcomes.
- Palm oil: All three previous super El Niño events resulted in reduced production. Production regions are highly concentrated in Southeast Asia, where widespread droughts typically lead to downward revisions in unit yields.
Agricultural Commodity Price Forecast
Tightening supply-demand fundamentals serve as the base, with extreme weather, high oil prices, and trade disruptions resonating to catalyze price increases.
Our calculations indicate that every 1 percentage point decline in the global corn/soybean stocks-to-use ratio corresponds to an approximate price increase of 20% and 9%, respectively.
- Corn: Drought impacts in the US boost prices, while potential flooding effects in South America determine the upper limit of price gains.
- Soybeans: Expectations of global production downgrades elevate prices, while high oil prices support demand for biodiesel.
Under neutral assumptions, we expect CBOT corn/soybean prices to rise by 20%/10% over the next 3–6 months.
China's wheat and rice supplies are ample, and we anticipate limited impact from extreme weather.
Risks
- Extreme weather risks
- Geopolitical risks
- Trade friction risks
(Source: China Securities Journal · Zhongzheng Golden Bull)
Source
东方财富网-行业研究Eastern
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CICC warns super El Niño and geopolitical risks may drive global crop prices higher