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CICC: Super El Niño May Cut Global Corn, Palm Oil Output, Boosting Agricultural Prices
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A CICC research report warns that a potential 'super' El Niño event, which NOAA forecasts may become the strongest on record, could significantly impact global agricultural commodity prices. The analysis finds that since 1960, strong El Niño events have historically reduced global corn and palm oil production while potentially increasing soybean output. CICC notes that the fundamental supply-demand balance for global agricultural products is already shifting from loose to tight equilibrium. This is compounded by restricted shipping through the Strait of Hormuz driving up oil prices and planting costs, increased biofuel substitution demand, and disrupted grain exports from the Black Sea region. The report calculates that every 1 percentage point decline in the global corn/soybean stocks-to-use ratio corresponds to an approximate price increase of 20%/9%, respectively. Under neutral assumptions, CICC expects overseas CBOT corn and soybean prices to rise by 20% and 10% over the next 3-6 months. However, the report states that supply security for wheat and rice in China remains ample, with limited impact expected from extreme weather.
Source report
CICC Research
NOAA forecasts that a "super" El Niño event—potentially the strongest on record—may develop. Our analysis indicates that since 1960, strong and super El Niño events have likely led to reduced global corn and palm oil production, while soybean output may increase. Currently, the fundamental supply-demand balance for global agricultural products is already 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 disrupted grain exports from the Black Sea region, creates a convergence of supply-demand factors, geopolitical tensions, and weather conditions that catalyze rising prices.
Summary
This Round of Super El Niño: Warming May Reach Historical Peaks
An El Niño is a natural phenomenon triggered 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 on Brazilian soybean production involves offsetting effects—drought in northern Brazil versus increased rainfall in the south—with historical data showing a higher probability of positive yield outcomes.
- Palm oil: All three previous super El Niño events led to reduced production. Production regions are highly concentrated in Southeast Asia, where widespread droughts generally result in downward revisions to unit yields.
Agricultural Commodity Price Forecast
Tightening supply-demand fundamentals serve as the base, with extreme weather, high oil prices, and trade disruptions acting as resonant catalysts for 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 in South America determines the upper limit of price gains.
- Soybeans: Expectations of revised global production downward elevate prices, while high oil prices support bio-diesel demand.
- Under neutral assumptions, we expect overseas CBOT corn and soybean prices to rise by 20% and 10%, respectively, over the next 3–6 months.
- Supply security for wheat and rice in China remains ample, and we anticipate limited impact from extreme weather.
Risks
- Extreme weather risks
- Geopolitical relationship risks
- Trade friction risks
(Source: China Securities Journal · Zhongzheng Golden Bull)
Source
东方财富网-产业透视Eastern
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CICC warns super El Niño and geopolitical risks may drive global crop prices higher