Summary
Weather is always of concern to crops. This year the world is very susceptible to possible impact of an early frost in the corn and soybean growing regions, while palm and sugar crops could be impacted by a moderate to strong El Nino. Companies that would be impacted include ADM, Cargill, Bunge Ltd., Louis Dreyfus, Wilmar, Asian Agri, Sime Darby, Tate & Lyle, Corn Products International, Unilever, Mars, Coca Cola, PepsiCo, Tyson, Biofuels Corporation, Neste Oil, IOI Group and BLD Plantation BHD.
Analysis
Within the next eight months we could see either record corn, soybean and palm oil crops, or crops that do not meet current expectations.
While Canada is not looking at very robust yields due to dry and hot weather, in the US we expect the USDA to update their forecast on harvested acres and yields to a new record for soybeans and a near record for corn. Nevertheless North America, both the US and Canada are very susceptible to an early frost. In fact the crops need a late frost to reach their full potential after a late seeding and a very cool June and July. Many fields in the Midwest went in a few week late and lost another 7-10 days due to the low accumulation of heat units. An early frost could come to the corn and soybean belt as early as the first week of September, instead of a more normal early October.
The El Nino that is gaining strength in the South Pacific ocean already appears to be having an impact on the rains in India, Indonesia and SE Australia. Talk of reduced yields of palm oil, sugar, and wheat are already occurring. Indonesia and Malaysia where the great bulk of the world palm oil is produced are susceptible to drought from a strong El Nino, as is the sugar and some of the pulse region in India. While an El Nino only impacts around 20% of the global land mass in a major way, it can result in a mild winter in the northern plains of the US and the plains of Canada, heavier rains in southern California and the desert SW and northern Mexico, fewer Atlantic coast hurricanes,floods along the coast of Ecuador, Peru and Chile, good rains in SE Brazil, Uruguay and Argentina, flooding in Uganda and Kenya and drought in South Africa in time for the World Cup next year.
Sugar and palm oil prices have already been impacted in part by the perceived impact of El Nino in South and SE Asia. If we were to see a an early frost in the US corn and soybean belt as well as the Canadian canola and spring wheat regions tied to the impact of a strong El Nino on palm, sugar, Australian wheat, Peruvian fishmeal and South African corn, which would only be offset by improved yields in some soy and corn regions of South America's harvest early next year, it would be off to the races on agricultural prices.
Trading and processing companies, palm oil companies, biodiesel companies and food and feed companies would all be impacted by these higher prices and smaller crops. Some companies that would be impacted include: ADM, Cargill, Bunge Ltd., Louis Dreyfus, Wilmar, Asian Agri, Sime Darby, Tate & Lyle, Corn Products International, Unilever, Mars, Kraft Foods, Coca Cola, PepsiCo, Tyson, Smithfield, Sanderson, CalMaine, Biofuels Corporation, Neste Oil, IOI Group, BLD Plantation BHD, ABB, AWB and Viterra. It is hard to imagine too many companies who would not be impacted by such a scenario, which will not predictable is possible.
Gary Drimmer consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
