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El Niño to Push Up Agricultural Prices in Second Half of 2023

Recently, abnormally high temperatures and droughts have occurred in many parts of the world. The global temperature has hit a record high again. A new round of El Niño is coming!

The runaway climate is pushing international agricultural futures sharply higher. According to statistics from brokerage Chinese reporters, since June, CBOT oats and soybean oil have soared by more than 25%, ZCE vegetable oil and rapeseed meal have soared 23%, DCE soybean meal and palm oil have soared 16%, cornstarch, wheat, Cocoa, etc. rose by 10%.

Under the impact of extreme weather such as continuous high temperature and drought, the trend of agricultural products in the second half of the year has attracted market attention. Some organizations said that the expected reduction in production is superimposed on “weather hype”, which is expected to set off a round of price storms for agricultural products.

Agricultural futures soar as El Niño hits

It is worth noting that WMO predicted in its report in May this year that at least one of the next five years, or even the entire five-year period, has a 98% possibility of becoming the hottest year on record, breaking the 2016 El Niño A record set when unusually strong. Considering that El Niño’s impact on global temperatures usually manifests itself in the second year of its formation, it may be most pronounced in 2024.

Deng Shaorui, director of the agricultural products group of Huatai Futures Research Institute, said that the arrival of El Niño this time ended three consecutive years of La Niña, and it was the 21st El Niño since 1951. Historically, super El Niño has occurred three times, all of which produced extreme weather events, such as the catastrophic Yangtze River flood in my country in 1998. Although El Niño occurs in the tropics, it will have a certain impact on the global climate, so its impact will be extensive.

Deng Shaorui further pointed out that the occurrence of El Nino will first have a certain impact on the agricultural product market. The agricultural product market is greatly affected by the supply side, and agricultural output is directly constrained by the climate. This restriction is mainly reflected in two aspects. First, the direct impact of El Niño. For example, El Niño will cause high temperature and drought in Southeast Asia to reduce production. Therefore, the years with relatively large oil prices in history, especially palm oil, have El Niño as a driving factor. Second, El Niño will also bring climate uncertainty and increase the probability of some extreme climates, such as the recent high temperature in North China and heavy rain in South China, which will affect agricultural production.

Secondly, it will also have an impact on the production of non-ferrous metals and new energy materials, such as electrolytic aluminum and industrial silicon that rely on hydropower generation. In the first half of this year, the drought in Yunnan had a considerable impact on these industries.

Finally, it will also have a certain impact on the energy market. In July 2022, extreme high temperatures will occur in Europe, the demand for electricity will increase greatly, and energy prices will soar. There are already data showing that this year’s temperature will exceed last year’s, so the demand for electric energy in summer will surge. It is also a challenge for the energy market.

The high temperature and extreme weather brought by El Niño will continue to affect the final output of global agricultural products. Driven by the out-of-control climate, the futures prices of international agricultural products have risen sharply recently, and the prices of some agricultural products are expected to hit record highs.

According to statistics from brokerage Chinese reporters, since June, CBOT oats and soybean oil have soared by more than 25%, ZCE vegetable oil and rapeseed meal have soared 23%, DCE soybean meal and palm oil have soared 16%, cornstarch, wheat, Cocoa, etc. rose by 10%. It is worth noting that since the beginning of this year, the price of cocoa futures has soared by 28%, approaching the historical high set in 2011.

Mai Jialiang, chief researcher of agricultural products of Ping An Futures, said that since the beginning of summer, due to the dry weather, the good and good rates of corn, wheat, and soybeans in the United States have hit low levels in recent years. The market is worried about this year’s crop supply. Futures started a new round of price increases.

“At the same time, the El Nino climate will also lead to less rainfall in Southeast Asia. The drought will cause the decrease of female flowers and increase of male flowers of oil palm trees, which will affect the success rate of pollination, which in turn will affect the number of fruit bunches and reduce the final output of palm oil.” Mak Ka Leung said.

Production reduction superimposed “weather hype”, oil, meal and other varieties are expected to sell

Looking forward to the second half of the year, many institutions said that the new round of El Nino phenomenon may once again push up the prices of agricultural products, superimposed “weather hype”, and oil, meal, cotton and other varieties are expected to come out of the bull market.

Taking soybeans as an example, the crop belt in the Midwest of the United States has recently encountered the most severe drought since 2012, posing a threat to the potential yield of soybeans. As of the week of June 25, the excellent and good rate of soybeans in the United States was 51%, the lowest level since the same period in 1988. .

Deng Shaorui said that in the long run, the U.S. soybean inventory will be reduced, and the global supply will be in a tight balance. With the increase of weather disturbances, the expectation of a new soybean production reduction in the new season will continue to increase, which will change the global soybean supply pattern. Soybean oil will drive oil and fats to strengthen.

“With the deepening of El Niño, the impact of drought and high temperature on palm oil production areas will gradually increase. Once the decline in palm oil production becomes a reality, the price of oil and fat will be further pushed up. The peak of rapeseed imports has passed, and the market expects fewer arrivals in Hong Kong. , the pressing rhythm may gradually slow down, the performance of downstream demand is average, and the turning point of inventory may appear in the third quarter. The market outlook needs to pay attention to the rapeseed crushing situation and the weather speculation. Once there is a problem on the production side, rapeseed oil will also become the third reason for the rise of oil One of the carriages.” Deng Shaorui said.

It is worth noting that the current market has turned to the hype period for the weather. Judging from the current weather conditions in the United States, the main soybean producing areas in the United States are still slightly dry, and the latest weather forecast shows that after August, the drought in the United States will or will continue.

“Supplementing the current record low good-to-good rate of 51% for U.S. soybeans gives the market more room to imagine the expected reduction in U.S. soybean production. The weather in the main U.S. soybean producing areas in the third quarter will be the focus of market attention, and it is very likely that it will once again lead to U.S. soybean production. Soybean prices are on the rise. Although the current domestic supply of soybean meal is slightly sufficient, the overall trend in the future will still be affected by the price of US soybeans.” Deng Shaorui said.

Mai Jialiang pointed out that the cotton planting area will decrease in 2023/2024, the yield per unit area will be more sensitive to weather fluctuations, and there is room for further reduction in production. At the same time, the rush to harvest seed cotton from September to October has further strengthened the drive for price rises. The demand for domestic sales has recovered to make up for the decline in exports. Gold, September and Silver October are still worth looking forward to. In the second half of the year, the basis for doing more in cotton is still there, and it is recommended to pay attention to the opportunity to do more on dips.

Deng Shaorui also said that under the tight balance of global cotton in the new year, domestic and foreign weather speculation continues, and production reduction is expected to be large. At present, the area of ​​domestic Xinjiang cotton has decreased by about 8%-10%. The market has basically reached a consensus on the tension in this year’s data, and the profit of the previous year has been better. The production capacity of Xinjiang has increased in the new year. In the later stage, the price is easy to rise but hard to fall.

For white sugar, Mai Jialiang believes that the domestic supply tension may ease in the second half of the year, and the pace of imports will largely determine the market trend. If there are no more positive factors in the market outlook, the domestic high in the first half of the year may be the high price of this year. At the same time, if the impact of El Nino weather on sugar is not as expected in the later period, this round of bull market may come to an end.

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