El Nino is one of the most prominent climate patterns that affect the weather and livelihood of people around the world.
Generally, in the Midwestern states of the US where corn is produced (eg. Iowa, Illinois, Kansas, and Nebraska), El-Nino tend to bring in a wetter climate that comes with rainfall, hence making the soil and overall climate condition more favorable for crops to grow.
As such, in my previous article, we came to infer that strong US corn yields tend to occur more frequently during El Nino compared to La Nina (which tends to cause drought), THOUGH El Nino does not necessarily guarantee positive outcome:
Which brings us to the topic of this article: Why do El Nino events not always lead to a strong corn yield in the US? What are the nuances behind this?
Let's find out!
Nuances of El Nino on US corn yield:
Weather/climate pattern can be difficult to predict and the case is the same for El Nino. There are a few nuances that will influence how El Nino impact corn yield as a whole:
#1 Timing of El Nino
The timing of when El-Nino happens can influence the outcome of corn yield.
To start, it is useful to define how an El Nino is mathematically defined. The standard that the US National Oceanic and Atmospheric Administration (NOAA) used to measure climate patterns like El Nino is called the Oceanic Niño Index (ONI).
Using a rolling 3-month average temperature anomaly from the surface waters of the east-central tropical Pacific, the ONI index can tell us the types of climate patterns we are experiencing.
If the ONI index is equal to or higher than 0.5, then it indicates El Nino. Meanwhile, ONI index that is equal to or lower than -0.5 indicates La Nina.
Generally, summer in the US tends to be the period where El Nino develops (ONI index >0.5), while El Nino tends to peak in strength during the winter season in the US.
However, it is hard to predict the weather and this isn’t always the case. Depending on when El Nino develops, it can influence the yield of crops differently:
Normally, should the US experience a summer (growth season for corn) WHEN El Nino is developing, it tends to influence the yield of corn positively thanks to a wetter climate in the Midwestern states.
On the other hand, El Nino tends to have a minimal positive impact on corn yield if the US experiences a summer AFTER El Nino.
Below is a list of periods where El Nino developed before and during summer (around June to August) since the year 2000:
El Nino Period | El Nino Status | Corn Yield |
(i) 2002/03 | Developing El Nino in Summer | Lower than usual (-1 standard deviation |
(ii) 2004/05 | Developing El Nino in Summer | Larger than usual (>1 standard deviation) |
(iii) 2009/10 | Developing El Nino in Summer | Larger than usual (1 standard deviation) |
(iv) 2015/16 | Developing El Nino in Summer | Larger than usual (> trendline) |
(v) 2018/19 | Summer AFTER El Nino’s Peak | Lower than usual (< trendline) |
Let’s mark these periods in the chart that we saw at the beginning of this article (El Nino is marked in red dots):
What we can infer is that summers DURING developing El Ninos tend to influence corn yield positively (though that’s not always the case, such as in 2002/03), while summers AFTER El Nino’s peak tend to have minimal positive impact on corn yield.
#2 Timing of El Nino’s moisture & rain
While El Nino tends to bring a wetter climate to the Midwestern states where corn is planted, the timing of when the rain happens plays a crucial role in the overall yield of corn.
For instance, if El Nino’s rain comes in late summer and autumn, which is past the reproductive and fill stages for corn, it will not bring major positive impact on corn yield.
Reproductive stages (R) are important for corn, as important events that determine yield potential, such as silking (R1) and blister (R2) happen during this stage.
A moist climate is crucial, as events like drought at this stage can reduce yield potential by causing damage like kernel abortion.
In other words, timely rain is crucial for El Nino to have a positive impact on corn yield.
Verdict: Understand the nuances of El Nino on Corn Yield
In short, it is crucial for Corn futures traders to understand that El Nino and weather-related factors are not straightforward as there are different nuances that will ultimately impact corn yield.
As such, it is important that traders take these nuances into consideration while making a trading decision.
I hope this post is helpful in helping you understand the nuances behind El Nino, one of the most crucial climate patterns in the world, and in return able to make better trading decisions!
If you have any questions on futures trading, feel free to leave them in the comment section below!
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Disclaimers
Any of the information above is produced with my own best effort and research.
This post is produced purely for sharing purposes and should not be taken as a buy/sell recommendation. Past return is not indicative of future performance. Please seek advice from a licensed financial planner before making any financial decisions.
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