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Perspective: Mid-Day Commentary for August 21

By: Arlan Suderman, Chief Commodities Economist

August 21 - Stocks maintained modest gains at midday as we prepare to head into the weekend. The VIX is trading near 15, while the dollar index trades near 98.9. Yields on 10-year Treasuries are trading near 4.74%, while yields on 2-year Treasuries are trading near 4.24%. WTI crude oil prices are near $87 per barrel, while Brent trades near $94. December corn futures probed above key chart resistance above $5.065, but they have since stalled out there. Wheat and soybean prices are weaker ahead of the weekend, with soyoil prices under pressure ahead of an impending announcement from the EPA regarding 2025 small refinery exemptions.

Super El Nino headlines were common this year as the media hyped up the event. In fact, it did turn into a super El Nino event, which continues to strengthen in the equatorial Pacific. An El Nino event features above normal water temperatures in the equatorial Pacific, as opposed to a La Nina event when they are cooler than normal. This El Nino event developed stronger faster than any other in recorded history. But something else that is important about this El Nino is that it is very east-based. In other words, its warmest surface water temperature anomalies are in the eastern Pacific near Peru. That makes a difference when looking at the impact on global weather patterns. Eric Snodgrass of Nutrient put together the below composite graphic showing typical weather patterns for east-based El Ninos over the past 70 years for the September to November time period. Note the intense dryness over Indonesian palm oil growing areas, while southern Brazil remains quite wet, with good rains in Argentine growing areas for their early growing season. The United States tends to develop a wetter pattern, especially in winter wheat growing areas, but we may see a few harvest delays for the corn and soybean crops as well. The Tropical Atlantic remains quiet with very little hurricane activity. Finally, I want to note that El Ninos tend to bring dry weather to the highly productive center-west areas of Brazil during the soybean growing season, but the below graphic illustrates how east-based El Ninos tend to push that dryness further to the north and west, leaving more marginal risk for soybean growing areas. Keep in mind that "normal" rainfall in center west in November is 8 - 10" of rain, so it's possible to grow normal yields with below normal rains, depending on coverage and timing.

 

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Composite Analogs for East-Based El Ninos. SOURCE: ERA5, Eric Snodgrass of Nutrien

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