Potential Price Catalysts Amid Bearish Trends
The El Niño Southern Oscillation (ENSO), which could result in La Niña this year, may trigger a rise in global wheat prices. Despite current bearish pressures, analysts highlight the potential for significant market shifts. Wheat prices are currently at a four-year low globally. Research agency BMI, a unit of Fitch Solutions, notes that any substantial price rise will likely depend on a considerable downturn in harvest. It is forecasts due to the ENSO weather pattern.
Impact of Previous La Niña Events
Wheat prices are currently under pressure from the northern hemisphere’s harvest. The Agricultural Market Information System (AMIS) of the UN’s Food and Agriculture Organisation (FAO) indicates that harvests in Argentina and Brazil are likely to fall short of expectations.
On the Chicago Board of Trade (CBOT), benchmark wheat futures are trading at $5.24 per bushel ($0,192 per kg). Wheat prices have dropped over 20 percent year-on-year. The previous La Niña during the 2022-23 season led to a 9.5 percent reduction in wheat production year-on-year in the US. BMI remains vigilant about how the ENSO cycle will develop.
Potential Influence of Weak La Niña
El Niño ended in April, and ENSO is now in a transitional phase. Global weather agencies predict a 70 percent chance of La Niña emerging during October-December 2024. According to the US Climate Prediction Center, La Niña is expected to peak with a 50 percent probability of developing into a moderate event.
Current projections do not indicate a high likelihood of a strong La Niña, but a shift in these projections could significantly impact agricultural output forecasts, especially for the US. Critical wheat production areas in the US often face extended periods of drought and heightened temperatures during a La Niña event.
The ENSO cycle, particularly the potential emergence of La Niña, could serve as a catalyst for rising wheat prices, reversing the current bearish trend. While ample supplies are expected for the 2024-25 season, any significant weather disruptions could alter this outlook.