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EL NINO AT CENTER STAGE WORLD ENDING STOCKS WILL BE LOW
MILD WINTER AHEAD
Prepared by Atlas Forecasts
Review
I forecast that the number of tropical storms in the Atlantic would be less than normal. To date we have had only five rather than the normal of 9.3. The famous Professor Gray forecast 11 storms for this past season. He missed by 6.
In the August 1 Atlas, I said the El Nino would reduce world grain production by 2-3 billion bushels. We lost a potential billion bushels of corn in the U.S. and a second billion in China. The third billion may lost in Southeast Asia, India, Australia, Mexico, Central America and South Africa. The effects have been dramatic in China. Throughout the rest of the world the majority of the countries are reporting slightly below normal crop production.
There were fewer than normal tropical storms in the Atlantic, and Indonesia is dry as was expected. Otherwise, the India monsoon turned out to be only slightly below normal. There is not supposed to be any association with the Chinese corn regions, yet they had their worst drought in half a century. Many El Nino predictions have come true in the tropics, but elsewhere the predictions are turning out to be only approximately right. The best way to treat El Nino forecasts is the following. The El Nino indicates the direction in which the weather may develop. However the magnitude of the effect may vary from slight to major. I suggest that you keep your Atlas Forecast maps handy for a second opinion on what may actually occur.
The Coming Winter
Our forecasts call for a mild winter over most of the U.S. November and December may see some cooler than normal weather, but January and February will be warmer than normal. The region that may show warmest departure of 4 degrees F is along the Montana-Wyoming border. The next warmest spot is centered over Ohio where January may turn out to be as much as 3 degrees F warmer than normal. For January Ohio heating degree days may be less by 8-15% below normal. The weather from Boston to New York is forecast to be near normal. The only region forecast to be cooler than normal at —2 degrees F is a small region along the Southeastern coast. The first week of January may be cooler than normal over most of the country.
While my forecast model does forecast a warmer than normal winter, it does not forecast anything in the way of a record-breaking warmth at the present time. All clients should keep in mind that during warm winters at least two weeks of very cold weather will occur east of the Mississippi. For the cities that run in a line from St. Louis to New York, the extra warmth means that more precipitation will fall as rain rather than snow. It also means that snow that does fall will melt off roadways much more quickly than during cold winters.
Normally in an El Nino winter the Jet Stream breaks into two branches. The Southern Branch or the Subtropical Jet Stream brings heavy rain to California, Texas and Florida and the Northern Branch brings the warm air up to the region along the Canadian-U.S. border. Watch closely for the development of the Subtropical Jet Stream to be sure that we will be having an El Nino winter.
While 4 degrees F may seem like a great warming up in the Montana area, it should be kept in mind that the average January temperature for this area is about 22 degrees F.
U.S. 1998 Growing Weather
The 1997 crop year has left the U.S. holding the majority of the exportable supplies. We have wheat, corn and soybeans to export. By the time spring rolls around there is the possibility that there may not be enough grain for everyone in the world. The situation will be tight but not as bad as 1995/96 when wheat went to six dollars and corn went to five dollars a bushel. The problem has to do with the outcome of the U.S. 1998 corn and soybean crop.
Right now everyone expects the U.S. to replenish it supplies in the 1988 crop year. However, it has been observed that in the year after the start of an El Nino the U.S. often has a dry to droughty growing season. Instead of 9-10 billion bushels of corn, the U.S. might only have 7-8 billion bushels. Most of that corn could be consumed domestically. The amount available for export would drop or the world price will have to rise dramatically.
What to look for? Warm winters and especially warm Februarys often precede drought years. A weak or non-existent subtropical jet means that spring rains will fall below normal. In addition the Jet Stream will move up into Canada much earlier than normal. My forecast points to a hot dry July.
I cannot say with certainty that we will have a drought. The rule that works best when an El Nino appears is the following:
First Year: Good corn and soybean yields, 1997.
Second Year: Possible drought centered in IL and IN, 1998.
Third Year: No drought in 98 implies drought in 1999.
For farmers this possibility suggests some delayed hedging until the 1988 crop is well along.
For buyers this suggests long-term coverage into the spring and possibly into December 1998.
I should have a much better forecast for 1988 by the beginning of the year. In all cases, these comments assume that there are no further major volcanic tropical eruptions between now and next spring. One final comment. When the U.S. has a bad crop year, the remainder of the world usually has good crops. Thus if you have some profits by the end of July 1998 cash them in.
China
China may have lost a billion bushels of corn due to one of the worst droughts in its northern crop areas. It has also lost some peanut and soybean production. Luckily the prior year was one of excellent weather with record yields and production. This year most analysts expect them to enter the market in a big way. They have the foreign exchange to buy as much grain and oilseeds as they need. Price will not be an issue for them. If their crop was really down, many domestic buyers will have to bid soybeans and soy products away from them.
Latin America
In the first year following an El Nino, Brazil and Argentina usually have good weather and high levels of crop production. In addition analysts indicate that Brazil may expand soybean acreage by another 10%. This number is so large that any weather related events will not be sufficient to reduce production below last year's record levels. While there is some talk of El Nino in the Southern Hemisphere, it is usually South Africa and Australia that have weather problems. Brazil and Argentina thrive. Do not expect much in the way of poor weather this year.
Cocoa
As predicted, the cocoa crops in two of the three major producing parts of the world are in trouble. The worst drought is in Indonesia where forest fires have broken out and the dryness could persist for another six months. Production there could fall to very low levels. The second area is West Africa. The rainfall has been much below normal almost every week. What is worse is that the monsoon rainfall has withdrawn early and the outlook for the remainder of the season is bleak. Even the coastal areas along the West African Coast may see below normal rainfall. World production of cocoa could easily drop 5-10% below last year's crop. At the present time, I estimate production in the range of 2.4 to 2.5 million tonnes. There is the possibility that Harmattan Winds will appear in West Africa later this year and decrease production even further.
Palm Oil
Drought grips Southeast Asia's palm oil producing countries. Indonesia and Malaysia are the biggest producers of palm oil at 4.9 and 8.7 million tonnes respectively. Expansion of production has slowed in Malaysia but is growing in Indonesia. Even in bad weather years, production of palm oil has increased. However only in El Nino years of 1987 and 1992 did exports fall. This year I expect the drop in exports to be much greater for two reasons. One is that the growth in Malaysia palm oil production has stopped and the second is that the drought in Indonesia where growth was expected is quite severe.
Sugar
Centrifugal sugar production has been flat at about 122 million tonnes for the last two years in the face of rising consumption. However this year there will be shortfalls in production in Indonesia, India, Thailand, Central America and Australia. In India and Thailand, rainfall has been less than normal. In all of Central and Northern South America the rainy season has been below par. In Australia, the El Nino points to a poor rainy season during the next few months. Thus while there are no major crop decreases, there will be a host of countries where sugar cane produce could fall by 5-10%. Even Cuba production may be affected by the weather this year. The losses may be only 50-100 thousand tonnes per country. However, there are over a hundred countries producing sugar cane. When the addition is done, production could easily fall 2-4 million tonnes below the 122 million tonne USDA estimate.
U.S. Winter Wheat
Normally in a year in which the soybean and corn yield in the corn belt are good, the following hard red winter wheat crop in the Southern plains is above average. The last drought occurred after the poor corn and soybean crop of 1995. Therefore this year I expect enough moisture to appear to provide good germination and enough subsoil moisture to produce a decent crop.
October 1, 1997 Dr. Paul Handler, Editor
Atlas Forecasts
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Copyright 1997, by Consensus Inc. All American and Pan American rights Reserved. editor@consensus-inc.com
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