Which crop price could gain the most from La Niña?

As the current El Niño weather pattern goes into the history books as one of the strongest in memory, grain analysts and farmers are wondering if the forecasted La Niña will "play nice."

La Niña brings cooler-than-normal water temperatures in the Pacific, compared with the warmer-than-normal oceans of El Niño. As a result, El Niño tends to bring wet weather to the U.S., and La Niña brings hot, dry conditions.

“The most significant impact of La Niña on agricultural commodities is in the grain sector. Dry weather conditions in the United States can threaten the development of corn, soybeans and wheat crops. Dry conditions in Argentina and Brazil can impact corn and soybeans,” according to a Commodity Compass report from three analysts at Societe Generale, including agriculture analyst Christopher Narayanan.  

So what does this mean for prices? It depends on the commodity, but the most positive impact could be on U.S. corn prices, particularly July 2016 corn futures and March 2017 corn futures contracts.

“When viewed in the context of our forecasts, the July 2016 corn contract in the heart of the growing season could see the greatest increase in price when combined with our fundamental research outlook,” the Societe Generale analysts write. 

“If a La Niña event occurs in the winter of 2016-2017, it would have the greatest impact on the Argentinean and Southern Brazilian corn crops due to an increased drought probability.” The U.S. crop would not be affected, as there isn’t a crop in the ground then. 

“To capture any potential impact to the South American crop, a long position in the March 2016 corn contract, currently trading at a discount to our forecasts, could see increased upside potential due to an increase in U.S. export demand,” the report adds.

Wheat prices also could see a boost. “Dry weather in the United States could affect development of the winter wheat crop, which should support the September 2016 wheat contract,” the report says. 

Unfortunately, soybean farmers are less likely to benefit from La Niña. “Similarly to corn, we would expect the July soybean contract to be the most sensitive, but considering the high level of global soybean stocks, it would have to be a very strong event to have a meaningful price impact,”  Societe Generale analysts add.