CME Analysis Warns of La Niña Risks

DanIndustry News Release, Weather

cmeAn analysis by CME Groups says the La Niña weather phenomenon may be coming back for real this time, after a head fake last year.

La Niña is associated with cooler, wetter conditions along the U.S.-Canadian border, warmer, drier conditions in much of the southern United States, and impacts weather patterns worldwide.

CME Group Senior Economist Erik Norland says past La Niñas have roiled agricultural markets, sending prices on “wild rides,” often lower amid exceptionally high levels of volatility. Research shows the cooler-than-normal water is pooling along the Equator on the America’s side of the Pacific Ocean.

The one potentially worrisome feature of agricultural markets today, Norland writes, is that corn, wheat and soy complex options implied volatilities are trading at or near record lows. He says: “This might mean that markets are woefully unprepared for a potential La Niña that would bring a wave of volatility.”

Since 1959, the world has experienced eight significant episodes of La Niña and 12 significant episodes of El Niño, a warming of currents.

From the National Association of Farm Broadcasting News Service.