“A Welcome Little Visitor Amid War... Will Grain Prices Stabilize Downward?” [Weekend Money]

El Nino to Raise Sea Surface Temperatures from May to July

Increased Rainfall Expected in Major Grain-Producing Regions, Signaling a Bumper Harvest

Concerns Over an Agricultural Products Crisis Are Overblown

Amid recent concerns about a potential ‘agricultural products crisis’ triggered by geopolitical instability, experts have analyzed that the actual likelihood of such a crisis is low. Instead, they predict that grain prices are likely to stabilize and trend downward.

Grain.

According to Daishin Securities on April 26, the U.S. National Oceanic and Atmospheric Administration (NOAA) has forecasted a shift to El Nino conditions—characterized by sea surface temperatures higher than average—starting from May to July. A so-called ‘super El Nino,’ with temperatures 1.5 degrees Celsius above normal, is expected to persist through the end of this year.

El Nino tends to increase rainfall in major grain-producing regions such as the central United States, southwestern Brazil, and Argentina, which in turn boosts crop yields. In fact, during previous super El Nino periods—from May 2023 to April 2024 and from November 2014 to April 2016—the grain index consistently underperformed.

There are growing fears of an agricultural products crisis, as 30% of global fertilizer exports have been disrupted by the blockade of the Strait of Hormuz. However, if the ongoing behind-the-scenes negotiations between the U.S. and Iran result in an end to the conflict before mid-May, fertilizer exports could quickly return to normal.

In particular, if LNG exports resume, the price of natural gas—a key raw material for fertilizer—would likely fall, leading to a faster stabilization of fertilizer prices. Analysts therefore conclude that it is premature to worry about an agricultural products crisis at this time.

On the demand side as well, a rebound in grain prices appears unlikely. Demand for bioethanol is expected to remain flat until oil prices begin to rise significantly, and the profit margins of China’s pig farming industry—a leading indicator of feed demand—are also projected to remain weak through the end of the year.

Choi Jin-Young, a researcher at Daishin Securities, stated, “There is insufficient justification for a rebound on both the supply and demand sides. We recommend a cautious approach to the grain sector and maintain a neutral outlook through the first quarter of next year.”

This content was produced with the assistance of AI translation services.