With warming surface temperatures and light winds in the Pacific Ocean, scientists are predicting a return of the weather system known as El Niño. Characterized by heavy rains in some parts of the world and drought in others, the extreme weather conditions El Niño typically delivers have a strong impact on grains market production and pricing.

Historically, El Niño has led to dry conditions in Australia, India, Malaysia and Indonesia, while wet conditions tend to be seen in South America, Central America and parts of the United States. In extreme El Niño years, drought has ravaged Australian wheat and barley crops. Rainfall reached just 69 percent of the average in the 2006/2007 season, a severe El Niño year, leading to a wheat harvest that was 45 percent below the average.

In South America, however, heavy to moderate rainfall in the critical summer months has helped corn and soybean production in the past. SLC Agricola, a large Brazilian corn, soybean and cotton producer, emphasized that El Niño years typically relate to very good production in the southern parts of the country and produce little negative effects elsewhere.

El Niño has a minimal effect on grain production in the United States, as the weather tends to affect the southern and western parts of the country more than the central grain production areas.

“Past experiences have taught us that El Niño years tend to be favorable for the central U.S. corn and soybean growing areas,” said Jay O’Neil, Kansas State University senior agricultural economist. “We can take solace in the belief that El Niño should not have a substantial negative impact on our crop production.”

Fear over the effects of El Niño is working its way into commodity price predictions. Currently, U.S. investment managers are expecting increased prices in all 16 major agricultural futures markets, according to U.S. Commodity Futures Trading Commission data.

The forecast for El Niño can cause concerns over production and prices in grains, but the weather system does not always mean lower supply and higher prices. In less severe years, El Niño can have little to no impact on grain yields. For example, Australia has seen shortages in only four of the last seven instances of El Niño, with the others having average or above average yields. So, while El Niño is expected to have an effect on grains markets this season, only time will tell what the impact will be.