Analysts at Australia & New Zealand Bank have hardened their forecast that Kansas-traded wheat risks becoming a market "flashpoint", warning that the La Nina weather pattern has increased the chances of a poor crop this year.
The turn in the so-called southern oscillation index, one of the key indicators of a La Nina, to a historically high reading of 44 has lifted the chances of the poor start that America's hard red winter wheat crop has got off too being reflected in the harvest result.
Indeed, the index, which measures the difference in air pressure between Tahiti and Australia, has a statistically significant link with production of the wheat variety, the type traded on the Kansas exchange, and of which Kansas state is the top grower.
"The southern oscillation index has been as good a predictor as any for Kansas wheat production," the bank said.
"In about two-thirds of cases over the last 100 years, the world-ranked Kansas wheat production years have been preceded by a La Nina or strongly positive southern oscillation index in November and December.
"A strongly positive index has skewed the odds that Kansas and US hard red winter wheat production will be significantly lower year on year."
Kansas vs Chicago
Another index reading above 40, in late 1973, coincided with a 17% drop in Kansas wheat output, with a reading of 32 preceding the 1989 harvest, which was the worst in the last half a century.
Conversely, negative southern oscillation index readings, associated with the El Nina weather pattern, have often heralded strong harvests, as in the bumper years of 1914, 1951 and, more recently, 1998.
However, ANZ added that prospects for a poor hard red winter wheat crop did not necessarily mean that American production of soft red winter wheat, the type traded in Chicago, was set to tumble too.
"While Kansas wheat production is statistically significant against the southern oscillation index, Illinois wheat production is not.
"Increasingly, a scenario could well unfold where stocks of the two different wheat classes move in opposite direction for the 2011-12 season."
'Stressful conditions'
The comments follow ANZ's warning last week that the dryness-affected start that Kansas wheat had received bore the hallmarks of a poor crop ahead.
And they came as hopes eroded for significant snow in the US Plains to protect winter crops from a forthcoming freeze, besides improving moisture levels.
Forecasters at Meteorlogix said that weather conditions in the central and southern Plains had been largely dry over the weekend, with little prospect of further moisture in the immediate outlook.
"Dry weather and volatile winter temperatures maintain stressful conditions across wheat areas of the southern Plains especially across the west," the weather service said.
"The coldest weather of the season to date may occur during next week further stressing the crop."
