Thursday, July 15, 2010

Commodities Surging on Russian Drought Devastation: Harvest Estimates Being Lowered Daily

UPDATE: "Chicago Wheat Hits 13-Month High"
Original post:

Learn yerself some [basic -ed] climatology.
The Pacific Decadal Oscillation (PDO) and the Atlantic Multidecadal oscillation are two of the major quasi-periodic Sea Surface Temperature anomaly patterns.

Here are the tables of monthly values for the AMO and the PDO. One quick note, the El Nino-Southern Oscillation (ENSO) is distinct from the PDO but the PDO cool phase appears to correlate with a 2:1 La Nina/El Nino ratio whereas the warm phase correlates with twice as many El Nino's. Here is the current Oceanic Nino Index.

The PDO entered its cool phase in 2007, 30 years since it entered its warm phase in 1977. The oscillations are called quasi-periodic because the length of the phase can vary by a fairly large percentage, especially in the case of the AMO.

Even though the phases last decades, the anomaly can go in the opposite direction for months at a time.
A click on the PDO table shows that the negative anomaly starting in September 2007 lasted for 23 consecutive months, one of the longest consecutive strings in the record.

Starting in August 2009 we've had only one negative anomaly through May 2010 with another in June.
Combined with the plummeting SST anomalies in the El Nino/Southern Oscillation Index, my best guess is that we have started another string of negative anomalies in the PDO.
This could be very bad. As I commented in April '08's "Climate Change and the Pacific Decadal Oscillation":
You might want to look up the word famine. And store a couple tons of wheat in a vermin proof room. The risk of a major crop failure somewhere in the world over the next ten years just went up. My best guess (wild-ass variant) would be northeastern [note: should have been Northwestern i.e. bordering Ukraine -ed] Russia/Ukraine. Which could get interesting...
Jan. '09's "Corn Prices May Enter Decade-Long Slump, Agency Says":
Watch that Pacific Decadal Oscillation. A New York Times archive search for the term "crop failure" returns 1950 hits, with a preponderance of stories written during the cool phase of the PDO. With the interconnectedness of the world's grain markets, a failure anywhere would raise prices everywhere.
(more on this follows the headline story)...
That post has some other links that may be of interest or you could use the 'search blog' box, keyword: PDO.

Here are a couple stories about what's going on in Russia. Wheat harvest estimates have been sliced from 82 million tonnes a month ago to 75 million today with further estimate reductions ahead. We were first directed to the problem by Dr. Hazlett at the Climate+Energy Project, thanks Maril.

From the Financial Times (Jul. 13):
Russian farmers ask state for $1.3bn drought aid
Russian farmers have asked the state for 40bn roubles ($1.3bn) in loans to fight the country’s worst drought in more than a century.
Fourteen Russian regions, covering some 15 per cent of the country, have declared a state of emergency because of the unusually high temperatures, which have soared to 40 degrees celcius in some areas. Eleven of the drought-affected regions have seen more than half their sown land destroyed.... 
From Bloomberg (Jul 15):
Wheat Surges to Seven-Month High as Drought Hurts Russia Crop
Wheat jumped to the highest price since November on speculation that a prolonged dry spell will widen damage to crops in Russia, the world’s fourth-largest exporter. Russia’s grain harvest will drop by at least one-fifth from last year, to 77 million metric tons, the country’s Grain Producers’ Union said today. Before today, wheat futures surged 16 percent this month...
From Russia Times (Jul. 15):
Russia’s grain yield losses became a burning issue to the government
The Ministry of Agriculture says the continuing drought will lead to a reduced grain yield from 9.5 million hectares in 17 regions, bringing the national grain production down to 75 million tones....

You also may want to read our previous posts, "A Black Swan in Food", "Um, folks, um, maybe we should start thinking about rebuilding our grain reserves." and "World Crops Threatened by Strengthening La Nina Weather Pattern"

More to come.