The Southern Oscillation Index is a measurement of the trade winds tracked by the Australian Bureau of Meteorology.

According to the Queensland government… “The Southern Oscillation Index or SOI is a standardized index of the barometric pressures over Darwin, Australia and Tahiti. Climate scientists use the SOI to assess the strength of the El Nino Southern Oscillation phenomenon (or ENSO), which in Queensland accounts for nearly 25 percent of our year-to-year rainfall variability.

For example, it is often wetter (in Australia) during a La Nina classified year (when the sustained SOI is very positive (higher than +7) and drier during an El Nino classified year (when the sustained SOI is very negative (lower than -7).”

My wife and I, further retired, plan to check out the trade winds in the South Pacific personally in late March on a 6-island cruise of Tahiti.

The current high SOI readings for this La Nina appear to have peaked Jan. 1 at 14.39 for the 90-day SOI and on Jan. 11 for the 30-day SOI at 21.45. These were particularly strong readings. The 30-day SOI has subsequently collapsed from early January highs but it will take continued sustained weakness to drag the 90-day SOI below +7 to end this La Nina. The 30-day SOI crossed over below the 90-day SOI Monday, which will add to the momentum.

ISU climatologist Elwynn Taylor believes that the SOI, whether La Nina or El Nino, is directly relative to growing conditions in the corn-belt. He suggests that we have a 70% chance of a below trend-line yield in the corn-belt in a La Nina year and 70% chance of an above trendline yield in a El Nino year. He follows the 90-day SOI using plus or minus 8 as his benchmark for which is in place. The SOI tends to breathe in and out while trending.

We are currently very much still under La Nina SOI readings, which are trending lower toward neutral. There is evidence that this multi-year La Nina has peaked and models strongly suggest a further collapse into summer. Models are for over an 80% chance that this La Nina is terminating. Shifting full circle to El Nino by next summer seems like a reach. Normal crop yields this season would be attainable. Recent rains in Argentina and the Western Plains suggest the beginning of a major shift in weather patterns that have previously sustained drought in Southern South America and west of the Mississippi in the U.S.

We have seen more snow than usual this winter in the WCB and NCB. That doesn’t necessarily translate into improved soil moisture conditions or improved moisture reserves. Remember, the drought of 1936 was preceded by one of the snowiest winters on record. That eventually takes rain on thawed ground. Snow on frozen ground melts off. We need soaking spring rains. Fog being seen here last month portends rain 90 days later. A fading La Nina would open the door to needed spring rains. USDA, as well as many private analysts, are dialing more harvested acres and trendline yields into 2023 corn production estimates. With La Nina in retreat, that is certainly within the realm of possibilities.

In 2022, the carryout was shrinking into an almost certain La Nina year with a worsening drought. End-users struggled to keep supply needs met without the prospect of any great relief from supply tightness before harvest. The drought lengthened the 2022 demand season. Basis levels reached 1.60 over CBOT at the extreme where we live. The drought in the Plains and WCB resulted in an imbalance of where corn-belt supply exists regionally today, favoring adequate supply in the ECB where production levels were normal. This keeps end-users on edge, supporting CBOT basis premiums in the west, something that continues today.

In 2023, the corn carryout has likely seen its swing low with shrinking demand now running interference for the bears in this market. The cash price has remained remarkably steady here in northwest Iowa and could continue to float along this way with basis balancing the CBOT price. There are reasons to believe that the basis will continue to support the cash market until new crop supply availability arrives. Some are therefore bullish due to basis expectations. I do not necessarily disagree with that for the near term. The higher interest related cost of carrying cash inventory dilutes futures market gains. The benefit from storing physical corn is that the producer remains long the basis. The negative is if the futures markets fail to add gains. I did not see the incentive in these scenarios to hold cash inventory this year as I have done in the past.

The prospect ahead, as the bears see it, is that we will plant at least as many corn acres as a year ago. This time the weather will cooperate and they will be harvested with a trendline or higher yield result. The price of corn would then retrograde to where it recovers some of the demand that we have recently lost. End-users will see this big crop coming and be much more relaxed with their future supply prospects. They will still need to cover immediate supply needs but the emotion/fear will be much reduced from last year.

The crop insurance price guarantee is set during February and is currently little different for corn from 590 a year ago. I may have a defensive near-term outlook but have no interest in selling the new crop discount. As of this writing, at the local elevator we have 7.02 cash corn while the new crop bid is just 5.46. The absence of a La Nina has already been eliminated from the corn market. Much of the prospective structural loss is basis associated. I have zero interest in hedging new crop corn. If we have to sell for 546 then I would wait until then … instead bin the crop and hedge the carry. I sold my 2022 cash corn for 7.23 and it could be a long time until I sell any 2023 corn.