El Nino--act II

El Nino had its effect on grain prices in 1996, and it is not over yet. It will have widespread effects, but they have not happened yet. The delay in El Nino effects on agriculture prices happens in part because inventory drawdowns cushion the initial effects of short crops. Only later do markets realize that crop production shortfalls are substantial and long lasting and will reduce inventories even further. More importantly, it takes time for El Nino to disrupt crop production and push up prices. The onset of El Nino, usually in June, is too late to affect northern hemisphere crops, so the first meaningful effects will be in the southern hemisphere. The advice is long May 1998 soybean futures and short July.