(Barron’s) A decades-old government crop report, combined with the very latest data from NASA, seem to indicate that there will be poor growing conditions and lower grain yields over the next few years. As a result, traders should expect prices for wheat and corn to rise.
The report from the U.S. Department of Agriculture, published almost four decades ago, studied crop yields in the U.S. from 1866 to 1973. The paper, “Do Sunspot Cycles Affect Crop Yields?” by Virden Harrison, an agricultural economist with the commodity economics division of the USDA’s economic-research service, matched historical crop-yield data for wheat, corn, rice, and cotton with sunspot activity. And National Aeronautics and Space Administration forecasts for sunspots forming on the solar surface suggest that the sun is commencing lower activity that will last for the next five years.
THAT’S BAD NEWS FOR growers because historically fewer sunspots are associated with colder weather and lower crop yields. It has only recently become apparent that the solar cycle hit its peak last year, with the sunspot count in decline since then. “Sunspots are a proxy for the total solar effect,” says Joe D’Aleo, chief meteorologist for agriculture at Weatherbell Analytics. The activity manifests itself as more, or less, ultraviolet radiation, cosmic rays, and geomagnetic activity, all of which act as “magnifiers” to warm, or cool, the planet, he said in a 2014 white paper for INTL FCStone.
It’s worth noting that there are plenty of skeptics who would disagree as to how much alterations in solar activity affect temperatures around the globe and if there is any causation between sunspots and weather. Whether it’s a coincidence is irrelevant for investors as long as the correlation holds, which it has for some time now.
In fact, says Don Coxe, of Coxe Advisors, “It’s a coincidence that has occurred consistently since Galileo’s time.”
Broadly speaking, fewer sunspots, as NASA is projecting, mean chillier weather. That results in lower crop growth and reduced yields. “On the basis of this [forecast for fewer sunspots], we feel the chances of having the kind of growing weather we have had recently is decreasing,” Coxe adds.
HE SAYS THAT THE actual effect partly will depend on where you are on the globe. Most of the world’s grain is produced within northern climates.
How much lower could the yields fall in the downward part of the cycle? A substantial amount, if the findings in the 1976 USDA paper still hold. For instance, it found that the yield of Texas wheat dropped 7% during periods of fewer sunspots. Likewise, corn yields in Illinois were lower by 8%. Both declines were found to be statistically significant, according to Harrison. Other crops and locations were found to show reductions in yields, but weren’t statistically meaningful.
D’Aleo expects the effects of the sunspot cycle to be gradual, with the “big effect later this decade,” when he sees cold weather lingering into spring.
Contracts for soft red winter wheat recently traded at $5.22 a bushel, while those for corn fetched $3.82 a bushel, both on the CME.