FinFacts Ireland, Ireland
202/05/06
Unseasonal warm weather in US keeping lid
on oil prices but pushing up commodity
prices as agricultural prospects dim
By Finfacts Team
Unseasonably warm weather across the US Midwest is threatening to aggravate
the effects of a five-year drought blamed for billions of dollars of damage.
The Wall Street Journal says that much of the country has experienced an
unusually warm winter, especially the Northeast and parts of the South. But the
impact has been especially deep for the nation's middle section, where cities like
Green Bay, Wis., and Kansas City, Mo., have set records for warmth and where
many areas rely on agriculture.
Source: US National Drought Mitigation Center
The Journal says that in January, the mercury failed to drop below 0 degrees
Fahrenheit in Bismarck, North Dakota., for the first time since temperature
tracking began in 1875. At Chicago's O'Hare International Airport, the average
temperature of 35.8 degrees Fahrenheit made last month the third warmest
January on record -- behind those of 1880 and 1933.
The newspaper says that while the milder temperatures have spared
homeowners some of the pain of high home-heating prices, the temperature and
the drought could be big trouble for agriculture. The weather has caused some
plants to come out of the ground abnormally early; daffodils are sprouting in Des
Moines, Iowa. But without a protective snow cover, winter wheat, usually in its
dormant stage this time of year, could be weakened if exposed to a cold snap,
such as one predicted for next week.
In Illinois and Iowa, subsoil moisture that helped many corn growers survive a
rain shortage in 2005 is now depleted, leaving this year's crops in need of steady
rains, said Jon Davis, a meteorologist with Chesapeake Energy Corp. of
Oklahoma City, Okla. "It's certainly an issue over the next couple of months that
bears some watching," he said.
Crops also might be facing the prospect of an infestation of insects this spring,
since cold weather isn't thinning pest populations. Marlin Rice, an entomology
professor at Iowa State University told the journal and said that he has met
with farmers more than a dozen times in three weeks as their worries grow. "If
they don't...protect against these rootworms, they'll have a greater probability of
having insect damage," he said.
In Texas, the drought has gotten so severe that 88% of the wheat is in poor or
very poor condition, according to the U.S. Agriculture Department. In southeast
Oklahoma, fires last month destroyed more than 400,000 acres of pasture,
wiping out many cattle ranchers' main source of hay. That could make it harder
for ranchers to expand herds at a time when beef supplies are tight, said Chris
Rice, an agronomist at Oklahoma State University.
Concerns about crops have played into commodities markets too. Since midJanuary, as warm weather has continued, futures contracts on wheat and corn
have rallied about 10% at the Chicago Board of Trade, while soybean contracts
are up more than 4%.
US Climate Prediction Center Forecast
The US Climate Prediction Center says that continued abnormally dry weather
through the first half of January led to expanding drought across the Southwest
and continued drought over the southern Plains. Beneficial rains in the southern
Mississippi Valley brought some improvement to that region by mid-January, but
severe drought continued over Arkansas and parts of Missouri and Louisiana.
Probabilities for below-normal precipitation and above-normal warmth enhanced
the odds for drought over much of the Southwest at least through April, with a
good chance that drought will further expand. In mid-January, mountain snow
pack, an important source of spring and summer water supplies in the West, was
well under one-half of normal from southern parts of Utah and Colorado
southward, and less than 10 percent of normal over much of Arizona and New
Mexico. At lower levels, some impressive dry streaks had taken hold. As of
January 17, Phoenix had reported no rain since October 18.
Source: US Climate Prediction Center
With the latest official outlook for February-April showing the odds tilting toward
below-normal precipitation from the Southwest into the southern and central
Plains, there is an enhanced risk of drought expanding from the Southwest into
the southern and central Plains as far north as Nebraska. Drought should persist
in central Texas, but some improvement is likely from eastern parts of Texas and
Oklahoma into Arkansas and western Louisiana. No measurable rain had fallen
at the Dallas-Fort Worth Airport from December 21 through January 17, but this
dry streak looked likely to end soon. More significant improvement is on tap for
extreme eastern Arkansas and eastern Louisiana, as well as the drought
covering parts of Kentucky and Tennessee.
Forecasts of below-normal rainfall during February to April have led to risk of
drought development over the Florida peninsula. To the north, the serious
drought affecting northern Illinois and adjacent Iowa is likely to continue into the
spring, but periods of rain or snow should lead to some improvement. The odds
for improvement diminish westward, and drought will likely persist, or could even
expand, from western Iowa into Nebraska.
Some improvement is expected in lingering drought areas of Wyoming and
Montana. Recent heavy rain and snow has finally ended the multi-year drought
across the Northwest. In the Pacific, a drought affecting northern parts of the
Hawaiian Island chain should be alleviated.
Oil Prices
A Bloomberg News survey shows that seventeen of 43 analysts, traders and
brokers, or 40%, said prices will rise next week. Fourteen, or 33%, forecast a
decline, up from 17% last week. Twelve respondents expected little change. The
proportion favouring gains had ranged from 53% to 60% since the first week of
January.
Iran, the world’s fourth-biggest oil producer, has been referred to the UN
Security Council over its nuclear program. Iran said that it won’t halt exports
because of the dispute, according to its its oil minister. Oil rose 11% last month
partly because of concern that Iran might retaliate by cutting shipments.
On Friday, light crude oil traded near a three-week low after the US said it won't
immediately seek United Nations sanctions against Iran, easing market
concerns.
Crude oil for March closed on Friday on the New York Mercantile Exchange, at
$65.37 per barrel.
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