Grain prices are rising on the back of another La Niña weather pattern that has been developing over the last month in South America. La Niña brings cooler temperatures in the Pacific Ocean, leading to higher rainfall in south-east Asia and northern and eastern Australia, and lack of rain in the south of the US.

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Analysts fear that the La Niña will continue to keep rains away from the crops in Argentina and could further damage soy bean production in Brazil. Oil World now estimate soybean production in South America at only 132.7 Mn T this season, down steeply by 4.3 Mn T from their forecast 3 weeks ago and 4.0 Mn T from a year ago. Further north, weather forecasters are predicting that La Niña could see a continuation of the drought that hit Texas. The devastating drought of 2011 caused $5.2 billion in damages to the state's agriculture sector hitting both the livestock and arable sector; Texas and Oklahoma produce almost a third of the winter wheat in the U.S.

Index values created to estimate the strength of different La Niñas over the years put the La Niña of 2011 as one of the most pronounced in memory. This year, those same reference values put the intensity of the current La Niña at about 3/4 of the one last year.

The dry weather has driven up crop prices in the United States as global supplies are threatened by the drought. Argentina, which is expected to supply a fifth of the world's corn exports, is being hit the hardest but it could also impact on Brazil, another of the world's leading producers. A severe drought in the United States in 2012 could sharply reduce global food and fuel supplies and give a big lift to grain and soybean futures prices.

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