Wednesday, March 26, 2014

El Niño Threatens Australian Crops

By Isabella Steger

    Bloomberg Combines harvest a field of barley at a farm in Australia.

    Meteorologists from Australia say the chances are increasing that the volatile El Niño weather pattern will return this year, adding to already difficult growing conditions globally that have sparked a rally in agricultural commodities from coffee to palm oil.

    Australia’s Bureau of Meteorology said Wednesday that it forecasts drier-than-normal weather for parts of the north and east of the country, and wetter-than-normal weather for the southwest, potentially causing problems for the production of crops such as sugar cane and cotton.

    El Niño is the abnormal warming of the Pacific Ocean that causes droughts in some areas and flooding in others, and happens every three to five years. El Niño last hit in 2009 and typically affects India especially hard because the country is reliant on seasonal monsoon rains for rice and sugar-cane crops.

    The return of El Niño this year also would add to a strong rally in agricultural commodities prices because of existing droughts in large commodity-growing regions such as Brazil, California and Southeast Asia. Already, dry weather in the U.S., Eastern Europe, Australia and southern Ukraine is a worry and could impact wheat prices this year if there is damage to the crop, said Australian investment bank Macquarie. Wheat futures have risen in recent days because of dry weather in the U.S. southern plains region and persistent cold in the Midwest.

    “Australia has seen dry conditions build in both the eastern and western portions of the country. Today this isn’t a specific threat to production, but given the country’s generally low moisture profile, dry conditions now could encourage the Australian farmer to reduce planting area,” said Macquarie.

    Luke Mathews, commodities analyst at Commonwealth Bank of Australia, said the drier weather in Australia would raise “question marks around sugar cane production,” and “northern irrigation primarily for crops such as cotton.” Sorghum and barley could also be affected, but Australia can still expect a “sizeable national wheat crop” in 2014 as there should be no impact from El Nino on grain production in the south and west of the country.

    While there currently is a global glut of sugar, traders are watching to see whether sugar production could be adversely affected later this year, for example if El Niño brings wetter-than-normal rainfall to Brazil, the world’s largest sugar cane grower.

    If El Niño comes early to India, the world’s second-largest sugar cane producer, it could be a “real disaster [if it] causes the monsoon…to fail,” said broker Marex Spectron. “That happened in 2009 when Indian sugar production fell from 26 million tons the year before to 15 million tons.”

    While Indian meteorologists have said that El Niño is likely to develop this year, they have downplayed its potential impact. Officials said it will be felt only in the second half of the June-to-September monsoon season. The Meteorological Department is due to release its official forecast in April.

    Mirza Adityaswara, a senior deputy governor at Bank Indonesia, said in an interview with The Wall Street Journal this week that food inflation could pick up again this year if El Niño returns. Dry weather and the specter of El Niño have already helped push up palm oil prices this year, which is mainly produced in Malaysia and Indonesia. El Niño is usually associated with drier weather in Asia.

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