Droughts, Floods, Snow and Cold Hit Global Commodities

By Jim Regan | December 15, 2010

Droughts and deluges in Australia, snow in Europe and cold snaps in the United States are pushing up prices of a range of commodities from sugar to heating oil and soybeans.

Australia typically ranks as second in the league of global sugar exporters after Brazil, but rains have forced its top sugar exporter Queensland Sugar Ltd (QSL) to consider buying raw sugar from its South American rival and from Thailand to keep up with its export commitments to sugar buyers.

Brazil, too has felt the impact of adverse weather conditions on its sugar operations. Dry weather has hurt yields and cut the volume of cane its crushers expect to process.

ICE sugar futures hit a 5-week peak on Tuesday as the impact of weather in major suppliers combined with concern about India’s production.

Farmers across eastern Australia are assessing the impact of the wettest spring on record. The quality of the waterlogged wheat crop is suffering, and much of what is expected to be a record harvest has been downgraded from high-quality wheat used to make noodles in Asia and flat bread in the Middle East to grain fit for animal feed

While Australia faces deluge in the east, in the west drought has cut the annual wheat yield by two-thirds to around 3 million tons.

“Some sellers believe the global supply picture will remain tight in the near future and that the impact of the weather damage to the Australian crop will again become a central issue soon,” said a grains trader in Germany.

In China, dry late fall weather may have impacted pre- winter development of wheat in some areas of the North China Plain though the sub-soil moisture is still likely good. “This crop will depend on favorable early spring rains to meet current yield prospects,” commercial weather forecaster Meteorlogix said.

In Europe, snowfall has helped young wheat plants withstand a spell of freezing weather in the European Union’s top two producers, France and Germany, but is contributing to sowing delays that threaten Italy’s next crop

Forecasters are expecting farmers to sow more wheat in the EU for 2011, encouraged by a rally in world prices this year after a severe drought curbed supply from the Black Sea region.

In Italy, heavy rain and snow in November and early December caused considerable delays in wheat sowing and could lead to a strong fall in planted areas and future crops, Italy’s biggest farmers association, Coldiretti, and grain traders said.

The La Nina weather pattern, which is raising concerns over Argentina’s corn and soy crops, could hit the South American country again next season and cause even worse damage to yields, a climate specialist said.

Argentina is one of the world’s leading exporters of soy and corn, but dry weather linked to the La Nina climate event is fueling concerns that yields could suffer — especially as corn plants enter key development stages.

Eduardo Sierra, a climate adviser for Buenos Aires Grains Exchange, said La Nina would likely reduce soy yields by at least 15 percent. Two consecutive La Ninas caused sharp crop losses in Argentina in the 2008/09 harvest.

“There are already forecasts for La Nina to return next year, it looks about 50-50,” Sierra said.

La Nina features colder-than-normal waters in the equatorial Pacific Ocean, while El Nino is an abnormal warming of those waters. La Nina tends to cause droughts in Argentina, southern Brazil and neighboring Uruguay.

Soybean futures in the United States rose on Wednesday as dry weather Argentina raised concern about its crop.

Energy demand peaks annually during the northern hemisphere winter. Some parts of China could run short of coal, oil, power or gas at times during the next few winter months, China’s top economic planning body said in a statement on Wednesday.

Early winter cold snaps in the United States and Europe helped push U.S. crude futures to a 26-month high earlier this month. Rising heating fuel needs have drained oil from inventories that built up during the economic slowdown and have hung over the market since 2008.

In the United States, cold weather was expected to prompt a fall in distillate inventories of 500,000 barrels in data due out later Wednesday, the 11th fall in 12 weeks.

Australia and Indonesia’s coal miners have lost production due to flooded mines, and rain has also hampered transportation.

(Additional reporting by Inae Riveras in SAO PAULO, Robert Gibbons in NEW YORK, Valerie Parent and Gus Trompiz in PARIS, Nicolas Misculin in BUENOS AIRES, Rebekah Kebede in PERTH and Manolo Serapio in SINGAPORE; Editing by Simon Webb)

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