El Nino Seen Starting by July as UN Highlights Risk to Rice

By Jake Lloyd-Smith | April 22, 2014

An El Nino will probably start as soon as July, according to the Australian government forecaster, adding to predictions for the event that can affect weather patterns worldwide and roil farm-commodity prices.

All the climate models surveyed indicated that an El Nino was likely this year, with six of seven models suggesting that thresholds for the event may be exceeded as early as July, the Bureau of Meteorology said in a statement today. A warming of the Pacific Ocean, which drives the changes by affecting the atmosphere above it, will probably continue in the coming months, the Melbourne-based bureau said.

El Niño’s can bake Asia, while bringing wetter-than-usual weather to parts of South America and the U.S., challenging farmers from Indonesia to Brazil with too little rain or too much. Palm oil and sugar were listed by Goldman Sachs Group Inc. this month as among crops that may be affected if an El Nino sets in. The World Meteorological Organization warned last week of a dramatic rise in world temperatures should an El Nino reinforce human-induced warming from greenhouse gases.

“It’s looking likely that we’ll have El Nino this year,” said David Dawe, a Bangkok-based senior economist at the United Nations’ Food and Agriculture Organization, commenting on the probable impact on the rice market. “Usually the countries that are most affected by this are Indonesia and the Philippines. By coincidence, these all are importing countries.”

Goldman’s View

Disruptions associated with El Niño’s have been most important for palm oil, cocoa, coffee and sugar, Goldman analysts including Jeffrey Currie wrote in an April 13 report. An El Nino would boost risks to soft-commodity price forecasts, they wrote. The last El Nino to form was in 2009 to 2010, and since then the Pacific has either been in its cooler state, called La Nina, or neutral.

“El Nino has an impact across much of the world, including below-average rainfall in the western Pacific and Indonesian regions,” the Australian bureau said today. “For Australia, El Nino is usually associated with below-average rainfall, with about two thirds of El Nino events since 1900 resulting in major drought over large areas of Australia.”

The chances of an El Nino have increased to 65 percent from 52 percent, the U.S. Climate Prediction Center said on April 10. There are signs that an El Nino is imminent, presaging changes to global weather patterns, the UN’s World Meteorological Organization said April 15. Two weeks ago, the Australian bureau put the odds at more than 70 percent.

Less Rain

Global stockpiles of rice are high and supplies are ample, the FAO’s Dawe said in a phone interview, commenting today after the Australian forecaster’s report. While there may be less rain Indonesia and the Philippines, any decline in production isn’t likely until early next year, he said.

“The market is reasonably well positioned to withstand a shock from El Nino,” Dawe said. “If we get El Niño conditions in June, July and August, that affects the planting decisions made by farmers in November and December.”

The price of 5-percent Thai white rice dropped to $391 a metric ton on March 26, the lowest level since at least April 2008, amid record government reserves in Thailand after a state- buying program. The grade, a weekly benchmark across Asia, was last at $396 a ton on April 9.

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