Threat of El Niño Developing in 2014
El Niño is a weather phenomenon, which occurs roughly every 2 to 7 years. Many forecasters are suggesting that an El Niño is increasingly likely to develop during 2014.
El Niño is a weather phenomenon, which occurs roughly every 2 to 7 years. It occurs when easterly trade winds in the Pacific weaken, allowing warmer waters from the western Pacific to migrate eastward and eventually reach the South American coast. While El Niño is the warm part of the cycle, La Niña is the cool part, associated with a strengthening of trade winds and abnormally cool temperatures in the eastern Pacific. La Niña often, but not always, follows El Niño.
Abnormally warm sea surface temperatures in the tropical Pacific Ocean are part of how El Niño conditions are identified. Current conditions are neutral or ‘normal’ and have been since 2012. However, many forecasters are suggesting that an El Niño is increasingly likely to develop during 2014. According to a new tracking system, an El Niño Alert, is currently in place, indicating at least a 70% chance of an El Niño occurring. However, based on historical data, an ‘El Niño Alert’ would have been reached twice since 1980 without an El Niño occurring.
The phenomenon typically brings drier weather to South East Asia and Australia and can cause severe drought. El Niño is also associated with stronger winter storms, potential flooding and landslides in the southern US. From an oilseeds perspective, the potential for greater rainfall in South America is also important.
The development of El Niño conditions is most likely to have a negative impact on palm oil and Australian wheat production, potentially pushing global prices higher. In the last El Niño event (2009/10), Australian wheat yields were in line with the previous year but in the previous event (2006/07), wheat yields were some of the lowest on record.
Palm oil production is initially forecast to continue the rising trend of recent years but, with some exceptions, El Niño events have historically led to lower production. As palm oil is typically the cheapest vegetable oil globally, a reduction in supplies could add upward pressure to vegetable oil prices. However, the situation is not straightforward as the potential for greater rainfall in parts of South America may support soybean production. The overall effect on production and, thus, prices will depend on the timing and severity of any El Niño impacts.
In the US, El Niño could mean increased rainfall over the southern states and California, which have suffered from drought over the last 3 years. However, given that the peak of El Niño conditions typically occurs at the turn of the year, any increase to rainfall would occur during autumn and winter 2014/15 with potential benefit to crops harvested in 2015.