March 13, 2014 - GLOBAL FOOD CRISIS - Commodities investors and farmers are on alert after the third
official warning in a week of an El Niño weather phenomenon emerging
that could affect food and energy markets already reeling from extreme
weather in many parts of the world.
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A dog hangs around an abandoned farmhouse on February 6, 2014 near
Bakersfield, California. Now in its
third straight year of unprecedented
drought, California is experiencing its driest year on record,
dating
back 119 years and possible the worst in the past 500 years.
Getty Images
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El Niño refers to a
warming of Pacific sea surface temperatures that occurs naturally every
few years and can trigger drought in some parts of the world and floods
in others, depending on its strength.
Australia's Bureau of Meteorology said on Tuesday the tropical
Pacific subsurface had "warmed substantially" over the past few weeks,
meaning sea surface temperatures were likely to rise in coming months.
A recent burst of westerly winds over the far western Pacific was also
the strongest seen since at least 2009, the last time an El Niño
developed, the bureau said.
Its warning comes a week after the US weather forecaster said there
was a 50 per cent chance of an El Niño developing this summer and days
after Japan's weather bureau raised its forecasts of such an event.
"It's certainly front of mind for everyone, from commodities analysts
to farmers," said London-based commodities analyst Tracey Allen of
Rabobank. "Everyone is watching it because it could have such a
significant bearing on products."
The last strong El Niño in
1997-1998 is estimated to have caused billions of dollars worth of
agricultural damage in the US alone.
Any damage to crops and the rise in food prices could hit poorer
countries, some of which are already feeling the effects of higher
import prices due to the volatility in emerging market currencies.
Analysts said that some commodities had priced in the possible weather impact.
"The prospects of a potential El Niño have already provided some
weather risk price support to cocoa and palm oil," said Kona Haque,
agricultural analyst at Macquarie in London.
Cocoa, which is mainly produced in west Africa, led by the Ivory
Coast and Ghana, has rallied 8 per cent since the start of the year to
levels not seen since September 2011, while palm oil, grown mainly in
Indonesia and Malaysia, has gained more than 9 per cent year-to-date.
Both west Africa and southeast Asia face the risk of droughts caused
by El Niño, as do Australia and India. Other commodities at risk include
wheat, sugar, cotton and rubber.
A rise in the Pacific sea temperatures would also affect fish
catches in Peru, the world's biggest fishmeal exporter. Fishmeal prices
are already at historically high levels due to increased demand from the
aquaculture and livestock industries. Any price increases will filter
into fish and meat prices as fishmeal is used to feed the
multibillion-dollar fish farming industry as well as pigs and poultry.
Climate scientists are also watching the El Niño forecasts closely
because of speculation it could end a so-called pause in global warming
that emerged after the last big El Niño event in the late 1990s.
However, US officials said it was impossible to say at this stage what impact an El Niño might have this year.
"It's still far too early to guess how strong this event will be,
assuming it does develop," said Mike Halpert, of the US Climate
Prediction Center.
"We've had a number of weak to moderate, even moderate to strong,
episodes during the past 15 years, most recently in 2009/10, and those
years did not see big increases in global temperatures."
"The
very strong events, like 1997/98, would make a record warm year,
probably in 2015, more likely," he added, but it was far too early to
predict this would happen. -
CNBC.
