01 Jul El nino to hit coffee, palm oil and other commodities
May 15, 2015 – 11:28AM Rose Powell. Sydney Morning Herald.
The declaration of a strengthening El Nino has raised concerns about agricultural and mining commodities, with coffee and palm oil likely to experience the sharpest price rises. The Australian Bureau of Meteorology this week confirmed earlier pronouncements by US and Japanese weather services that El Nino conditions have begun across the tropical Pacific. El Nino conditions can wreak havoc on commodity prices. It causes drought in Australia, heavier rain across south America and changes to wind patterns across the Pacific region. The event occurs every few years each with slightly different impacts on commodity prices. Capital Economics senior commodities economist Caroline Bain has issued a note to investors outlining the possible impact of the season. “The mere presence of El Nino conditions doesn’t necessarily mean that agricultural commodity prices will rise,” Ms Bain said. “It is the strength, timing and duration which ultimately determine its impact on productions.”
As it is too early to assess the severity of this El Nino cycle, Capital Economics did not estimate the impact on prices but highlighted the commodities most likely to be affected. These included cocoa, coffee, palm oil, rice, sugar and wheat, where harvests are expected to suffer in the dryer conditions. Capital Economics pointed out the coffee and palm oil prices are likely to rise the most as they are concentrated in key El Nino-affected zones of South America and Asia.
Previously, Australia, Canada and the United States wheat producers have driven up the prices of wheat due to smaller harvests. In the US on Thursday
the wheat price leapt in the face of severe weekend storms across the Great Plains.
Some mining stocks, especially those based in South America such as zinc and copper, could be at risk of flooding and transport or distribution issues due to higher rainfall. “Given current tight zinc supplies, the risk of El Nino-related supply disruptions should be another factor supporting prices. In contrast, the nickel price is likely to be relatively unmoved given that Indonesia has a ban on nickel ore exports,” Ms Bain wrote. The only commodity tipped to thrive from the wetter conditions was soybeans, where much of the trade is concentrated in Brazil.