Agri commodities turn hot again

Harish Damodaran | Updated on March 09, 2014

El Nino could hurtpalm oil production inIndonesia andMalaysia


Dry weather could worsen the drought in Australia, a major global supplier of wheat

Year 2013 was a forgettable one for farm commodities, as corn futures in Chicago plunged 39.6 per cent, global prices of coffee, wheat, sugar, soyabean and palm oil fell 23, 22.2, 15.9, 8.3 and 0.9 per cent respectively, in dollar terms.

But since the start of this year coffee has gained 77.8 per cent, corn 15.9, soyabean 12.8, sugar 9.8, palm oil 8.6 and wheat 8.1 per cent. This recovery can largely be put down to a single factor: El Nino, which refers to the unusually warm ocean temperatures in the tropical Pacific off the coasts of Ecuador and Peru.

A Pacific phenomenon

Such abnormal warming of eastern Pacific Ocean waters leads to increased evaporation and concentrated cloud-formation activity around South America.

This region, along with the southern part of the US, then receives heavy rains causing flooding occasionally.

The other end of the tropical Pacific towards Indonesia and Australia is, by contrast, deprived of any such convective currents. The result is below-average rainfall and drought, whose effects may also percolate to India.

Since February, many global weather agencies have warned of an “early developing” El Nino with the appearance of warm ocean currents along the western coasts of South America. There is no clarity, however, whether and when this warming will turn into a full-fledged El Nino.

The US Climate Prediction Centre, on Thursday, predicted a 45 per cent chance of El Nino during June-July-August and 50 per cent over August-September-October.

This is consistent with the projections of most other official forecasters — of El Nino returning after five years, with its effects more pronounced towards August. For India, that coincides with the second half of the south-west monsoon season from June to September.

The Indian record

So, does it mean India will have a poor monsoon this time, especially in the latter part of the season? Well, it’s difficult to say really. The table shows that every drought year in India over the last three decades – 1982, 1986, 1987, 2002, 2004 and 2009 – was an El Nino year. But the reverse — every El Nino year being a drought year — doesn’t hold. Take 1994 and 1997, the first a ‘moderate’ and the second a ‘strong’ El Nino year. In both these years, the country registered above normal monsoon precipitation. This was more or less the same in 2006 too, a ‘weak’ El Nino year.

Mixed prospects

While El Nino’s impact on India is debatable, there is less doubt though, over it wreaking havoc in South-East Asia and Australia. El Nino-induced dry weather could worsen an already severe drought in Australia, a major global supplier of wheat, beef, sugar and cotton. It could similarly hurt palm oil production in Indonesia and Malaysia, coffee and cocoa in Indonesia and Vietnam, and rice in Thailand and Vietnam. But if El Nino’s effects do not percolate to India as in 1997 or 2006, it could actually prove beneficial to India’s $45-billion agri-export industry.

India is, after all, the world’s No. 1 exporter of rice and beef, No. 2 in cotton, and also a significant shipper of soya meal, sugar and corn. Right now, with India’s major reservoirs holding enough water from last year’s excellent monsoon and also from the winter rainfall, there isn’t much to worry.

Published on March 09, 2014

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