Spend Matters welcomes a guest post from Liliana Gonzalez of Mintec.
Over the past few months, there has been increasing evidence that an El Niño weather event will be forming this year. El Niño, which is also known as ENSO oscillation, is a phase of a naturally occurring climate pattern seen in the Central Pacific. One indication of El Niño is a rise in the temperature of the mid Pacific Ocean in the region known as 3.4 (somewhere in the middle of the Pacific Ocean). It usually starts to develop between April and June and reaches its peak in December.
The phenomenon causes extreme weather such as floods, droughts, and changes in wind patterns in many regions of the world. This change in weather can have a detrimental effect on some of the main commodities and could cause disruption to the global food supply.
In the U.S., El Niño usually increases the possibility of wet and warm conditions in the Midwest. The increase in rain can lead to a fall in wheat and corn yields and can also increase the likelihood of pest problems. This year the U.S. has had a cold winter; increased rain levels mean heavy snow, and heavy snow leads to excessive melt water, which in turn saturates the land and causes problems in the crop emergence phase.
However, it’s not all bad news for farmers. Other regions of the U.S. are happier to experience increased rainfall. More rain in specific regions could mitigate the losses seen in the dairy and wine sector thanks to the three-year drought that California and some of the southern states have been experiencing.
For South America, El Niño has been known to cause warm and very wet months between December and April along the coast of Peru and Ecuador. The fishing industry in this region can be seriously affected by warmer water as oceans convection currents are altered. The up swelling of cold and nutrient rich water is reduced and therefore can no longer sustain large fish populations. What does this mean for us? Fish and fish meal supply decrease and consequently prices increase. Secondary markets are also affected, as other protein markets that rely on fish meal as a feed source also increase in price due to higher production costs.
Going further south, wet weather can also affect the southern areas of Brazil, Uruguay, and northern Argentina during spring and early summer. This weather can damage pasture land, which has the knock-on effect of increasing the price of beef. Flooding can also cause major problems for some of the key regional crops like sugar, soybeans, and corn.
On the positive side, drier and hotter weather around the Amazon River Basin, Colombia, and Central America can reduce the potential of coffee yields being damaged by frost.
I have had to take quite a simplistic view of this as not every El Niño event is the same. We must be cautious when assessing the potential effects. Although the latest predictions indicate that there is a 70-percent probability of an onset of El Niño in 2014, it is too early to determine its strength and the real cost it could have on the global food supply.