While the development of a La Niña weather system could have sizeable impacts on short-term demand and interrupt supply patterns across a wide range of commodities, agriculture often welcomes the event.
A wetter and colder than average weather pattern is the major impact of La Niña, and for this current season at least, it has helped growers toward a near record winter crop.
What is a La Niña weather system
If you are wondering where we get the name La Niña, it originates from Spanish, meaning “the little girl.” So keep wondering why we use the name as the La Niña weather system is far from such a passive example, it needs at least to have the term angry added to its context.
Essentially it’s the cold phase of the El Niño-Southern Oscillation (ENSO) cycle. And while El Niño warms waters in the central Pacific Ocean, and often appears with drought conditions, La Niña has an opposite effect, in our region at least.
It occurs when the atmosphere above the Pacific Ocean cools. These changes can trigger large shifts in weather patterns. In the most simplistic terms, La Niña brings heavy rains in Australasia, Asia, West Africa and quite often drought in Americas.
In addition to rainfall, in Asia it can result in a shift in temperature extremes, and unfortunately allude to a greater number tropical cyclone for the season.
Weather and commodity markets
Its these dramatic weather patterns that can play havoc with commodity markets. Heavy rain or flooding can impact the extraction and movement of commodities globally.
On the flip side, drought in the US and South America can see crop yields fall dramatically. The changes in temperature can also shift patterns in demand, particularly for energy commodities.
The likelihood of this weather systems developing has risen significantly in recent months. According to Australia’s Bureau of Meteorology (BOM), all key indicators of the ENSO have now reached or exceed La Niña thresholds.
The Southern Oscillation Index (SOI-an atmospheric indicator) has pushed above +7 and temperatures in the Pacific Ocean (INIO3.4 and NINO 3 regions) are more than −0.8 °C below average.
The BOM also highlighted that all surveyed international climate models indicate this La Niña event will persist until January 2021, and even beyond.
La Niña on this occasion has brought a reprieve to Australia’s parched wheat belt and above-average rainfall in Asia. This has already benefited 2020-21 winter season grain crops in Australia and plantation crops like palm oil and cocoa in Asia and Africa, respectively.
And while La Niña weather pattern is good for these parts of the world, it causes dry condition in the Americas – the US and South America.
Dry weather in these regions can potentially undermine harvest prospects of crops, depending on the intensity of the event. Signs of dryness have already been prevailing in Brazil and Argentina, raising concerns for soybeans and corn plantings.
A lack of soil moisture in Brazil is delaying the sowing, leaving risks of follow-on effects on the second Brazilian corn crop. Other Brazilian crops like coffee and sugar will be negatively affected as well.
Argentina is facing similar dry condition, delaying the ongoing corn and soybeans plantings.
While there is also a high risk the US winter wheat crop will also be impacted as well. And if the dry weather continues until the US summer planting season (April-May 2021), then yield prospects of corn and soybeans will be marked down heavily.
On the average, an La Niña weather event reduces yield of US corn and soybeans by 6% and 5%, respectively.
This looming risk of dry weather can push the prices of grains – corn and soybeans – higher, and could tickle down to meat prices via higher feed costs. Palm oil productivity gains due favourable weather will be offset by lower soybean yield, keeping the market balance tight through 2021.
The La Niña is one “angry little girl” who’s appearance can mean the end of a drought for local growers in Australia, but is sometimes not so kind to growers in the US and South America.