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El Nino Threat Blows Commodity Prices Higher

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In 1798 Reverend Thomas Malthus published a pamphlet entitled An Essay on the Principle of Population. In it, he argued that population growth would eventually be stopped by a widespread and catastrophic famine as the world could no longer feed all the mouths it contained. It was an apocalyptic doomsday scenario.

The United Nations expects that the world population will hit 7bn in early 2012 – and rise above 9bn by 2050. Despite the technical innovations of the so-called "green revolution" after the Second World War which increased crop yields through fertilisers and large-scale farming, worries still persist that population growth is putting the global food chain under too much pressure. The possibility of a Malthusian catastrophe is once again being discussed.

The most vital factor in food production is the weather. If the sun doesn't shine or the rains don't come then it can spell disaster. Over the last two weeks, meteorologists worldwide have been predicting just that. A weather event that happens once every three to seven years is under way – and weather patterns across the southern hemisphere could be sent into turmoil over the next six months. This has price implications for commodities, but it could be disastrous for people in the poorer parts of the world.

Across the southern hemisphere farmers are preparing for El Niño. Properly known as the El Niño-Southern Oscillation – and often shortened to ENSO – this involves a warming of the oceans in the Pacific that sets off a chain of events that cause droughts in Australia and floods in South America. It is likely that crops will fail.

It's not only the hungry who need to watch its development, but businesses all over the world must also keep an eye on events as ENSO has the potential to substantially alter cost drivers. Supply chains can be disrupted, input costs can soar and logistics for global operations become a nightmare. Add in the social and political turmoil that this can bring, it is clear that global businesses ignore ENSO at their peril. Rising sea surface temperatures across the central and eastern Pacific Ocean herald El Niño, which could disrupt the rains in major cereal producing regions, the World Meteorological Organisation (WMO) has warned.

"Typically, El Niño has the potential to disrupt the rainy seasons and cause lower rainfall in India, Australia, Southeast Asia – the Philippines and Indonesia – southern Africa and Central America," said Robert Stefanski, a WMO scientific officer. "In past El Niño events, droughts have occurred and lowered food production in many of these regions."

Right now, the monsoons are late in India, the world's third-largest wheat producer. Many think this is an indicator that a severe ENSO event is about to occur. If it is as bad as some observers think, the impact on food production could be disastrous.

The last severe ENSO occurred in 1997-1998. Excessive rain in South America washed away crops in Ecuador and flooded copper mines in Chile and Peru.

In the late 1990s drought conditions caused the failure of Australian wheat crops and sparked massive forest fires in Indonesia, which is responsible for about 30pc of global vegetable oil production. The price of palm oil rocketed almost 300pc and Africa also withered under a prolonged drought.

El Niño Is Back, Bringing Droughts, Floods, Crop Failures And Social Unrest, It just gets better

Swine flu and El Nino to be blamed for recovery failure?

Everything that could possible go wrong appears to be happening.

Perhaps the lizards are also warming the oceans as well?

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it does sound a bit like despserate news ramping.

it occurs once or twice a decade so it was reasonably likely it would occur during this downturn

they're not even certain it's back, or whther it will be severe, and even then it affects SOME agricultural commodities - note, not the major commodities AFAIK like metals and fuels. Having said that, climate future markets should have covered a fair bit of the contingency, so may not be too troublesome except to the poorest.

Nothing to see here, move olong at the back...

edit: actually, there might not be a better time for it to occur, since it has to occur sometimes anyway, than during a period of general global over-supply

Edited by Si1

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