If You Didn't Have Enough To Worry About...

Apparently there's major concern about an El Nino developing in the South Pacific. Such events can wreak havoc on commodity prices, some of which are already gyrating all over the place. Now that the "green shoots' view has been replaced by one that envisions considerably less growth in the near-term future, any serious reduction of supply could provide inflationary pressures in key commodities--even in oil, a (relatively-speaking, anyway) non weather-related one, that is used to hedge macroeconomic bets, like those in the dollar--in the Northern autumn and winter, when rising unemployment is likely to depress demand considerably. This, in turn, would depend on whether or not the dollar as the ultimately safe store of value during global downturns predominates over concerns about exit strategies from increasingly expensive government programs as the economic outlook stagnates or even deteriorates. The fear is that a serious shift towards the latter, especially, could lead to a situation in which oil and food prices rocket even as the dollar declines and unemployment continues its rise. The fact that US (home to a huge share of global planting in key foodstuffs) planters have ramped up in the last few months is a good sign, but...

From The

Financial Times:

Commodities fears after El Nino alert

By Javier Blas,Commodities Correspondent
Financial Times
Published: July 1 2009 17:41 | Last updated: July 1 2009 17:41

The emergence of El Nino, a weather phenomenon that could dramatically influence commodities markets as it brings drought conditions to south-east Asia, seems all but certain, Australia's weather office said on Wednesday.

"More evidence of a developing El Nino event has emerged during the past fortnight, and computer forecasts show there's very little chance of the development stalling or reversing," Australia's Bureau of Meteorology said in a report.

A month ago, the bureau said that “the odds of an El Nino were above 50 per cent”. Australian officials on Wednesday said they could declare officially an El Nino event in the next few weeks, promising an update as early as next week.

The recurring climatic event--caused by an increase of the water temperature in the tropical Pacific--has in the past triggered wild gyrations of food prices, particularly wheat, rice and sugar. The event could also disrupt India's annual monsoon.

Commodities traders pay extra attention to Australia's meteorologists as the country is one of the most exposed to El Niño and its weathermen have a good track record in anticipating the emergence of the phenomenon.

Traders and meteorologists said that even if an El Nino emerged, its impact on commodities markets would depend on the weather pattern's strength. The previous two events were weaker, but 1998 saw a strong phenomenon.

So far, analysts and traders are taking comfort from a period of favourable weather, particularly in the northern hemisphere. The weather has also been auspicious in south-east Asia, although India's monsoon has had a poor start.

Sugar prices on Wednesday hit a three-year high, with the front-month contract trading as high as 18.01 cents per pound, on fears that the sugarcane crop in India, the world’s largest consumer of the sweetener, would be hit by a poor monsoon.

El Nino--"Spanish for "the little boy"--has important consequences for weather, including increased rainfall across the southern tip of the US, Peru and Chile, which has caused destructive flooding, and drought in the west Pacific from Australia to Bangladesh.

It has also affected fisheries, as nutrients in eastern Pacific waters drop.

Interview: Asian Garment Worker Uprisings

Some Elements of a Progressive International Trade Policy

No Matter How You Look at It, the Big Beautiful Bill is a Monstrosity

If You Didn't Have Enough To Worry About...

D&S Admin

Read next