Asia Faces Threat to Crops if El Nino Unleashed Again

A return of the El Nino weather pattern may threaten food output in Asia, the world's top producer of rice and palm oil, but drier conditions in some areas could also benefit crops such as coffee and cocoa and keep global prices in check.

With memories of the devastating El Nino in the late 1990s still fresh in their minds, farmers are braced for the return of the weather anomaly, which can bring drought in some places and heavy storms in others.

Although forecasters say it is too early to say whether a full-blown El Nino is on the way, several models in Australia and India show warming of the Pacific Ocean after two straight years of La Nina that resulted in excessive rainfall.

"We are relatively bullish on a number of markets in Q4 of this year because of seasonality and if we start seeing dry weather concerns affecting the market, it is going to amplify that bullishness," said Abah Ofon, commodities analyst at Standard Chartered in Singapore.

Ofon singled out soybeans, palm oil and sugar.

Malaysia and Indonesia account for almost 90 percent of the world's palm oil supplies, while most of the world's rice is exported from Asia. The region also accounts for nearly 40 percent of wheat production and the bulk of natural rubber output.

Thailand, the world's biggest rice exporter, is also the world's second-largest sugar exporter after Brazil.

La Nina, which has brought excessive rains in Australia, caused a severe drought earlier this year in Brazil and Argentina, the world's leading soybean suppliers, lifting U.S. soy futures to a near four-year peak last week.

This year El Nino could exactly do the opposite.

"If you have El Nino here there will be typically more rain in North America which is favorable for summer crop development," said one Melbourne-based commodity analyst.

El Nino, which means "little boy" in Spanish, is driven by an abnormal warming of the eastern Pacific Ocean. It can create havoc in weather patterns across the Asia-Pacific region.

The last severe El Nino in 1998 killed more than 2,000 people and caused billions of dollars in damage to crops, infrastructure and mines in Australia and other parts of Asia.

La Nina is less famous and less destructive than El Nino, which has the opposite effect of warming the waters of the Pacific.

SPOOK MARKETS

"Early talk of El Nino weather could spook the market and trigger panic demand should this weather risk crystallize," said Ofon at Standard Chartered, referring to the sugar market which is at a 20-month low due to ample global supply.

But coffee and cocoa could thrive this year after being hit by heavy rains last year. Vietnam and Indonesia, the world's top robusta producers, account for nearly a fifth of the world's coffee crop. Indonesia accounts for 10 percent of global cocoa output.

In Brazil, the world's largest coffee producer, the crop faces a smaller risk of frost this year because of the likelihood of El Nino, which brings higher-than-normal rains and moisture to the coffee belt.

EARLY DRYNESS IN AUSTRALIA

Australia's weather bureau said models indicate the tropical Pacific Ocean may continue to warm over the next six months.

"All the models are consistently warming up," said Andrew Watkins, manager of climate prediction at the Australian Bureau of Meteorology. "Given what we see at the moment, going beyond July, there is probably equal likelihood of neutral or El Nino conditions at this stage."

Malaysia, the world's second-largest palm oil producer, could see lower production in 2013 if the El Nino results in poor rainfall.

"There is a 50-50 percent chance of El Nino developing, if that happens in the second half of 2012, we should see Malaysian production falling next year," said Ling Ah Hong, an agronomist with Ganling in Malaysia. "I would project at least a 10 percent decline in Malaysian palm oil production in 2013 in that case."

In Australia, farmers are already facing dry weather which is delaying wheat planting.

"Southeast Australia has been quite dry and it is a bit of a concern," said one analyst. "If we had El Nino it will certainly result in below average rainfall for the growing season for winter crops, predominantly wheat, barley and canola."

Chinese authorities are keeping their fingers crossed as farmers gear up to plant the world's second-largest corn crop. Adverse weather could boost U.S. corn futures, with China emerging as a key importer in recent years.

In India, where farmers are banking on another near-record rice crop to keep the momentum of exports, forecasters are predicting a normal monsoon season.

"An absence of El Nino in the first half of the monsoon season helps planting of summer crops and also aids initial growth stages," said S. Raghuraman, a New Delhi-based analyst. "Initial forecast of India's weather office rules out the possibility of a drought year as the monsoon rains are expected to be average."

Thailand has entered the rainy season, but a change in the weather pattern could harm the crop after some rice fields were damaged in the dry season. The Thai Meteorological Department sees a short dry spell in June.

"There were some rice planning areas outside the irrigated areas that were destroyed during the dry season that ended in April," said Somchai Baimuang deputy director of the nation's meteorological department. "But there were minimal damage."