El Niño expected to take toll on sugar and rice prices
Simply sign up to the Retail & Consumer industry myFT Digest -- delivered directly to your inbox.
The strengthening El Niño weather phenomenon has led to lower than average rainfall for India’s monsoon season, raising concerns for the sugar crop, while causing a prolonged drought in Thailand, hitting rice production.
With the peak months of India’s June-September monsoon season over, rainfall nationwide is running 12 per cent below average, the country’s meteorological department reported.
Weather forecasters expect the deficiency to continue. “With two major months of the monsoon season recording significant rainfall deficiencies, a big recovery in September looks unlikely,” said Skymet, the Indian private forecaster.
The lack of rain has been acute in the sugar producing states of Maharashtra and Uttar Pradesh, with the deficit closer to 30-40 per cent, according to Rabobank.
Tracey Allen, analyst at Rabobank, said: “This is increasingly casting doubt on the production potential of the 2015-16 crop but more acutely on the 2016-17 season as dry conditions are expected to curb plantings, while germination rates may also be influenced.”
India is the world’s second-largest sugar producer, and an output shortfall could provide a welcome boost for the flagging sugar price. Excess production due to government subsidies and the fall in overall commodity markets have pushed the price below 11 cents a pound — levels not seen since 2009.
This El Niño is the strongest since 1997-98, with the phenomenon, which leads to drought in Southeast Asia and parts of Australia, expected to last through till 2016, according to the Australian Bureau of Meteorology.
In depth
The latest news and analysis on the world’s changing climate and the political moves afoot to tackle the problem
Further reading
The US Department of Agriculture expects Thai rice output to fall to the lowest levels in more than a decade due to conditions that have left reservoir levels low.
Authorities in Bangkok, the capital, said last month that farmers will receive only 50 per cent of normal dry-season water allocation because of the low reservoir levels. The USDA forecasts Thai rice production will fall 4 per cent and exports 18 per cent this year.
“Exports are forecast to rebound in 2016, but continued low reservoir levels and limited availability of irrigation water could impact the upcoming crop and export prospects,” said the USDA.
The full effects of the phenomenon on commodity prices are expected to come to the fore over the next year, say analysts. “You have to go through an entire crop cycle to see an impact as El Niño peaks around November-December,” said Erik Norland, senior economist at CME Group.
The effect on commodity prices could make itself known in the 12 months following the peak, he added.
Comments