El Niño, the weather-altering Pacific warming which has hit the price of commodities from sugar to natural gas, is starting to fade and could end by June.

Meteorologists said the recurring phenomenon – caused by a rise in the water temperature in the tropical Pacific that affects weather patterns – hit its peak last month and showed signs of cooling down.

The effect could be to cut the costs of agricultural commodities as regular rain patterns returned and to raise the price of natural gas and oil because of the higher likelihood of an active hurricane season in the Gulf of Mexico, analysts said.

The El Niño event, the strongest since the 1996-97 episode, had been “a very significant market factor in commodities” prices since mid-2009, Kona Haque, a commodities analyst at Macquarie, said.

The closely watched Australian Bureau of Meteorology has said portions of the Pacific Ocean waters have cooled down, “which historically indicates that a return to neutral conditions may be under way”.

The view is shared by the US government’s Climate Prediction Center, which says the cooling points to a transition to “neutral conditions” during the Northern Hemisphere spring.

Joel Widenor, a meteorologist at the Commodity Weather Group, said: “The overall
trend from now on is for a weakening.”

Although the waters of the Pacific Ocean have started to cool down, meteorologists are cautious about pinpointing the end.

Analysts and traders said the weakening would be bearish for soft and agricultural commodities such as sugar, cocoa, coffee and rice, which have hit multi-decade highs.

But Judith Ganes-Chase, a consultant who has studied the event’s impact on agricultural commodities markers, warned that it would be a mistake to conclude that El Niño was bad for commodities and its opposite La Niña good.

“The impact can vary significantly depending on the time of year, the crop and the
intensity and duration of the event,” she said.

In the energy market, the fading of El Niño could lead to higher prices. The weather phenomenon was thought to have been behind the drop in hurricane activity last year in the Gulf of Mexico.

The US hurricane season, which runs from June to November, was last year the quietest since 1997, with nine storms. As El Niño dissipates, this year’s season is forecast to be more active.

Colorado State University’s prediction calls for a season that is “somewhat more active than the average” with up to 16 storms.

“We anticipate the current El Niño event to dissipate by the 2010 hurricane season,” it said.

Peruvian fishermen originally used the term El Niño – Spanish for “the little boy” and a reference to the Christ child – more than a century ago to describe the appearance, around Christmas, of a warm ocean current off the South American coast.

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