(Bloomberg) -- A La Niña weather pattern looks likely to form later this year, potentially unwinding the devastating agricultural impacts of the strongest El Niño in almost a decade that just came to an end.
Although the world is currently idling in a neutral state, there’s a 70% chance of La Niña emerging sometime between August and October, with the expectation it will last into the Northern Hemisphere winter. During La Niña, the tropical Pacific Ocean is cooler than average, putting in motion a series of potential impacts, from stronger rains in Asia to dryer conditions in parts of South America.
No global weather pattern benefits everyone, and the strength and timing of the event is still unclear. Still, if La Niña forms, it’s likely to help reverse many of the past year’s trends that wreaked havoc on some of the world’s key commodities markets, from terrible flooding in South America to devastating African droughts. In cocoa, especially, the new pattern may bring some welcome relief.
“There is a pretty strong relationship between El Niño and weaker crops and between La Niña and strong crops,” said Jonathan Parkman, head of agricultural sales at commodities broker Marex Group. “It is not unprecedented in years of transition from El Niño to La Niña to see major bounce backs.”
Here’s a look at how a La Niña pattern will shape crucial world food markets in the next year:
Cocoa
The world’s cocoa bean deficit is the worst on record after a mix of brutal drought and erratic rain pummeled major producers in West Africa. La Niña could help.
If La Niña comes into effect in August or September, increased rainfall would help African crops prior to harvest, said Cade Groman, a forecaster at Commodity Weather Group. Markets are already pricing in the expectation of a better harvest, with cocoa futures in New York trading around 40% below a record high set in April. Marex is expecting cocoa markets will come out of three straight years of deficits into a surplus in the coming season.
Still, the timing could be a wildcard. If the pattern develops later in the season, rainfall closer to the winter months could actually slow the harvest, Groman said. The pattern may also be milder than earlier forecasts, which would be less beneficial to West African crops.
Related: With Cocoa Butter at $28,000, More Companies Go for ‘Chocolatey’
Even if the area gets steady rainfall, structural concerns remain regarding access to fertilizer and control of diseases like swollen-shoot virus, said Nicko Debenham, a former industry executive who advises farmers and shippers in Nigeria and Ivory Coast. “It is not going to be a monster crop, but it won’t be as bad as this year,” Debenham said.
Meanwhile, La Niña brings risks of dryness to parts of Ecuador, the world’s third-largest cocoa grower. The country has better irrigation access than West Africa, potentially limiting the impacts, said James Quiroz, an agronomist at the country’s national research institute INIAP.
Coffee
La Niña can delay crucial rains in top coffee producer Brazil, threatening output of the high-end arabica beans favored by coffee chains like Starbucks Corp. That risks pushing prices of the commodity even higher after they recently spiked to the priciest in more than two years.
Related: At $9.25, Today’s 16-Ounce Caffe Latte Will Soon Be a Steal
On the other side of the world, La Niña typically brings higher rainfall to Vietnam, the world’s second-biggest coffee grower. The moisture would be welcome relief to drought-stricken crops of the robusta variety, the bean generally used for instant coffee. Prices for robusta beans recently soared to the highest since the 1970s due to the supply disruptions.
Like in cocoa, timing matters: If La Niña arrives too late in Vietnam’s season, it could interrupt fruit collection. Ideally, the rains come earlier in the season to promote the crop’s development.
Sugar
The world’s top sugar exporter, Brazil, is already facing dryness in key cane-growing regions, lowering the sugar content in Center-South region’s crops. La Niña threatens to make it worse.
If the pattern emerges, it could delay crucial rains that would normally hit by September and early October, said Rural Clima meteorologist Marco Antonio dos Santos. Reduced rainfall in South America due to La Niña could delay plantings and further hurt yields for the next season, too, said Trish Madsen, a senior agronomist at Green Pool Commodity Specialists.
Related: Sugar Shortfall Hits the US Candy Aisle, Threatening Sweet Sales
While La Niña could help aid sugar production in the second-largest grower, India, by enhancing monsoon rainfall, cane acreage in some key regions has been declining there, Madsen said. The county is also expected to use some of its cane for ethanol instead of sugar, which could keep its sugar exports limited in the short term.
Sugar futures hit a 12-year high in November before falling amid beneficial rains and the increased use of cane to make sugar instead of ethanol in Brazil.
Other Key Crops
La Niña years can bring big shifts to weather in both Brazil and the US, the world’s two biggest suppliers of key agricultural commodities.
In the US, La Niña years can bring drought and winter heat to some southern states and heavy rains to the Pacific Northwest. It can also lead to a worse hurricane season for the Caribbean and US Gulf Coast. Parts of the Western Corn Belt could face dryness, and yields have been lower in many southern cotton-growing states in prior La Niña years, with trends less clear in Texas. In key soy producing regions, especially toward the north, it may be cooler and wetter than normal.
In Brazil, drier and hotter weather will likely hit most of the important corn and soy producing regions in the Midwest from September onwards, said Leticia Pizzo, an analyst for commodities trader Czarnikow. That could have “significant impacts on productivity,” she wrote in a report. There may also be lower-than-average rains in Argentina, though the impact there is expected to be muted.
At the same time, rain volumes may be higher in Brazil’s North and Northeast regions.
“In Brazil, all regions are affected in different ways, making it difficult to predict the impact and intensity with which each state will be affected,” Pizzo said.
--With assistance from Tarso Veloso, Mumbi Gitau and Jonathan Gilbert.
©2024 Bloomberg L.P.
