Tuesday, February 16, 2010

Agricultural Update: El Nino Waning in 2010?

The widely followed Australian Bureau of Metereology issued its report that the risks of El Nino are lessening. This is important because it means that regular rainfalls will return, which is bearish for agriculture prices since there is less uncertainty over crop yields. But on the other hand, the end of El Nino's warm water effects indicate that the ever volatile energy markets for crude and natural gas may spike in the coming months because of an increase in hurricanes.

Indeed, contracts for active CME grains (May contracts) and Nymex crude (August) are already beginning to display this seasonal effect.

You can click here to see a dynamic stop action map of Pacific sea temperatures from November 2009 to the present: http://www.elnino.noaa.gov/

Australian Bureau: Pacific Indicators Suggest El Nino Waning

Temperatures in the Pacific Ocean suggest an El Nino event is waning, though current patterns are typical of such an event, the Australian Government’s Bureau of Meteorology reported Tuesday.
Surface and sub-surface temperatures remain warmer than average in the equatorial Pacific, but climate models suggest these will cool in the coming months but remain above El Nino thresholds
until April or May, according to the bureau’s weekly tropical climate note.

El Nino events are typically associated with above average sea temperatures in the eastern and central tropical Pacific and are usually but not always associated with below normal rainfall in the second half of the year across large parts of southern and inland eastern Australia. An El Nino can have a disastrous impact on agricultural production in eastern Australia, particularly for non-irrigated crops such as wheat.

The bureau’s Southern Oscillation Index, another indicator of an El Nino, measured minus 23 for the 30 days ended Feb. 14, falling sharply from minus 10 in January. An El Nino typically is associated
with strongly negative values for the SOI, sustained for several months around minus 10 or lower.
The recent rapid decline in the SOI can be partly attributed to several tropical disturbances affecting French Polynesia, it reported.

Source: CME News For Tomorrow
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