Southeast Asia’s Agricultural Commodity Producers Brace for El Nino
In the past couple of weeks unusually dry weather in several parts of Southeast Asia has led to expectation that harvests of agricultural commodities in the region will be disappointing. More and more weather forecasters are convinced that the El Nino weather phenomenon (i.e. periodical warm ocean water temperatures off the western coast of South America that can cause climatic changes across the Pacific Ocean) is to return this year causing droughts in the key agricultural-producing countries.
Countries in Southeast Asia, including Indonesia, are among the world’s top producers of a variety of agricultural commodities such as coffee, rubber, rice, palm oil and cocoa. Severe dry weather could limit output in these countries hence causing sharp upward price movements in a wide range of industries. The last time El Nino was felt was in 2009-2010. This weather phenomenon is a notorious one that occurs once every five years on average. However, the impact of El Nino on the weather, harvests and the world varies; it can pass almost unnoticeable (such as in 2010) but it can also be felt worldwide.
Whether related to El Nino cannot be confirmed but droughts are already being felt in Southeast Asia. In Vietnam (a major producer of coffee and rice), the Philippines (where coconut yields are hampered), and Thailand (where about 371,000 hectares of farmland is hit by dry weather) concern about reduced agricultural output has risen. Vietnamese media reported last week that about 40,000 hectares of coffee trees in the Dak Lak province are plagued by shortage of water and may have caused damages worth USD $74.4 million this season.
Last year, Indonesia Investments and other media often reported about the threat of a new El Nino cycle occurring in 2014. Although these reports turned out to be false alarm they had a significant impact on certain commodity prices. For example, sugar soared to a 30-year high, while crude palm oil (CPO) prices soared to a level about 70 percent higher than they are now. Therefore, analysts are now somewhat more cautious factoring the possible El Nino effect into their forecasts for commodity prices. However, palm oil traders have already sent up benchmark prices for palm oil on the exchange in Malaysia around 10 percent over the past week. Although Indonesia and Malaysia (which together account for nearly 90 percent of global CPO output) have been hit by some dryness, overall moisture levels were still favorable in April and the first half of May.