Commodity traders and farmers are on edge over a developing weather phenomenon that threatens droughts in Brazil and Argentina and excess rains in Australia. The probability of a La Niña weather phenomenon occurring at the end of the year and persisting into the first quarter of 2018 is being raised by meteorologists. Caused by the cooling of the tropical Pacific Ocean, the phenomenon can also bring droughts to the US midwest farm belt but rainfall in Southeast Asia. During the 2012 La Niña grains and oilseeds prices surged, as the worst drought in half a century enveloped the US midwest, while Australia’s thermal and coking coal mines in Queensland were hit by cyclones and heavy rain.

In Colombia, excessive rains led to the spreading of a deadly coffee fungus, hitting production and lifting coffee prices. The US National Oceanic and Atmospheric Administration is on “La Niña watch”, predicting a 55 to 65 per cent chance of the weather phenomenon occurring in the northern hemisphere autumn and winter 2017-18. While the northern hemisphere will have harvested much of its crops, the weather pattern could affect harvests in the southern hemisphere.

“The presence of La Niña is an important risk factor for agricultural production and price volatility,” warned analysts at JPMorgan. Rising global demand for grains and soyabeans means that markets will be sensitive to falling production, it added. Although grains and oil seeds prices have been largely remained flat in recent months, with corn trading at about $3.50 a bushel in Chicago and soyabeans remaining below $10, plentiful harvests in the US had led to “a level of complacency among grains and oilseeds markets,” according to JPMorgan. Its chief concern was soyabean production in Brazil because of drier than normal conditions. Other commodities expected to be affected include corn and cotton.

Dry conditions in Brazil could also limit the replanting of sugar cane, while wetter than normal conditions across the east coast of Australia during the wheat harvest could affect the crop’s quality. Coffee traders are also anxious about the crop in Brazil. Although the coffee regions have received rain recently, concerns exist about how long they will last. “Most areas will need to see some consistent rainfall now to keep the potential for a big crop alive as trees need to recover from stress from the production year last year and also the cold and dry winter,” said Jack Scoville at Price Futures Group in Chicago. Developing weather patterns can suddenly retreat, however. In 2016, a widely predicted La Nina pattern failed to materialise.

Nevertheless, any production shortfall in grains and oilseeds caused by weather risks volatility in prices as demand remains strong and stocks are falling, according to analysts. In soyabeans, consumption is projected at an all-time high in the 2017-18 crop year, and inventories are forecast to fall 6 per cent from the prior year, according to the International Grains Council. For corn, global inventories are forecast to fall for the first time in five years, with the US and China accounting for most of the declines.

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