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6 things that could get pricier because of El Niño

A woman watches as large surf rolls to the beach past the Ocean Beach Pier in San Diego, California, in early January 2016. BILL WECHTER/AFP/Getty Images

Though El Niño means "little boy" in Spanish, there is nothing childlike about the impact of the climate phenomenon tied to warmer-than-usual temperatures in the Pacific. The pattern has brought droughts to parts of Asia and Africa and unusually wet weather to the Americas.

Indeed, El Niño is leaving a path of anxiety and unease in its wake, from vegetable farms in California to sugar cane fields in Brazil -- and all points in between. Prices for some commodities have gone up, which may pressure the bottom lines of food companies and eventually lead to higher prices for consumers.

The impact, though, isn't always felt right away and the news that El Niño brings to the economy isn't always bad.

"While Australia, Chile, Indonesia, India, Japan, New Zealand and South Africa face a short-lived fall in economic activity in response to a typical El Niño shock, for other countries, an El Niño event has a growth-enhancing effect; some (for instance the United States) due to direct effects while others (for instance the European region) through positive spillovers from major trading partners," the authors of a recent International Monetary Fund paper wrote.

Prices for some commodities are being squeezed by what analysts expect to be poor harvests.

And El Niño has lead to higher-than-usual rain in the U.S. cotton belt, while India is dryer than usual. Both are bad news for farmers.

The news, though, isn't all bad: Winemakers in South Africa and California argue that El Niño may yield better quality vintages. It also hinders the development of hurricanes in the Atlantic.



As Cotton Inc., the trade group notes, El Niño is associated with higher-than-normal rainfall in the U.S. and lower than average precipitation for other big producers such as India and Pakistan "Depending on the severity of these effects, there could be implications for both yield and quality," the trade group says. Cotton futures prices are up more than 7 percent over the past year.

"I talked to some merchants over there in India and they say their crop is down 30 percent over there," said Jack Scoville, a commodities trader, adding that consumer prices may be kept low if the Chinese release some of the cotton they have in storage. "That would probably keep prices from going up to terribly much in the short term."


Valentina Gabusi/iStockphoto

Worries about El Niño have pushed up prices for the main ingredient in chocolate to levels not seen since 2010 when there was a civil war in Ivory Coast, which is a major producer.

Ghana, another major producer, has had the lowest rainfall since 1999 because of El Niño, and cocoa farmers in Indonesia are in a similar situation. Meanwhile, Ecuador may get hit with above-average rains because of the weather pattern.

The International Cocoa Organization, the leading chocolate trade group, recently revised its quarterly production estimate up for 2015 producers by 43,000 tons as weather conditions improved in some countries affected by El Niño. Indeed, reports of a "supply rejuvenation" in Ghana recently pushed down cocoa futures prices to $2.810 a ton, which is still above their 5-year average.



Though some farmers in drought-plagued California no doubt welcomed El Niño, they could have done without the cooler evening temperatures, which have stunted the growth of a variety of crops, including lettuce and cauliflower. The weather has also affected squash and zucchini grown in Florida.

Data from the Bureau of Labor Statistics indicates that retail prices for lettuce were up about 9 percent over the past year.



El Niño has caused havoc for sugar farmers around the world. Brazil, a major producer is a case in point: Rainy weather has not only made harvesting difficult but has affected the sugar content of the crop because of the rain. Droughts in India, the Philippines and Thailand also have driven up prices, as has dryer-than-unusual weather in parts of Central America.

Sugar future prices hit $15.85 in December, up from a bottom of $11.28 last year.

Palm oil


Prices for palm oil have climbed in recent months because El Niño-fueled drought weather has hurt producers such as Indonesia and Malaysia. A Bloomberg report from November indicates that prices surged 26 percent off their lows from August.

Palm oil is used in a variety of products including pizza dough and chocolate. Though palm oil isn't widely used as a cooking oil in the U.S., there are concerns that producers may switch to other products such as vegetable and canola, which may boost prices for those commodities along with palm oil.



El Niño also is driving up prices for rice because of drought conditions in many producing countries in Asia.

According to a recent report by the Wall Street Journal, stock piles of the five biggest rice exporters -- India, Thailand, Pakistan, the U.S. and Vietnam -- may hit 22 million tons in 2016, the lowest level since the rice crisis in 2007-2008. Prices, which rose double digits last year, are expected to continue to rise.

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