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Markets weather El Nino
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September 11, 1997: 4:33 p.m. ET
Onset of phenomenon blows more volatility into commodities trading
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NEW YORK (CNNfn) - The weather phenomenon known as El Nino has affected commodities prices worldwide even though it hasn't necessarily affected weather everywhere yet.
El Nino, a weather pattern caused by warming water temperatures of the Pacific Ocean off South America, occurs approximately every two to seven years and can bring extreme changes in normal climate patterns.
This year's version has brought drought conditions to Australia, hurting its wheat crop, and reduced rainfall for the Indonesian coffee and cocoa crops, strengthening the price of both of those commodities.
Agricultural products are not the only commodities feelings its touch. Australian mining firm BHP said lower river levels in Papua New Guinea, due to low levels of rainfall, would prevent its copper from being floated down the river.
Much of South America has seen the opposite, experiencing increased storms and a much harder winter.
However, some have chosen to open their umbrellas before the rain starts, said Lawrence Eagles, head of commodities research for GNI in London.
"It's certainly having an effect [on prices] but it's more people preempting El Nino than anything else," explained Eagles.
Still, meteorologists say it would be foolish to count out El Nino 1997. Typically, El Nino develops in the spring or summer and hits its stride in the winter. Not so with the current El Nino.
"This one has developed very strongly," said meteorologist Gerry Bell of the Climate Prediction Center at the National Weather Service.
"The conditions that we're seeing now are typically what you would see in the wintertime El Nino. They reach their strongest effect in the winter so this one has a long way to go."
The threat is very real for commodities growers. The International Cocoa Organization released Thursday a report showing that cocoa production was anywhere between 6-20 percent below average in El Nino years and about 2.5-7 percent above in non-El Nino years.
El Nino has added even more volatility to the already unstable commodities markets. As the dry weather continued in west Africa's Ivory Coast, which grows 40 percent of the world's cocoa, prices of that commodity pushed higher. But the advent of rain on Wednesday and Thursday dropped the price of a metric ton by approximately $30.
Fortunately, El Nino can be generous as well as stern, said Judy Ganes, commodities analyst with Merrill Lynch.
"While you might see Indonesian coffee production reduced, you could have better crops in other areas, so you have an offset."
Whatever the effects of this year's El Nino, growers and commodities traders can look for more uncertainty in the years ahead.
"El Nino is definitely developing into the strongest event we've had in a long time, possibly in this century," said GNI's Lawrence Eagles.
-- Randy Schultz
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El Nino
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