Australia Meteorological Department has reported that El Nino weather pattern may occur in the coming months. Countries such as part of Asia and Australia will experience warm and dry weather whereas South America will receive more rain than usual. The National Aeronautics and Space Administration (NASA)’s Goddard Institute for Space Studies in New York forecast that this year’s El Nino will bring warmest pattern on record.
These weather patterns will definitely affect the production of agricultural commodities worldwide. As a matter of fact, the production of agriculture produce such as palm oil, coffee, cocoa, rice and natural rubber (NR) has been reported to be declining and therefore pushing up the price of major agricultural commodities. For instance, the global cocoa prices reached a two and a half years peak in February 2014 due to dry weather in main growing regions of Africa and Asia. Whereas crude palm oil futures price in Bursa Malaysia rose as much as 6.2% from RM2,631 per tonne on 31 December 2013 to RM2,793 per tonne on 26 February 2014.
Malaysia, Indonesia and Thailand which produce almost 70% of global NR production are in fact experiencing dryer weather with little rain in many parts of the countries. According to the Malaysian Meteorological Department, 15 areas in Peninsular Malaysia have not had rainfall in more than 30 days, with some of them dry for more than a month. A major State of Selangor, Malaysia has already started rationing its water supply. The Indonesian province of Riau has also been hit, with part of the region wreathed in smog, usually caused by farmers setting fires to illegally clear land, as reported by Bangkok Post on 27 February 2014. Whilst, the Thai government has announced emergency drought disaster zones covering 13 provinces, encompassing NR producing zones.
With regard to NR, rubber plantations in the three countries are now in the peak wintering season which started earlier than usual. The prolong warm and dry weather caused by El Nino will exacerbate the limitation of rubber latex produced by rubber trees and therefore NR supply will be significantly affected and drop in the upcoming months.
The severe wintering and prolonged dry weather due to El Nino in 2014 will push the NR supply down. As NR supply is reducing and insufficient, existing global NR stocks will be consumed and depleted. Therefore, the global NR supply and demand will be more or less balanced for the rest of this year. In addition to that, Chief Executive Officer Yium Tavarolit of IRCo forecast NR prices to improve from current prevailing price level and stay above 250 US cents/kg this year and could even breach 300 US cents/kg if El Nino extends up to 2015. The Proceeding of National Academy of Sciences (PNAS) reported that El Nino towards the end of this year would increase temperature globally in 2015 and NASA forecast that depending on the size of El Nino, it may push 2014 and more likely, 2015 up the rankings of warmest years on record.
International Rubber Consortium Limited (IRCo)
27 February 2014
