La Niña conditions: Here’s what it means for soft commodity prices

The second half of 2020 witnessed the emergence of moderate to strong La Niña conditions. La Niña, characterized by the abnormal cooling of surface temperatures in the Pacific Ocean, typically results in water scarcity in some regions and floods in others. According to the most recent report from Standard Bank, La Niña conditions are presently weakening. Nonetheless, there is a possibility of their resurgence in early summer. To delve into the implications of these conditions on agriculture and soft commodity prices, Penny Byrne, a Research Analyst at Standard Bank, joined CNBC Africa for an insightful discussion. Byrne suggested that there is a higher likelihood of experiencing another La Niña event in the upcoming 2021-22 summer season, which could bring about beneficial rainfall and bolster the agriculture sector. However, with the unpredictable nature of weather patterns, it remains premature to definitively ascertain the outcomes for the forthcoming months. By elaborating on the ENSO phenomenon, Byrne explained that La Niña serves as the antithesis to El Niño, where the equatorial Pacific Ocean's cool temperatures influence atmospheric conditions, consequently impacting rainfall distribution. Given La Niña's tendency to bring above-average rainfall to South Africa, there is optimism regarding its potential recurrence in the upcoming season. The increased rainfall has proven advantageous for regions facing water scarcity and has positively influenced crop yield, with expectations of another fruitful harvest. Despite the optimistic agricultural prospects, Byrne emphasized that local soft commodity prices are notably influenced by global market dynamics. Even with predictions of the second-largest maize crop on record, local prices continue to remain elevated due to the current high international prices. This phenomenon is primarily attributed to drought conditions in Brazil and lower-than-anticipated yields in the United States, perpetuating the global commodity price surge. Furthermore, the elevated soft commodity prices globally also impact local markets, indicating a complex interplay between domestic production and international market trends. In terms of economic implications, a successful harvest and surplus export opportunities can contribute to increased revenue in the domestic market, potentially aiding in balancing fiscal deficits. Despite the positive outlook on agricultural production, uncertainties loom regarding the extent to which the surplus can mitigate broader economic challenges. When examining the broader global impact of La Niña, Byrne acknowledged regional variations in rainfall patterns. Southern Africa generally experiences above-average rainfall during La Niña, while East Africa tends to receive below-average rainfall. While each region may face unique challenges, the focus remains primarily on South Africa and its potential for a fruitful agricultural season. Overall, the discussion with Byrne shed light on the intricate relationship between La Niña conditions, agricultural outcomes, and soft commodity prices, underscoring the need for continued monitoring and adaptation to dynamic weather patterns.