Shares in companies with involvement in the rural sector will come under pressure in coming months after the Bureau of Meteorology yesterday declared the return of the complex weather system, the first since March, 2010.
"The tropical Pacific is in the early stages of El Niño. Based upon model outlooks and current observations, the Bureau’s ENSO Tracker has been raised to El Niño status,” the Bureau reported yesterday in its usual fortnightly update.
El Nino is characterised by a warming of sea surface temperatures in the central and eastern Pacific Ocean.
It tends to bring drought to Australia, particularly in the east, by reducing rainfall in winter and spring. It also disrupts weather in South, central and Northern America, especially on the west coasts. It can also influence weather across Eastern Brazil as well.
So companies like Elders, Aust Ag, Nufarm and Incitec Pivot, plus Orica, the banks (which are already coping some stick in drought hit areas), the big retailers which will have to cope with volatile prices for rural commodities and of course the trade account which could take several hits from weaker grain and meat prices.
As well companies like Webster Ltd, which is expanding deeper into rural commodities, especially cotton, Qube which is expanding into grain, GrainCorp, of course, which reports its latest profit tomorrow and will have something to say about the impact of the drought already. Bega Cheese, Warnambool Cheese and the about to list Goulburn Valley could also find their milk businesses under pressure if the drought reaches their dairying zones. It has in the past.
Media companies operating in rural areas such as Southern Cross and APN will be hurt if there’s a serious drought and already weak levels of advertising and sales are hit.
The existence of an El Nino has been debated for months by climatologists. One was almost declared a year ago, but the indicator suddenly weakened and the BOM held back.
Sea surface temperatures in the Tropical Pacific have been at, or near, El Nino thresholds since spring last year, save for a brief dip soon after Christmas.
Four weeks ago, the bureau raised its El Nino Southern Oscillation (ENSO) tracker to the “alert” level, raising to 70% or greater its expectation an El Nino would form in the Pacific in the winter or spring of 2015.
Wide areas of Queensland, NSW, Victoria and South Australia are in already severe drought going back more than two years. the Federal government last week said $330 million had been set aside in concessional loans and other assistance to help drought hit regions. that was after more than $400 million was offered last year.
David Jones, of the bureau’s climate information services branch, says forecast models from around the world suggest the El Nino will probably have a significant impact.
“You know, there’s always a little bit of doubt when it comes to intensity forecasts, but across the models as a whole we’d suggest that this will be quite a substantial El Nino event,” he said yesterday.
"Certainly the models aren’t predicting a weak event. They are predicting a moderate-to-strong El Nino event. So this is a proper El Nino event, this is not a weak one or a near miss as we saw last year."
