How El Niño Is Going To Impact Food Prices In 2024
Impact of El Niño
The surge in 2023 for raw materials exposed to El Niño is likely to impact consumers in the coming months, warns a specialist food and agribusiness bank. Soft commodities, such as orange juice, cocoa, coffee, and sugar have experienced significant gains year-to-date, per CNBC. The spike in futures contracts for these commodities is attributed in part to extreme weather and supply concerns linked to the El Niño phenomenon.
Carlos Mera, the head of Agri-commodities market research at Rabobank in the Netherlands, compared El Niño to having a "sweet tooth" as it disrupts sugar production globally. He mentioned that while sugar prices may have already affected consumers, there is anticipation of a substantial retail price increase for chocolate due to the impact of El Niño.
El Niño, a natural climate pattern that reappeared earlier this year, occurs when sea temperatures in the eastern Pacific rise 0.5 degrees Celsius above the long-term average. This phenomenon can lead to more storms and droughts, affecting various commodities and subsequently, influencing consumer prices.
2024 warming threshold in sight
The impact of El Niño usually peaks in December but its effects take time to propagate globally. This delayed impact is leading forecasters to predict that 2024 might be the first year humanity surpasses a critical warming threshold. Dry conditions associated with El Niño in Southeast Asia, India, Australia, and parts of Africa have contributed to a price rally for soft commodities like sugar, coffee, and cocoa throughout this year, as highlighted in Rabobank's annual outlook for 2024.
Rabobank, a Dutch bank, anticipates a significant decline in global food price inflation after several years of surging prices. However, the bank also issued a warning that El Niño could negatively affect various crops early next year. It does acknowledge the potential for some crops to benefit, particularly those in the United States, southern Brazil, and Argentina.
Orange juice prices skyrocket 80% amid citrus crop crisis
In 2023, orange juice futures saw an extraordinary 80% surge, reaching an all-time high in late November. This spike was driven by hurricanes and diseases severely impacting citrus crops in Florida. Trader Dave Reiter from Reiter Capital Investments LLC expressed surprise at the market's performance, stating, "Occasionally, these markets exceed our wildest expectations. Did anyone predict $4.00 orange juice? The profit potential from this trade is staggering." This statement was shared on Oct. 30 via X, formerly known as Twitter. However, Reiter has cautioned that the eventual decline in orange juice prices "will be one for the record books."
The price of cocoa, a crucial ingredient in chocolate, increased by 64% in 2023, reaching 46-year highs. This rise was attributed to challenges in West African supplies due to heavy rains and issues like fungal disease.
Robusta coffee hits 15-year high in December 2023
On December 15, the robusta coffee variety hit its highest level in 15 years, while sugar prices, despite trimming gains since a 12-year peak in September, still rose by 13% throughout 2023. According to Rabobank's Mera, there is a "very clear" link between El Niño and increased sugar prices. This connection arises because the weather pattern tends to create drier-than-normal conditions in major sugar-exporting countries like Thailand, India, and Australia.
As for cocoa, Mera suggests that the impact of El Niño is expected to be "much weaker." He explains that the mechanics of the cocoa market, along with the forward selling practices in the Ivory Coast and Ghana (the world's two largest cocoa producers), mean that higher chocolate prices are unlikely to immediately affect demand or stimulate production.
Mera points out, "For example, they tend to sell the crop a year in advance. That means that the chocolate that you buy in the supermarket has probably been bought at a much lower price a year ago." Despite the surprising increase in cocoa prices, consumers may not feel the impact immediately. However, Mera anticipates that the higher costs will eventually be passed on to consumers in 2024.