El Niño and La Niña: How a Pacific Cycle Moves Crop Prices
Published · 2 min read
Every two to seven years, the surface of the central and eastern tropical Pacific warms (El Niño) or cools (La Niña) for several months. The shift, known together as ENSO, moves rain belts across the globe, making droughts and floods more likely in specific farming regions. Weather agencies such as the US NOAA and Australia's Bureau of Meteorology track it and declare when an event has started - and grain, oilseed and soft commodity markets watch those outlooks closely.
El Niño: dry in Asia and Australia
El Niño tends to bring drier weather to Australia (wheat, barley, canola), Indonesia and Malaysia (palm oil) and India, where it can weaken the monsoon that rice, sugar cane and pulses depend on. In 2009, an El Niño turned India's monsoon patchy, bringing the worst drought in nearly four decades and helping push world sugar prices to their highest in almost 30 years. Palm oil reacts with a delay because the trees take months to set fruit: after the strong 2015-16 El Niño, Malaysia's output fell 13% in 2016. The drought behind the 2023-24 cocoa price surge in West Africa was also linked to El Niño. In contrast, it often brings welcome rain to Argentina and southern Brazil.
La Niña: dry in the Americas
La Niña roughly reverses the pattern. It raises the risk of drought in Argentina, southern Brazil and the southern US Plains, where hard red winter wheat grows, while Australia and Southeast Asia tend to be wetter. Argentina's 2022/23 season, the third La Niña year in a row, showed how costly that can be: its soybean harvest fell to about 25 million tonnes, from 43.9 million the year before.
What it means for prices
ENSO shifts the odds, it doesn't decide the weather - some El Niño years pass with normal harvests in the regions most at risk. Because markets trade on expectations, prices often move when forecasters raise the chance of an event, months before any harvest is measured, and fall back if the rain comes after all. For palm oil and tree crops the supply effect can last into the following year. How weather risk feeds into prices in general is explained in Weather and Price Risk; the current outlook is published by NOAA's Climate Prediction Center and Australia's Bureau of Meteorology.
Current prices for this topic
Frequently Asked Questions
- How often do El Niño and La Niña occur?
- Irregularly, roughly every two to seven years, and each event usually lasts nine to twelve months; between them come neutral periods.
- Which crops are most exposed to El Niño?
- Crops in Australia, India and Southeast Asia, where it tends to bring drought: wheat and canola in Australia, rice, sugar and pulses in India, and palm oil in Indonesia and Malaysia, which reacts with a lag of several months.
- Does La Niña always mean drought in Argentina?
- No, but it raises the risk. Argentina's 2022/23 soybean harvest fell to about 25 million tonnes after three La Niña years in a row, down from 43.9 million the season before.