RECENT extreme weather events as far as Australia and Africa are being fueled by a climate phenomenon known as La Nina — or “the girl” in Spanish. La Nina has also played a minor role in the recent cold weather in the Northeast U.S.

The term La Niña refers to a period of cooler-than-average sea-surface temperatures in the Equatorial Pacific Ocean that occurs as part of natural climate variability. This situation is roughly the opposite of what happens during El Niño (“the boy”) events, when surface waters in this region are warmer than normal. Because the Pacific is the largest ocean on the planet, any significant changes in average conditions there can have consequences for temperature, rainfall and vegetation in distant places.

Scientists at the International Research Institute for Climate and Society (IRI), part of Columbia’s Earth Institute, expect moderate-to-strong La Niña conditions to continue in the tropical Pacific, potentially causing additional shifts in rainfall patterns across many parts of the world in months to come. These shifts, combined with socioeconomic conditions and other factors, are making some countries more vulnerable. However, La Niña and El Niño conditions actually allow for more accurate seasonal forecasts and help better predict extreme drought or rainfall in some areas. That’s because they affect global atmospheric circulation patterns in known ways, and scientists can use this knowledge to help societies prepare better, issue early warnings and reduce any negative impacts associated with them. Based on current observations and on predictions from models, we see at least a 90 percent chance that La Niña conditions will continue through March.

Climate scientists have found La Niña’s fingerprints on a number of extreme weather events such as the devastating flood that occurred in Pakistan in 2010, as well as flooding in West Africa, South Africa and most recently in Queensland, Australia, where an area equal to the combined size of France and Germany was underwater. La Niña is also to blame for Cyclone Yasi, one of the strongest to hit Australia, which came ashore on Feb. 2. Cyclone Yasi is the second most damaging Australian cyclone on record after Cyclone Tracy, which struck in 1974.

In addition to extreme rainfall, La Niña can lead to drought conditions. Currently in East Africa, it has caused drier-than-usual weather, sparking food-security concerns in areas lacking irrigation, including parts of Somalia, Kenya, Ethiopia and Tanzania. Parts of South America, Asia and the southern U.S. may also see lower rainfall for the first quarter of 2011.

Since 1950, the world has experienced six major La Niña events, wreaking havoc in countries around the world. In 2000, for example, floods associated with La Niña affected 400,000 people in southern Africa, caused at least 96 deaths and left 32,000 homeless. La Niña conditions typically persist for 9 to 12 months, peaking sometime during the end of the year.

Last year’s transition from El Niño to La Niña was about the most sudden we’ve ever had. When we had rapid flips like this in the past, we sometimes ended up having a two-year La Niña, such as right after the El Niño episodes of 1972 to 1973 and 1997 to 1998. Even if we do have a second year of La Niña developing in northern summer 2011, we expect at least a brief return to neutral conditions from May to July of 2011.

Energy, Food Prices, and Chinese Economy among Likely Casualties
While Australia is reeling from the immediate impact, the broader impact of 2010-11 weather patterns may have much bigger ramifications for food and energy prices in Australia and abroad. Super La Niñas are hugely disruptive to agricultural production and can have other nasty knock-on effects (some contend the 1917 La Niña helped spawn the 1918 influenza pandemic). In this case, the damage of a super La Niña will not only increase food costs at a time when price rises and food scarcity are already a major concern, but will likely extend to energy prices as well. That one-two punch would be particularly devastating to China.

In Australia, fruit and vegetable prices are projected to increase 30% this year as a result of La Niña. And recall Australia is a major agricultural exporter, so production shortfalls there will hit other markets. Super La Niñas tend to impair food output overall. 2007-8 saw a borderline super La Niña, and we saw sharply higher food prices in the first half of that year. The UN’s Food and Agriculture Organization reports that staples are already more costly than at any time in 2008.

A particularly strong La Nina weather pattern of cooler water temperatures is fueling heavy rains and floods in Australia, Sri Lanka and Brazil. This La Niña has strengthened for the past seven months, and is one of the most intense events of the past half century. Australia’s third-largest city Brisbane was turned into a “war zone” with whole suburbs under water and infrastructure smashed as the worst flood in decades hit 30,000 properties. Officials said, the number of people killed in Sri Lanka’s monsoon flooding and mudslides have risen to 27 with more than a million people still displaced by the devastating disaster. In Brazil, authorities have stated that more than a thousand people have been left without homes and 71 lost their lives in Teresopolis alone.
Compounding tight grain supplies are declining wheat-crop conditions from Australia to the U.S., after droughts and flooding limited output last year in Russia, Ukraine and Canada. On Feb. 15, Australia cut its forecast by 1.9 percent from December after heavy rain and flooding in the east. It is going to take two years of good weather and good yields to fully return to optimal supply level. There is absolutely no room for any weather problems anywhere in the world this year.

Australia Floods: La Niña to Blame
The devastating flooding in Queensland is the result of Australia being in the grip of an unusually strong “La Niña”, a periodic climate phenomenon that brings more rain to the western Pacific, and less to South America along the eastern Pacific. The Queensland floods are caused by what is one of the strongest – if not the strongest – La Niña events since our records began in the late 19th century. The La Niña is associated with record warm sea-surface temperatures around Australia and these would have contributed to the heavy rains. Warmer oceans produce damper air and hence more rain. This is driven onshore by the stronger east-to-west trade winds characteristic of La Niña.

These weather patterns led to December being the wettest ever recorded in Queensland and to Australia having its third wettest year. The Australian Bureau of Meteorology predicts that La Niña is likely to persist into the southern hemisphere autumn, raising the possibility of further torrential downpours.

This is one of the strongest La Niña events in the past half century. Impacts include heavy rains and flooding, which has damaged crops and flooded mines in Australia and Asia. It also has resulted in flooding in northern South America and drought conditions in Argentina. This powerful little lady is spreading her curses and blessings across the planet.

A silver lining in the storm clouds brought by La Niña is the relief of the decade-long drought much of Australia has endured. There was a dramatic recovery in water storages across the Murray-Darling Basin in eastern Australia from 26% full at the start of 2010 to 80% at the start of 2011. However, elsewhere in the country, south-western Australia suffered its driest year on record in 2010, continuing decades of drying.

The extent to which any of this – the floods, warm oceans, or very strong La Niña – is linked to global warming is unknown, because the requisite studies to test this have simply not been done yet. However, as a general point, a warmer world is a wetter world. As the average global temperature increases one would expect the moisture content of the atmosphere to rise, due to more evaporation from the sea surface. For every 1C sea surface temperature rise, atmospheric moisture over the oceans increases by 6-8%. Also in general, as more energy and moisture is put into the atmosphere [by warming], the likelihood of storms, hurricanes and tornadoes increase.

Grain Supply Affected as Victoria Flooding Disrupts Rail
Wheat exports from Australia, the fourth-biggest shipper, may be curbed as floods in Victoria state add to transport disruptions in the country’s north amid continued harvest problems. Logistical issues and price premiums for Australian wheat could reduce the December export forecast of 14 million metric tons in 2010-2011.

Heavy rainfall has inundated Victoria, following flooding in Queensland that devastated homes, destroyed crops, closed mines and killed at least 28 people in the past six weeks. Record wet weather in the second half of last year, linked to a La Nina event, cut crop quality and delayed harvesting.

The issues that have been encountered since November last year have contributed to Australian wheat being the most expensive in the world for prompt delivery, and that does reflect the harvest delays, the quality declines and the production losses that have been the direct result of La Nina. Australia may ship 13.5 million tons of wheat in the year ending Sept. 30, the U.S. Department of Agriculture forecast on Jan. 13, down from its previous estimate of 15 million tons and compared with its estimate of 14.8 million tons in the past year.

Quality Hurt
Grain supplies from Australia’s Victoria state will be disrupted by the latest flooding, with the effect on rail infrastructure still unclear. The quality of unharvested grain is also likely to be hurt by rain in Victoria and southern New South Wales. Victoria, where harvesting is almost completed, may produce 4.4 million tons of wheat this season, according to a forecast by the Australian Bureau of Agricultural and Resource Economics and Sciences, making it the third-largest producing state after New South Wales and South Australia. In Queensland, the fifth-largest producing state, rail deliveries to the Fisherman Islands shipping terminal in Brisbane will continue to be disrupted.

Toowoomba Repairs
Infrastructure repairs on the Toowoomba line may take up to three months to complete, limiting grain deliveries to Fisherman Islands to road-only. Flooding in Victoria is affecting 43 towns and 1,400 properties, according to emergency services. Horsham, a town 300 kilometers (186 miles) northwest of Melbourne, may experience the worst flooding on record in Victoria. This really just compounds what’s been an extraordinarily frustrating harvest campaign for eastern Australia’s grain industry. The National Australia Bank Ltd. maintained its 24 million-ton forecast for the country’s total wheat crop. Less grain was downgraded to feed wheat than previously expected, it said in a report e-mailed Jan. 14.

Why a Flooded Australia Will Probably Boost Soaring Energy and Food Prices
With each new incident of record monsoon floods, fires and earthquakes, more tremors shake the global economy. Flooding in Australia has roiled Asia-Pacific markets for coal, cotton, wheat and sugar. If weather events are increasingly disastrous in the world’s bread baskets, global warming could result in a familiar and worsening pattern: periodic collisions between Asia’s seemingly limitless demand for goods and the world’s supply of basic agricultural and energy commodities. That could send average commodity prices significantly higher, limiting economic growth and, perhaps, affecting the appetite for burning coal.

The floods would trim at least two-tenths of a percent off of Australia’s projected 2011 gross domestic product. Queensland is the largest exporter of coal for making steel. Nearly all of the mines are closed, and seaborne coal prices are approaching record highs.

The biggest jolt to world commodity prices probably hasn’t hit yet. They’ve pushed out most of the stockpiles, referring to coal, grain and sugar stored at the coastal ports. The rest is trapped inland, where the floods have held up rail deliveries. In the next few weeks, we’ll see a lot more disruptions to prices.
China is Australia’s biggest export market. With the U.S. economy gradually recovering and China’s economy still burning red hot, economists expected Australia’s economy to get a lift in 2011. The heavy rains have left an indelible mark on the nation’s wheat industry, the world’s fourth-largest exporter of that crop.

A 1.5 million-ton wheat shortfall
The U.S. Agriculture Department estimated yesterday that water-logged fields have given rise to lower-grade wheat, tamping down that country’s exports by an estimated 1.5 million tons. Much of that number is expected to translate into more wheat being used for animal feed.

There are still sufficient supplies of global wheat, but things are tight. If there is another natural disaster somewhere else, that will put more pressure on the remaining crops and that could be a problem. Overall, USDA is expecting a 0.5 million-ton drop in Australia’s production from last month, placing the country’s final output figure at 13.5 million tons. Only part of the country’s supply has been hit, and much of the affected croplands have not been wiped out completely. Still, investors are worried, and their fears are playing out in future prices.

Queensland counts Cost of Floods
There was a wall of water that reached more than 21 feet in some parts and it was more than half a mile across. It ripped houses from their foundations. Queensland’s floods, now into their second month and spreading south to New South Wales, will go down as one of the worst natural disasters in Australian history. Brisbane, the country’s third most populous city, narrowly escaped a repeat of the devastating floods of 1974 but low-lying suburbs and parts of the central business district are shut down, awash in sewage- tainted waters. The floods mark a devastatingly costly start to 2011 for the so-called “lucky country” that is known more commonly for enduring prosperity and a wealth of natural resources.

Australia’s normally resilient economy could lose as much as A$13bn ($12.8bn) from the floods, economists estimate, with big hits to the mining and agricultural sectors, the country’s biggest export earners, and crippling damage to transport networks.

Australia Economy to Recover Flood Damage in Second Half of 2011
Australia’s robust economy will overcome the impact of catastrophic floods by the second half of the year as coal exports from deluged Queensland state recover, according to the central bank. The bank said it would look through the effects of flooding in coal mining-rich Queensland state over the past six weeks and keep policy focused on containing the country’s mining boom and a fast-tightening labour market.

While the floods in eastern Australia are expected to have a material effect on the near-term quarterly profile of economic activity, the medium-term outlook for the economy is broadly unchanged, the Reserve Bank of Australia said in its quarterly Statement on Monetary Policy. Growth in the June quarter is forecast to be boosted as coal production recovers and as households and firms in flood-affected areas begin to replace damaged household items and machinery and equipment.

The floods, spawned by the La Nina weather pattern caused billions of dollars of damage and were expected to cut economic growth by 0.5 percentage points in the December and March quarters. The economy will bounce back later in 2011, with growth expected to hit 3.25 percent in mid-2011, down only slightly from a November forecast of 3.5 percent.

The bank left its forecasts for growth and inflation broadly unchanged, projecting economic growth at an above-average pace of around 3.75 to 4.0 percent over the period to June 2013. Underlying inflation was expected to stay below 3.0 percent — the top end of the central bank’s interest rate-sensitive target band – until the December quarter of 2012. The RBA noted however that its upbeat forecast could be derailed as the impact of the extreme weather is an important source of near term uncertainty.

Brazil’s Heaviest Rainfall in Four Decades Adds to Inflationary Pressures
The heaviest rainfall in Brazil since 1967, already a disaster that has killed 741 people, is adding to the fastest inflation in two years. Storms that dropped at least 17.6 inches of rain this month in the hardest-hit areas triggered mudslides that washed away highways and damaged crops, igniting concern food prices may rise as much as 17 percent in the first quarter. The shock in food prices caused by rains is hitting an already heated economy. The central bank will certainly take this into account because inflation expectations are worsening.
A spike in vegetable and fruit prices could make it harder for new central bank President Alexandre Tombini to fight inflation being pushed by robust domestic demand and higher commodity prices. The deadliest natural disaster in Brazil’s history will test the resolve of President Dilma Rousseff, who took office Jan. 1 vowing to restrain spending. Policymakers raised the benchmark interest rate 50 basis points to contain inflation economists predict will exceed their 4.5 percent target in 2011. Yields on interest-rate futures due in July have increased 25 basis points to 11.91 percent, since the rains that hit Brazil every year during the Southern Hemisphere’s summer intensified two weeks ago.

Food Shortages
In Rio, supermarkets and restaurants reported food shortages after mudslides crushed entire neighbourhoods in the cities of Petropolis, Teresopolis and Nova Friburgo last week. The area, which supplies 40 percent to 60 percent of the city’s vegetables and dairy products, needs 2 billion reais ($1.2 billion) to rebuild, mayors from the three cities said Jan. 17. The Rio de Janeiro Industrial Federation estimates damages will cost companies 153.4 million reais. While less deadly, flooding in Sao Paulo, the country’s biggest agricultural-producing state has been just as severe.

Production of lettuce, broccoli, watercress, cauliflower and other items fell around 20 percent in the state after the rains destroyed or reduced the quality of crops. Vegetable prices jumped 60 percent this month and will continue to rise until rains subside in March. Export crops – soybean, sugar and coffee – are unlikely to be affected, either because harvests haven’t started or rain in growing areas is less severe, according to farm groups including Cooxupe, the nation’s largest coffee cooperative. Brazil is the world’s largest producer of coffee and sugar, and the second-largest producer of soybeans after the U.S.

‘Serious Problems’
There are going to have serious problems with vegetables and fresh foods. The impact of this event is not yet fully known. Consumer prices jumped 5.91 percent last year, the biggest yearly gain since 2004 and the fastest annual pace in 25 months. The cost of food and beverages in Brazil rose 10.39 percent last year.

The impact of the flooding may be magnified in the central bank’s monitoring of inflation because Rio and Sao Paulo have a combined 46.7 percent weighting in the index. Food and beverages is the biggest component, accounting for more than 22 percent of the monthly price survey. The floods are testing Rousseff’s commitment to contain the budget and make a clean break from her predecessor Luiz Inacio Lula da Silva’s spending increases.

Fiscal ‘Slippage’
Markets are looking for clues over whether she adheres to the Lula game plan. A policy response to the disaster that increases government spending would be a warning sign that there’s a fiscal policy slippage.

The government plans to invest $6.7 billion in a program to help prevent floods. The program to boost spending on slope stabilization and improve drainage systems will be part of the Growth Acceleration Program, a $570 billion investment drive that will be carried out through 2014. Brazil will also create an early warning system to alert and evacuate people in high-risk areas ahead of floods. The government will make considerable budget cuts to open room for lower interest rates. The government likely failed to meet its budget target last year even as the economy expanded an estimated 7.3 percent, the fastest pace in two decades.

‘Very Small’
The cost to Brazil’s $1.6 trillion economy has so far been contained. Rousseff’s pledge of 780 million reais in aid to Rio de Janeiro amounts to around 1 percent of average monthly federal tax collection last year. The World Bank has agreed to lend Rio $485 million to rebuild homes and relocate families.

The government may have to cut from other areas, but the fiscal cost is not a concern. These emergency expenditures are very small. More than a budget breaker, the natural disaster is a psychological blow to the country’s ambitions to reach developed-world status, said Leonardo Barreto, a political science professor at the University of Brasilia. The lack of disaster response planning and prevention – even after warnings were sounded in the wake of two other weather-related tragedies in Rio last year — should serve as a wake-up call as the country prepares to host the 2014 World Cup and 2016 Olympics.

Christchurch Quake in New Zealand Wrecks City
Christchurch was rocked by the deadliest earthquake to hit New Zealand in 80 years, killing at least 65 people, toppling buildings, trapping office workers and ripping apart sidewalks and roads. The death toll from the magnitude 6.3 earthquake, the strongest since September when the city was shaken by a 7.0 magnitude temblor, is likely to rise. The quake sent office workers in the country’s second-largest city fleeing into streets covered in shattered glass, paper, bricks and broken concrete. The nation’s currency, known as the kiwi, dropped for the first time in five days. New Zealand’s dollar dropped to 74.93 U.S. cents, the least since Dec. 28, before trading at 75.01 U.S. cents. It fell 1.6 percent to 62.49 yen, the biggest slide since Nov. 23 and also the weakest since Dec. 28.

Economic Costs
The impact of the earthquake was capable of condemning the New Zealand economy to another year of anemic growth due to forces beyond its control.

‘Darkest Day’
The country’s economy was hobbled before yesterday’s quake. New Zealand’s retail sales fell 0.4 percent in the fourth quarter, matching the decline during the previous quarter in which gross domestic product shrank 0.2 percent. The government’s GDP report for the final three months of 2010 is scheduled to be released March 24.

Consumer confidence slumped to a 19-month low this month, weighed down by more pessimism about personal finances and the economy’s performance in the next year, a private survey showed last week.
Two straight quarters of shrinking GDP – a standard definition of a recession – would make New Zealand the first country with a Group of 10 currency to slide back into a contraction since the end of 2009.

2012 Tightening
Our view is that the Reserve Bank won’t be hiking interest rates this year; they’ve pushed our rate hike out until 2012. The quake hit just as residents and businesses in the Christchurch area were starting to rebound from last September’s quake. An aftershock Dec. 26 cut short annual “Boxing Day” shopping sales, so retailers held them again on Feb. 12 to try to recoup lost revenue.

The recovery continues to face headwinds from households shunning spending in favor of saving and reducing debt. These tragic events could exacerbate this trend, condemning the New Zealand economy to another year of anemic growth due to forces beyond its control.

New Zealand Dollar Slumps to Year’s Low after Christchurch Earthquake
New Zealand’s dollar slid to the lowest this year against the U.S. currency after a magnitude 6.3 earthquake caused multiple deaths and toppled buildings in Christchurch, the nation’s second-largest city. The so-called kiwi slid versus all 16 of its major counterparts as buildings around the city were damaged by the temblor, which followed a quake in September that was the worst in 80 years. The New Zealand and Australian dollars also declined as investors sold higher-yielding assets on concern over escalating tensions in the Middle East as Libyan soldiers deserted in protest over a government crackdown.

The risk is that we see the market price out tightening from the Reserve Bank. The earthquake has caught the market in a risk-averse mood anyway with the yen strengthening and oil prices rising on tensions in the Middle East. New Zealand’s dollar dropped to 74.93 U.S. cents, the least since Dec. 28, before trading at 75.01 U.S. cents. It fell 1.6 percent to 62.49 yen, the biggest slide since Nov. 23 and also the weakest since Dec. 28. Australia’s currency declined to $1.0029 from $1.0094 and fell 0.4 percent to 83.56 yen. The cost to lock in fixed interest rates in New Zealand instead of floating payments for two years fell by the most since July on speculation the Reserve Bank will keep its key rate unchanged for longer as the nation’s recovery stumbles.

Swap Rates
New Zealand’s two-year swap rate, which is sensitive to interest-rate expectations, fell to 3.66 percent from 3.82 yesterday. The kiwi may slide to 74 cents and NZ$1.3450 per Australian dollar over the next few days. It was at NZ$1.3375.

Damage and disruption from the earthquake may lower New Zealand’s first-quarter gross domestic product to “about flat” from the 0.8 percent he forecast previously. The central bank will likely raise its benchmark rate by 25 basis points this year to 3.25 percent, he said, cutting an earlier estimate for three rate increases beginning in April.

GDP Boost Delayed
Having the second earthquake so soon after the first one really slows the reconstruction process.  So it’s more like 2012 before we see the lift in GDP from that. The central bank may be on hold for all of 2011 and possibly the first quarter of 2012. Investors cut their prediction for the amount of interest rate increases from the Reserve Bank of New Zealand over the next 12 months to 28 basis points today from 50 basis points.

New Zealand Quake Costs Mount
As the world watched on in horror at the escalating human cost of the calamity, Australia’s major insurers – already grappling with the fall-out from the Queensland floods and Cyclone Yasi – were scrambling to prepare for another mountain of claims.

It was difficult to estimate the damage bill at this early stage, as many of the buildings destroyed in the aftershock were harmed in the original earthquake in September. There’s no question there will be increased costs, but this one is more difficult to ascertain as many of the buildings destroyed were already partially destroyed.

The second earthquake was more confined, whereas the original earthquake spread out to the suburbs. The original earthquake caused about $NZ1.5 billion in damage. The New Zealand government’s Earthquake Commission provides compensation of up to $NZ100,000 for damaged buildings and $NZ20,000 for contents but insurers are liable to pay out customers whose claims exceed this amount.

La Niña gathers herself to upset Crop Prices
The recurring weather phenomenon, caused by a fall in water temperature in the tropical Pacific, could alter rainfall and temperature patterns across some of the world’s most important tracts of agricultural land. Meteorologists say La Niña conditions have begun and are likely to strengthen throughout the rest of the year to a climax around December – meaning that the greatest impact is likely to be felt in the southern hemisphere breadbaskets of Argentina, Brazil, South Africa and Australia. The current La Niña comes on the back of the strongest El Niño since 1997, which dissipated in May. It caused widespread drought, making the first seven months of 2010 the hottest on record and pushing up the price of raw materials such as sugar and rubber.

The past two months have demonstrated the power of weather events to move commodity markets. Until the Black Sea region grain crop was ravaged by drought, hedge funds saw apparently easy profits in betting that prices of grains such as wheat would continue to fall. Since then, the cost of wheat has soared 60 per cent, and the corn price is up more than 20 per cent.

While La Niña may increase production of some crops in some regions, such as corn in South Africa, investors are more likely to focus on the potential shortfalls it could cause. More than anywhere, investors will be looking to Argentina, where La Niña could bring dry weather and reduce yields. The country is the world’s largest exporter of corn after the US, and the third-biggest soyabean exporter.
La Niña weather patterns “correlate strongly” with below average wheat yields in Argentina. La Niña’s effects will be felt beyond South America. In the US, it is associated with a more active Atlantic hurricane season, which meteorologists expect to pick up in the coming weeks, disrupting oil and gas production and lifting prices. It is also associated with a stronger monsoon season in Asia, which has already hampered production of commodities as diverse as palm oil and tin in Indonesia.

The likely effects on production
* Wheat: Dryness might reduce Argentine wheat crop. Eastern Australia could benefit from more rain, but that is unlikely to help the west of the country, struggling with dry conditions.
* Corn: Drier conditions than usual could cut the corn crop in Argentina and southern Brazil. But that would be partially offset by good rainfall in South Africa.
* Soyabeans: Dry conditions in Argentina and southern Brazil may be offset by good growing conditions in central Brazil.
* Coffee: Rains may begin late in Brazil, the world’s largest grower, but will produce a deluge when they do come, making production hard to predict. Indonesian and Vietnamese output may fall on the back of heavy rains.
* Oil: More active Atlantic hurricane season likely to increase prices.
* Natural gas: More active hurricane season could give prices a lift in the near term, but a milder Northern Hemisphere winter would reduce demand from central heating users.

Ministry of Agriculture