The strength of the current event is inspiring comparisons with 1973-76, when several years of La Niña conditions triggered severe droughts and pushed the world into the most extreme food crisis since the second world war.

One measure of La Niña's strength, the Southern Oscillation index, rose to its highest level since 1973 in December, the Australian Bureau of Meteorology said. Neil Plummer, a climatologist for the bureau, says the current event is shaping up to be the most powerful since the 1970s: "It is a very strong event."

Of most immediate concern to the markets is a dry spell in Argentina and southern Brazil that threatens soyabean and corn crops in the countries, which together account for 45 per cent and 26 per cent of global exports respectively.

And:

Of more long-term significance is the chance that an extension of La Niña into the northern hemisphere summer could cause a drought in the US.

"We're just starting to hear more interest in that," says Joel Widenor, director of agriculture for Commodity Weather Group, a consultancy. "More of the models have been starting to show an increasing threat of a multiple year event. If you get a La Niña lasting into the summer, I don't think there's any debate that's not a good thing for crops in the US."

Drew Lerner, president of World Weather Inc, a Kansas City-based forecaster, says La Niñas "have traditionally removed rainfall from North America weather in the summer growing seasons and they have tended to produce a warmer temperature pattern as well". The US suffered a severe drought in 1974 during the multiyear La Niña of the mid-1970s.

But the outlook is unclear beyond the spring, and impossible to forecast with accuracy. The Australian Bureau of Meteorology expects La Niña to weaken through the spring, though Mr Plummer notes there are "no signs yet that it's dramatically weakening".

David Fuller's view Subscribers have been reading about the La Niña problem for nearly a year, not least in the excellent Browning Newsletter, written by Evelyn Browning Garriss and published by Fraser Asset Management. Here is a link to her December letter and we should have the January 2011 issue before long.


I certainly remember the 1973-1976 spikes in commodity prices, as will some veteran subscribers. The surge in resources prices during 1H 2008 and 2H 2010 have been significant but nothing like 1973-1976, to date. Gains of a similar magnitude, should they occur this year, would have significant consequences.

Briefly, if 2011 or any other future period were to rhyme with the La Niña experience of 1973-1976, I would expect to see a global inflation scare due to higher commodity prices, higher short-term interest rates from central banks in response, weaker bond prices due to higher yields, weaker GDP growth, and a potentially significant correction for stock markets. Commodity prices would then fall back sharply as La Niña subsided, demand weakened and agricultural crop yields improved.

Hopefully, we will see more benign conditions, in which case equities would most likely remain the best performing asset class. Government bonds would still underperform due to oversupply. Industrial commodities would mainly be firmer in line with GDP and population growth. Agricultural commodity prices could subside where improved crop yields were anticipated.

The above is my conjecture because one can only guess as to how all this will play out, not least regarding La Niña. Price trend action will continue to be our best guide. There should be plenty of opportunities, as always. We should also expect some rock and roll volatility, without frightening ourselves unduly. It is part of the excitement of markets.

The safest forecast I can make is that no situation is as good as its cheerleaders predict, or as bad as doomsters claim.