From coffee to ethanol: how El Niño could affect Brazil in 2023

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UN agency sees 55% chance of the phenomenon returning in June, raising global temperatures. In Brazil, it may affect the production of grains, sugar cane and other sectors. UN agency sees 55% chance of El Niño returning in June Getty Images The World Meteorological Organization (WMO), specialized agency of the United Nations (UN) for meteorology, warned on March 1 of a possible return this year of the atmospheric phenomenon El Niño. According to the agency, there is a 15% probability that El Niño will return between April and June. The odds rise to 35% between May and July, and are 55% from June to August. El Niño causes unusual warming of the waters of the Pacific Ocean in the equatorial part, raising global temperatures. In the last three years, the world has been under the influence of La Niña, which cools the waters of the Pacific in the same region and contributed to temporarily curb the increase in temperatures on the planet, according to the secretary general of the WMO, Petteri Taalas – even though the last eight years have been some of the warmest on record. The last time the world faced a strong El Niño was between 2015 and 2016. That was the second most powerful El Niño since 1950, behind only those that occurred in 1997 and 1998. Under the influence of the phenomenon and climate change, the year 2016 was the hottest on record, according to the WMO. In Brazil, the El Niño in that two-year period intensified the drought in the Northeast and caused prolonged drought in the North, central-north of Minas Gerais and Goiás and in the Federal District. In addition, there were heavy floods in the South, and impacts on the electricity sector and food production. And now? What can come ahead in Brazil with the return of El Niño? Understand how the phenomenon can influence from coffee to the ethanol that fuels the car. How El Niño affects the climate in Brazil The “Niño” that gives its name to the phenomenon is none other than the baby Jesus (el niño Jesús, in Spanish). The weather event got its name because it was first identified by fishermen in Peru and Ecuador around Christmas time. “El Niño and La Niña are two opposite phases of the same phenomenon, which we call the El Niño Southern Oscillation [ou ENSO, na sigla em inglês]”, explains Vinícius Lucyrio, meteorologist at Climatempo. Warming and cooling of the equatorial Pacific between 1950 and 2022 UNIFEI METEREOLOGY “It is a phenomenon that combines oceanic and atmospheric conditions. In other words: it is the ocean directly influencing atmospheric conditions.” El Niño is the warm phase of this phenomenon, which brings warmer waters to the equatorial zone of the South Pacific, on the north coast of Peru and Ecuador, extending to the south of the imaginary line almost to Oceania. This is due to a weakening of the trade winds, a system of winds that blow from east to west in the equatorial region, explains Lucyrio. La Niña is the cold phase of the phenomenon, with temperatures below average in the waters of the South Pacific, under the effect of strengthened trade winds that favor the upwelling of colder deep waters off the coast of Peru and Ecuador. the most superficial areas”, he observes. In Brazil, La Niña affects rainfall in both extremes of the country. In the South, they are more irregular, favoring periods of drought and drought. In the North and Northeast, there is an increase in rainfall. precipitations, mainly between August and February. La Niña also brings below-average temperatures to the country, by favoring the passage of cold fronts. This helps to explain, for example, the milder summer this year in the Southeast, observes the Climatempo expert. El Niño, on the other hand, brings warmer weather throughout Brazil, especially between the end of winter and summer. And, in the rains, the signal is reversed. In the North and Northeast, rainfall tends to be below average, while in the South, it is above. “There could be severe floods and soaked soil in the South, causing damage to agricultural production”, says Lucyrio, pondering, however, that productivity in the region could also benefit from the greater amount of rainfall. According to the meteorologist, the models indicate a probability above 60% of occurrence of El Niño in the period of June, July and August. And the transition between La Niña and El Niño is expected to happen faster than the historical pattern. In red, the probability of El Niño; in blue, from La Niña; in gray, the neutral phase, according to the quarters, with the initial of each month (eg: FMA = February, March and April) IRI/CPC Impacts from coffee to ethanol Analysts are cautious in pointing out possible impacts of El Niño on agricultural production Brazil, since it is still not possible to know the intensity of the phenomenon that may start this year. But based on the occurrence of the weather event in the past, it is possible to get some clues. One of the crops that could be affected is coffee, according to Natália Gandolphi, an analyst at consultancy HedgePoint Global Markets. ‘El Niño has historically negatively affected coffee production in Brazil’, says analyst Getty Images in mid-2022, according to the Brazilian Institute of Geography and Statistics (IBGE), under the effect of droughts and frosts that affected the harvest. Since then, coffee inflation has lost strength, but the product never returned to the previous price level, with the 500g package sold at an average price of R$ 15.48 at the end of 2022, according to the Procon-SP Foundation . “Overall, when we look at El Niño events, there is an average 5% reduction in [café do tipo] Arabica”, says Gandolphi, an analyst at HedgePoint specializing in this product. This happens, according to her, because El Niño causes a warmer winter, harming the vegetative development of the coffee tree. The flowering period, after September, and of growth, fruit development and maturation can also be impaired by higher temperatures, says the expert. “El Niño has historically negatively affected coffee production in Brazil and this is a bullish factor [para os preços do produto]. But, today, the outlook for the 2024-2025 harvest, which would be affected by El Niño, is very good”, he ponders. In the sugarcane crop, the peak of the harvest in Brazil occurs between April and August. ” If a strong El Niño comes along, it could lead to a wetter winter. This is bad for the rhythm of the sugar harvest, because, if it rains too much, the mills cannot grind”, explains Lívea Coda, sugar and ethanol analyst at HedgePoint. ‘A climatic event that affects crushing affects both sugar and ethanol’, says analyst Getty Images “It is also bad for the concentration of sucrose, because, at this stage of sugarcane development, if it rains a lot, it becomes more ‘watery’, with a lower concentration of sugar. So, it could be bad for the 2023-2024 crop in Brazil”, says Coda. According to her, if the phenomenon extends from December to February, precipitation in the Center-South may decrease, mainly in the north of São Paulo, Minas Gerais, Goiás and Mato Grosso, compromising the next harvest. “If there is a climatic event that affects milling, it affects both sugar and ethanol. If there is a very strong El Niño, which disturbs the rhythm of the harvest, it may have an impact on the total availability of the product, and this is inflationary pressure on prices”, he explains. “But there would need to be a very strong event, very relevant, to this happens and we actually have a problem in the Brazilian sugarcane crop.” Grains and animal protein Pedro Schicchi, grain and animal protein analyst at the consultancy, explains that a more humid winter could be beneficial for the winter corn crop in Mato Grosso and Goiás. ‘A greater production of corn may reduce the cost of feed for chicken and pork producers’, says analyst Getty Images the grain in the Midwest, due to the drier weather. “If the rain really comes and we have greater corn production, this could reduce the cost of feed for chicken and pork producers”, says Schicchi. “For cattle , the rain enlarges the area and pasture, so the effect can also be positive.” But this may not necessarily impact the final consumer, says the analyst. “It may be that this cost reduction is not passed on for several reasons, such as the high export volume, devalued real. So, this interacts with other market factors.” And the electricity sector? In Brazil, the main hydroelectric reservoirs are located in the Southeast and Central regions of the country. “For the electricity sector, La Niña is generally better, because it favors the formation of a convergence zone in the South Atlantic and stationary fronts in these regions”, explains meteorologist Filipe Pungirum, Master in Climate from the Federal University of Rio de Janeiro (UFRJ) . “El Niño favors warmer and drier weather in the central-north portion of the country and, therefore, is not usually positive for the maintenance of energy reservoirs.” Furnas reservoir currently operates with a useful volume of 96%, according to ONS Divulgation/Eletrobras By region, the reservoirs in the North, Northeast and Minas Gerais are usually harmed by a strong El Niño, while the South is benefited – but the region has few reservoirs . The phenomenon also tends to raise temperatures in capital cities, putting pressure on demand, as air conditioning has become the main factor in the peak of national electricity consumption. The meteorologist considers, however, that the country’s reservoirs are in excellent shape. According to the National Electric System Operator (ONS), reservoirs in the Southeast and Midwest ended February at levels above 70%, the highest level since 2012. While in the South and Northeast, levels are above 80%, and in the North , by almost 100%. “Even if this next El Niño is very rigorous and we have little rain, it will not be as serious as in the last crises”, believes the specialist. – Text originally published in

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