[CommSec Research]La Niña weather event still dominates

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La Niña weather event still dominates

La Niña update

¾ Our last update on the La Niña weather event was published on February 14. At that time the Southern Oscillation index hit an 11-week low of +16.6 on February 11, but it promptly rebounded. The SOI now stands at +22.2. Any reading above +8 indicates that a La Niña weather event is in force.

¾ The current La Niña event is the most significant since 1917 and is having widespread effects on the economy and the broader community. La Niña events are associated with wetter conditions across eastern and northern Australia as well as increased prevalence of cyclones.

¾ The Bureau of Meteorology releases its next climate update on March 30.

What does it all mean?

· La Niña is still very much in force. Clearly that has been in evidence in Sydney over the weekend with the highest 24-hour rainfall in 3½ years. But Central Queensland has also been subjected to significant rainfall over the past two weeks.

· A raft of businesses – especially retailers relying on seasonal purchases – can’t afford not to constantly keep a watch on the progression of the current La Niña weather event. Unfortunately while increased frequency of rain days may appear positive during autumn, daytime and night time temperatures remain mild, thus crimping demand for seasonal purchases.

What do the figures show?

· The Bureau of Meteorology (BOM) tracks the Southern Oscillation Index (SOI) as a means of defining El Niño or La Niña. The SOI measures differences in air pressures between Tahiti and Darwin. Consistent readings of the SOI above +8 indicate a La Niña event – associated with cooler, wetter weather in eastern and northern Australia and an increase in tropical cyclones in northern Australia. The current La Niña event is the strongest since 1917/18. The current La Niña climate event began in July 2010.

· The 30-day average of the Southern Oscillation index fell to an 11-week low of +16.6 on February 14. But just as in late January, the weakening of the SOI proved temporary, and the gauge promptly rebounded.

· The SOI currently stands at +22.2, well above the La Niña threshold of +8. While the SOI has fallen for four days, it has eased from a reading of 26.4 – the highest since January 19 (+26.9) and not far off the high for the current event of +27.9 on December 29.

· In its last update, BOM said: “The La Niña event in the Pacific Ocean has continued to weaken over the past two weeks as Pacific Ocean temperatures along the equator have warmed. All available climate models suggest further weakening of the La Niña is likely through the southern hemisphere autumn, with a return to neutral conditions likely by winter 2011.”

· The US Climate Prediction Centre also says that models predict a return to more neutral conditions (neither La Niña nor El Niño) around May-July 2011. But it notes: “La Niña will continue to have global impacts even as the episode weakens through the Northern Hemisphere Spring” and highlights the risk of below-average rainfall in Southern US states and below-average temperatures on the US West Coast.

El Niño, La Niña – what is it all about?

· Over time, Australians have heard a lot about El Niño (“boy child). This is the weather event that most people associate with drought. And given that most of the noughties were characterised by drought, there has been plenty of discussion about El Niño in recent years.

· But now the discussion centres on La Niña (“little girl”). This is essentially the opposite of El Niño, referring to the large-scale cooling of ocean temperatures in the Equatorial Pacific and associated with cooler, wetter weather in eastern and northern Australia. The Bureau of Meteorology (BOM) also notes that there tends to be more tropical cyclones in northern Australia when La Niña events occur.

· In late September, BOM indicated that La Niña was well established in the Pacific and indicated that it would last until at least early 2011. The Climate Prediction Centre in the US projected that La Niña would persist until at least the Northern Hemisphere Spring of 2011 – that is to around March 2011. Both have pushed out forecasts until mid 2011.

· The CPC says that the last El Niño event extended from May 2009 to May 2010. Effectively there have been rolling El Niño events from April 2002 through to 2010, with only a brief La Niña from August 2007 to Jun 2008. The last major La Niña was a two-year period from June 1998 to June 2000.

· In contrast to the dry noughties, the 1990s tended to be wetter than normal with a La Niña event occurring from 1995 to 1996 and then another event covering 1998 to 2000.

Implications of a La Niña weather event

· A raft of businesses and industries has been affected by the major La Niña event. Amongst sectors that have been most affected are:

Ø Retailers of seasonal goods – clothing, electrical goods, outdoor equipment, swimming pool operators & equipment

Ø Utilities – reduced demand for power (air-conditioners, fans etc)

Ø Insurance companies – floods, cyclones, more traffic accidents

Ø Rural producers – effects have varied depending on the severity and timing of rainfalls. And while some regions have been negatively affected, other regions will benefit from increased sub-soil moisture in the medium-term.

Ø Builders/construction – weather delays with more frequent rain days

What are the implications for investors?

· La Niña is clearly a watching brief for investors, consumers and businesses. While there is consensus that the weather event is weakening and will end by midyear, current readings remain high. Construction, mining and insurance companies remain most at risk.