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Meteorologists shift tone on El Niño

Will he really arrive? There has been a change in tone over the development of El Niño – "little boy" – from some of the world's leading meteorologists.

In its latest bulletin the Australian Bureau of Meteorology maintained the strong likelihood of El Niño – the warming of parts of the Pacific Ocean – developing this year, but it noted that "in the absence of the necessary atmospheric response, warming has levelled off in recent weeks".

The bureau added that the areas of warm water in the Pacific were counter to typical patterns for the weather phenomenon.

A farmer walks on an irrigation rice plant in Padalarang, Indonesia, May 27, 2014. Asia's governments are scrambling to head off the potential impact of a weather phenomenon, known as El Nino, that in the past has driven food prices to levels that sparked social unrest.
Reuters
A farmer walks on an irrigation rice plant in Padalarang, Indonesia, May 27, 2014. Asia's governments are scrambling to head off the potential impact of a weather phenomenon, known as El Nino, that in the past has driven food prices to levels that sparked social unrest.

The International Research Institute for Climate and Society at Columbia University has also said that although during May through to mid-June conditions were near the borderline of a weak El Niño condition in the ocean, the necessary changes in the atmosphere had yet to occur.

Traders are still considering what this actually means for the weather later in the year, but they are also likely to become more cautious as the gains over the past six months in some commodities, such as cocoa, have been driven by the El Niño outlook.

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Another weather event closely linked to El Niño which will be crucial to several commodities is the Indian monsoon.

El Niño tends to lead to a weaker monsoon, and accordingly India's Meteorological Department has predicted below average rainfall.

But a closer look at the data shows that the two weather events may not necessarily be so closely correlated.

Read More The El Niño effect: What it means for commodities

In the last decade when El Niño occurred in 2004 and 2009, India saw a failed monsoon. Sugar analysts at Kingsman point out that looking further in the past, there have been seven El Niño years since 1991 but only two of these years saw a failed monsoon.

"This suggests that the chances that El Niño causes a poor monsoon are actually below 30 per cent," says the Swiss-based consultancy.

A link with El Niño or not, the monsoon will be closely watched by commodities traders.

Read MoreEl Niño on the way? Here's one way to invest it

A weak monsoon has a negative impact on agricultural commodity prices such as sugar and grains, and India, being a large consumer and a large producer, will need to turn to imports if there are crop failures.

The rains also have an impact on the gold price as India's rural farming areas account for about 60 per cent of the country's gold purchases. A bad monsoon which leads to poor crops and rising food costs will hit farmers in their wallets, depriving them of money to buy gold, as well as forcing them to sell their existing gold holdings.

Read MoreEl Nino threatens to return, hit global food production

—By Emiko Terazono, The Financial Times

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