Extreme weather in Brazil is flooding mines and drying up crops

Weather extremes in commodity powerhouse Brazil are reverberating across global markets, driving up prices for everything from soybeans to metals.

Drought and heat in the south of the country have caused crop losses and scuttled what was supposed to be a record oilseed production in the world’s largest producer.

Meanwhile, the northern half of the country has the opposite problem: too much water. The heavy rains caused Vale SA, the world’s second largest iron ore producer, to halt part of its mining production in Minas Gerais.

The measure boosted the rise in the price of iron ore. Iron ore futures in Singapore advanced as much as 2.8% on Tuesday, lifting the rally to around 50% since November.

In agricultural markets, soybean futures have risen 13% since early December, when adverse weather began to affect Brazilian crops. State agriculture agency Conab cut its forecast for this year’s soybean harvest due to drought and said further cuts are possible in coming months.

A more limited supply of the oilseeds used to make everything from cooking oil to animal feed may add fuel to global food inflation.

The north of Brazil istoo wet” and the south is “too drysaid Don Keeney, a meteorologist with commercial forecaster Maxar. That’s a typical pattern caused by the La Niña phenomenon, reinforced by other factors such as a warming Atlantic, according to Carine Gama, a meteorologist at São Paulo-based Climatempo.

Adverse weather is disrupting the iron ore industry in Minas Gerais state. In addition to Vale, Gerdau SA and Usiminas suspended mining operations. On Saturday, a mining dam owned by France’s Vallourec SA overflowed near the city of Belo Horizonte, which recorded 15 inches of rainfall in the first 10 days of January, exceeding the average for the entire month.

More than 100m tonnes of annualized iron ore supply could be at risk right now in Brazil, BTG Pactual analysts estimate. That represents about 7% of shipping supplies and about 30% of Brazil’s supply.

Extreme weather can also cause losses in other crops. Coffee farms in southern Minas Gerais are vulnerable due to potential erosion, while corn fields in southern Brazil have faced prolonged drought, and soybean crops in some northern parts of the country are have been affected by an increase in diseases due to the humid climate. Still, such damage can be avoided if conditions improve soon.

There are signs that weather patterns may change next week and bring relief, Keeney said. A high pressure system that has dried up southern Brazil and Argentina is moving toward Paraguay, allowing rain to hit the region. It will also lessen, though not stop, the rains that have been inundating northern Brazil, he said.