El Niño on the Way?

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Apr 28, 2014

Global farmers, fishermen, meteorologists and commodities traders are closely watching water temperatures in the South Pacific, waiting to see if the water will warm up this summer, a telltale sign of the El Niño phenomenon. According to the U.S. Climate Prediction Center, there is a roughly 65% chance that the climate pattern will develop, which could bring extreme weather conditions around the world. The last major El Niño event was in 1998.

Typically, El Niño brings drought to Australia, Asia, and West Africa, which can wreak havoc on their commodity production, hurting those regions’ output of a wide range of commodities, including wheat, rice, coffee, and cocoa.

Meanwhile, an excess of water could get dumped on Central & South America, interrupting the production of their crops. Most noticeably, flood conditions could strike in Argentina, the world’s third-largest bean grower, severely hampering soybean output.

Impact on the U.S.

For American Midwestern farmers, El Niño typically leads to a slightly cooler and wetter summer, which can help to produce bin-busting corn and soybean crops. Due to a potential South American grain shortfall, US farmers could have a large crop that would command high prices on the global market.

Southern U.S. states may also benefit under El Niño, as the climate pattern can produce high winds across the Caribbean that break up Atlantic hurricanes. For commodities watchers, hurricanes are especially impactful on the energy industry, as there is significant oil and natural gas production in the Gulf of Mexico and refineries on the Gulf Coast that can be interrupted by hurricanes. Should El Niño develop this year, those industries may be spared major storms this season, helping to keep energy prices lower.

Impact on Prices

Overall, El Niño could prompt sharply higher prices for many agricultural commodities, which are already being seen in some of the markets. Coffee and cocoa prices are already trading near two-year highs, valued currently at $2.07 per pound and $2,941 per metric ton, respectively. Meanwhile, soybeans are worth nearly $15 per bushel, the highest price since last summer.

 

 

Alex Breitinger

941-708-8987

 

This is not a solicitation of any order to buy or sell, nor does it provide any recommendations in regard to the market.  Information contained herein is believed to be reliable, but cannot be guaranteed as to its accuracy or completeness. Past performance is no guarantee of future results or profitability. Futures and options trading involve substantial risk of loss and is not suitable for all investors. Clients may lose more than their initial investment.

 

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Comments

Licorice Schtick

When hot hot El Niño meets extra-cold Great Lakes air this Spring and Summer, things cold get spicy.