El NINO: There is now an estimated 90% chance of an El Niño weather phenomenon later this year. This could bring further supply disruption to volatile global agricultural and energy markets, supporting weak commodity prices and boosting inflation. The last severe El Niño in 2016 saw the highest ever global temperatures (see chart) and there is risk of a new record this time. Its early days and El Niño impacts vary by its intensity and geography with no two episodes same. But it often see’s higher temperatures across northern US, Asia and Australia, and more rain in the southern US and Argentina. This now fast warming of the Pacific Ocean comes after a near unprecedented three back-to-back years of the opposite cooling La Niña weather disruption.
AGRICULTURE: Ag prices are down 15% in a year. A significant El Niño would support many, but not all ag markets. 1) It is seen reducing wheat, rice, sugar, and cocoa yields, helping prices. Key Indian and Thai sugar and rice producers may now see less rain and higher temperatures. Dominant cocoa producers Ghana and Ivory Coast drier weather and lower yields. Australia’s wheat crop may see dry weather end a series of three bumper crops. 2) By contrast it may be a drought-breaker for much of the US and South America, boosting yields and depressing prices. A wetter and warmer winter helps the US corn and soybean belt and drought-hit Argentina.
ENERGY: A severe El Niño could boost oil and especially natgas demand, whilst depressing the heating oil outlook. 1) Asia is the world’s biggest importer of oil and natural gas. Hotter and drier conditions could boost their demand, especially if drought cuts their hydroelectric capacity. 2) In northern Europe, El Niño often sees colder winters and boosts energy demand. 3) Whilst in the northeast US a typically milder winter could cut demand for heating oil in its biggest market. 4) Finally, it typically sees a less severe June-November Atlantic hurricane season.
All data, figures & charts are valid as of 15/05/2023