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El Niño, a warm-water phenomenon that blows up off the Pacific coast of South America, often has a great impact on agricultural prices. El Nino causes weather disruptions in many regions around the world, including drought in some and flooding in others due to abnormal warming of the Pacific Ocean.
The world has stepped into an El Niño cycle this year after a long pause of about three years and might end up seeing an upturn in the commodity investing markets, especially agriculture. Experts pointed out that it’s still uncertain how strong the coming El Niño will be – some models predict it could attain super-strength while some expect it to be moderate. In countries like India, this adverse climate may persist through the rainy season, which is all important for agricultural production.
Australia’s Bureau of Meteorology said that all seven models surveyed – including those from weather agencies in the UK, Japan and the United States – revealed sea surface temperatures reaching the level to confirm the El Niño by August, as quoted on Guardian. However, there is a 50% chance of an El Niño developing just before the end of the year, the bureau also said.
However, there is a good side of this bad weather condition. As per the source, in El Nino years like 1983, 1988, 1992, 1995, 1998, 2003, 2005, 2007, and 2010, the climate event led the S&P agricultural commodity index to soar about 24.4% on average while gains at the S&P 500 index were comparatively muted at 16.5%.
Investors should note that global soft commodities ETF investing remained under pressure in the past one year with the highest gains secured by Sugar and Cocoa. Losses in some products crossed even the 30% mark. Higher production, favorable weather conditions and an ascent in the greenback weighed on the soft commodity investing.
In such a backdrop, El Nino might act as a tailwind to this investing arena. Below, we highlight a few agricultural exchange-traded products which have the potential to trounce the overall agro-based commodity space and offer investors some sweet returns off El Nino despite the broad-based commodity market gloom.
ETF Picks
A slate.com article went on to explain that El Nino normally dries up India, Brazil and Indonesia. In particular, it is likely to hurt sugar and rice crops in India and wheat crops in Australia. Coffee and cocoa may also see supply disruptions.
Sugar
iPath Series B Bloomberg Sugar Subindex Total Return ETN and Teucrium Sugar Fund (CANE - Free Report) are up about 28% so far this year and hitting new multi-year highs.
Inclement weather in other producing countries like Thailand, Australia, and Central America delayed harvests in late last year. Earlier-than-normal closure of many sugar mills in key producer India, lackluster supplies from other countries, and the prospect for limited Indian exports have curtailed sugar output.
Coffee
The drumbeats of gains could be heard from the coffee ETF space on expected dry weather in major coffee producing regions like Brazil, Vietnam and Indonesia. Notably, Vietnam is one of the largest growers of Robusta variety of coffee. iPath Series B Bloomberg Coffee Subindex Total Return ETN is under the watch.
Cocoa
Cocoa futures surged to the highest level since November 2020 due to supply crunch in top producer Ivory Coast. Ivory Coast's government data has revealed that farmers sent a cumulative 1.83 MMT of cocoa to the country's ports for the 2022/23 marketing year from October 1 to April 9, down 3.7% from a year earlier, per tradingeconomics. iPath Dow Jones-UBS Cocoa Subindex Total Return ETN has also gained on a year-over-year basis.
Wheat
Wheat prices might see a rise on unfavorable dry weather in eastern Australia. Australia, the world’s second-largest wheat-exporting country, is likely to see shipments fall 20% from record levels in the coming financial year as output declined due to a shift to a drier climate pattern, per Bloomberg. Teucrium Wheat ETF (WEAT) could thus be a winning option at the end of this year.
Cotton
India is one of the largest cotton cultivators and exporters of the world. The El Nino threat is lurking in the cotton-heavy areas of the western and the northern regions of IndiaiPath Series B Bloomberg Cotton Subindex Total Return ETN could be a winning option.
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Can El Nino Boost Agricultural ETFs?
El Niño, a warm-water phenomenon that blows up off the Pacific coast of South America, often has a great impact on agricultural prices. El Nino causes weather disruptions in many regions around the world, including drought in some and flooding in others due to abnormal warming of the Pacific Ocean.
The world has stepped into an El Niño cycle this year after a long pause of about three years and might end up seeing an upturn in the commodity investing markets, especially agriculture. Experts pointed out that it’s still uncertain how strong the coming El Niño will be – some models predict it could attain super-strength while some expect it to be moderate. In countries like India, this adverse climate may persist through the rainy season, which is all important for agricultural production.
Australia’s Bureau of Meteorology said that all seven models surveyed – including those from weather agencies in the UK, Japan and the United States – revealed sea surface temperatures reaching the level to confirm the El Niño by August, as quoted on Guardian. However, there is a 50% chance of an El Niño developing just before the end of the year, the bureau also said.
However, there is a good side of this bad weather condition. As per the source, in El Nino years like 1983, 1988, 1992, 1995, 1998, 2003, 2005, 2007, and 2010, the climate event led the S&P agricultural commodity index to soar about 24.4% on average while gains at the S&P 500 index were comparatively muted at 16.5%.
Investors should note that global soft commodities ETF investing remained under pressure in the past one year with the highest gains secured by Sugar and Cocoa. Losses in some products crossed even the 30% mark. Higher production, favorable weather conditions and an ascent in the greenback weighed on the soft commodity investing.
In such a backdrop, El Nino might act as a tailwind to this investing arena. Below, we highlight a few agricultural exchange-traded products which have the potential to trounce the overall agro-based commodity space and offer investors some sweet returns off El Nino despite the broad-based commodity market gloom.
ETF Picks
A slate.com article went on to explain that El Nino normally dries up India, Brazil and Indonesia. In particular, it is likely to hurt sugar and rice crops in India and wheat crops in Australia. Coffee and cocoa may also see supply disruptions.
Sugar
iPath Series B Bloomberg Sugar Subindex Total Return ETN and Teucrium Sugar Fund (CANE - Free Report) are up about 28% so far this year and hitting new multi-year highs.
Inclement weather in other producing countries like Thailand, Australia, and Central America delayed harvests in late last year. Earlier-than-normal closure of many sugar mills in key producer India, lackluster supplies from other countries, and the prospect for limited Indian exports have curtailed sugar output.
Coffee
The drumbeats of gains could be heard from the coffee ETF space on expected dry weather in major coffee producing regions like Brazil, Vietnam and Indonesia. Notably, Vietnam is one of the largest growers of Robusta variety of coffee. iPath Series B Bloomberg Coffee Subindex Total Return ETN is under the watch.
Cocoa
Cocoa futures surged to the highest level since November 2020 due to supply crunch in top producer Ivory Coast. Ivory Coast's government data has revealed that farmers sent a cumulative 1.83 MMT of cocoa to the country's ports for the 2022/23 marketing year from October 1 to April 9, down 3.7% from a year earlier, per tradingeconomics. iPath Dow Jones-UBS Cocoa Subindex Total Return ETN has also gained on a year-over-year basis.
Wheat
Wheat prices might see a rise on unfavorable dry weather in eastern Australia. Australia, the world’s second-largest wheat-exporting country, is likely to see shipments fall 20% from record levels in the coming financial year as output declined due to a shift to a drier climate pattern, per Bloomberg. Teucrium Wheat ETF (WEAT) could thus be a winning option at the end of this year.
Cotton
India is one of the largest cotton cultivators and exporters of the world. The El Nino threat is lurking in the cotton-heavy areas of the western and the northern regions of IndiaiPath Series B Bloomberg Cotton Subindex Total Return ETN could be a winning option.