We’ve talked about the increasing likelihood of El Niño appearing for some time, highlighting its potential impact on commodity prices (agricultural ones in particular, but also others like nickel). The latest El Niño prediction comes from the European Centre for Medium-range Weather Forecasts (ECMWF). “It is very much odds-on for an event,” according to the group, considered one the most reliable of the 15 or so prediction centres around the world. What is less clear is how strong it will be, when it will occur and then finally how it could affect commodity markets.
Related article: Are agricultural commodities underestimating the risk from El Nino?
Back in May Barclay’s reported that commodity markets were underestimating the probability of El Niño. Given the inherent uncertainty in forecasting perhaps that is unsurprising. But what could investors, producers and consumers learn from previous El Niño episodes? Looking back over the last 30 years eight episodes occurred and after each one there was lag of several months between El Niño peaking in intensity and agricultural markets spiking.
Related article: The commodity most affected by El Niño is…Nickel