El Niño is pounding at the world’s door right now, and there’s no way to stop it from barging in.
The phenomenon causes major global weather and climate fluctuations that can wreak havoc on the world’s agriculture market.
And the only way to combat El Niño’s effects on your portfolio is to read the predictions and strategize accordingly.
Well, an updated report on the long-anticipated 2015 El Niño was just released. Here’s your plan of attack.
The Data Is In
The El Niño Southern Oscillation is associated with persistent, warmer-than-average sea surface temperatures (SSTs) and consistent changes in wind and rainfall patterns.
These weather anomalies can wreak havoc on crops and the agriculture market.
Back in March, the arrival of El Niño was officially declared by the National Oceanic and Atmospheric Administration (NOAA) in its monthly outlook. The ocean-atmospheric phenomenon was marked by warmer-than-average SSTs in the central Pacific Ocean near the equator.
The news released on June 4, in the Global Information and Early Warning System (GIEWS) report from the Food and Agricultural Organization (FAO) of the United Nations, spelled out possible impact on agricultural production during the second half of 2015.
There’s a 90% chance that El Niño conditions will continue through the summer in the Northern Hemisphere. And there’s an over-80% probability that it’ll last until the end of the year!
Global Forecast Looks Dreary
The main concerns focus on regions where the main cropping season has just begun, like southern Asia and East and West Africa.
In particular, rainfed rice paddy production in South and Southeast Asia could be affected by below-average monsoon rains. Similar dry weather may affect key winter wheat growing areas in Australia, and first and second season production of maize and beans in Central America.
By contrast, the southern portions of the Horn of Africa, such as Somalia, Kenya, and Southern Ethiopia, may experience abundant rainfall. That region could see flooding during its short rainy season of October through December.
And any above-average rains toward the year’s end in Argentina, southern Brazil, and Uruguay could disrupt planting operations in these major cereal-growing areas.
Of course, the impact during the second half of the year will depend on both the severity and the duration of El Niño. Not to mention what growth phase crops are in when El Niño reaches its peak.
In sum, the report declares that “close monitoring of developments is, therefore, warranted to help devise appropriate response measures.”
Go Long Agriculture
So, how should you play the 2015-2016 El Niño?
You could trade the more active, nearby grain futures contracts and roll them upon expiration. But, if you aren’t willing to do that, there are always agriculture and grain indices ETNs that are more user friendly. Check out the DJ-UBS Grains Total Return Sub-Index ETN (JJG), or the MLCX Grains Index TR ETN (GRU), both of which track the performance of agriculture futures.
The good news is that agriculture futures prices are currently quite low, so it’s a good time to get in.
But don’t wait for Mother Nature to do her thing, because she can be fickle.
Look out for future GIEWS reports, which monitor the condition of major food crops across the globe to assess production prospects.
It would also be smart to check out the newly developed FAO-Agricultural Stress Index System, which detects agricultural areas with a high likelihood of water stress (drought) at the global level.