What El Nino Could Mean for Investors
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The U.S. Climate Prediction Center warned on Thursday that there is a 50 percent chance El Nino weather will strike later this year. El Nino is caused by warming of sea surface temperatures in the Pacific, and is said to occur every four to twelve years. El Nino is known to cause dramatic changes to weather around the globe and create erratic food production.
If the U.S. Climate Prediction Center's warnings turn out to be correct, farmers could take a hit of billions of dollars due to crop damage. The 1998 El Nino caused droughts in Southeast Asia and Australia and flooding in South America. On the other hand, oil rigs in the Gulf of Mexico could have an easier year due to decreased hurricane formation.
Asia is a large producer of rice, so droughts in this region could move rice futures higher. Wheat futures could also be affected. Drier conditions could benefit crops like coffee and cocoa in the short term, but analysts warn that prolonged heat would hurt yields over time.
If El Nino conditions develop, keep an eye on commodity futures and the agricultural ETFs, including DB Agriculture ETF (NYSE: DBA) and Market Vectors-Agribusiness (NYSE: MOO). In the oil patch, Energy Select Sector SPDR (NYSE: XLE) has a good weigthing of some of the biggest oil companies like Exxon Mobil (NYSE: XOM) (19.5%), Chevron (NYSE: CVX) (15.48%) and Schlumberger (NYSE: SLB) (6.87%).
If the U.S. Climate Prediction Center's warnings turn out to be correct, farmers could take a hit of billions of dollars due to crop damage. The 1998 El Nino caused droughts in Southeast Asia and Australia and flooding in South America. On the other hand, oil rigs in the Gulf of Mexico could have an easier year due to decreased hurricane formation.
Asia is a large producer of rice, so droughts in this region could move rice futures higher. Wheat futures could also be affected. Drier conditions could benefit crops like coffee and cocoa in the short term, but analysts warn that prolonged heat would hurt yields over time.
If El Nino conditions develop, keep an eye on commodity futures and the agricultural ETFs, including DB Agriculture ETF (NYSE: DBA) and Market Vectors-Agribusiness (NYSE: MOO). In the oil patch, Energy Select Sector SPDR (NYSE: XLE) has a good weigthing of some of the biggest oil companies like Exxon Mobil (NYSE: XOM) (19.5%), Chevron (NYSE: CVX) (15.48%) and Schlumberger (NYSE: SLB) (6.87%).
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