Commodity ETF Opportunities During El Niño | ETF Trends

Commodity exchange traded funds may want to take note of what happened during the last strong El Niño weather pattern.

In the last El Niño during the late 1990s, Pacific Ocean water temperatures hit their highest, and now, water in some areas are within 0.9 degree Fahrenheit of previous highs, reports Lucy Craymer for the Wall Street Journal.

The El Niño weather phenomenon brought severe droughts to parts of Southeast Asia and heavy flooding to the Americas in the late 90s.

“From now until December we need to expect dry conditions [in Australia and Asia]but we can’t be sure of the severity,” Agus Santoso, a senior research associate at the Climate Change Research Center at the University of New South Wales, told the WSJ. “The deviation from normal is strong but the impact on rainfall is hard to predict.…Farmers need to be prepared emotionally and financially.”

If the last El Niño is any indication, nonfuel commodity prices could rise in the months ahead. According to the International Monetary Fund, nonfuel commodity prices jumped an average 5.3% in the 12 months following the announcement of an El Niño event as the threat of lower production brought on by inhospitable conditions weighed on prices.

For instance, in India, the reduced monsoon rains could lead to lower sugar crops. Additionally, wet conditions in Brazil could also dent sugar harvests there. Investors can track sugar prices through the iPath Dow Jones-UBS Sugar Total Return Sub-Index ETN (NYSEArca: SGG) and the Tecrium Sugar Fund (NYSEArca: CANE).