ETF Trends
ETF Trends

Record high temperatures in October may be a prelude to a strengthening El Nino weather pattern, potentially leading to opportunities in the commodities space and related exchange traded products.

Last month was the hottest October since records have been kept in the past 136 years and the eighth record-breaking month so far this year, reports Tom Randall for Bloomberg.

This week, the El Nino phenomenon started setting records as well, with some of the highest weekly temperatures ever recorded across the equatorial Pacific.

Even if November and December show unusually cool temperatures, which observers highly doubt, the past few months have been so sizzling that 2015 will go down as the hottest year on record.

For commodity traders, the rising temperatures have disrupted normal weather patterns, leading to powerful typhoons, spoiled cocoa harvests in Africa and fires in Indonesia, which may leave opportunities to pick and choose commodity exposure, especially as oil prices remain weak.

Leading the charge, soft commodities or products that are grown have been outperforming. The iPath Bloomberg Softs Subindex Total Return ETN (NYESArca: JJS) rose 9.7% over the past three months while the PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC) has declined 7.4%. JJS tracks 53.3% sugar, 23.5% coffee and 23.2% cotton. DBC, on the other hand, includes a 53.6% tilt toward energy commodities.

Looking at regional effects on individual commodities, 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 Bloomberg Sugar Subindex Total Return ETN (NYSEArca: SGG) and the Tecrium Sugar Fund (NYSEArca: CANE), which have jumped 31.6% and 17.9%, respectively, over the past three months.

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