The Return of El Ni&ntildeo

03/19/2014 12:01 am EST

Focus: COMMODITIES

Jim Jubak

Founder and Editor, JubakPicks.com

It looks like El Nino is coming back says MoneyShow's Jim Jubak and he explains what the implications might be for investors.

It looks like El Nino’s coming back. El Nino is one of the two major sorts of Pacific climatological current-based weather systems. There’s El Nino and La Nina. The idea is that these, sort of, produce massive shifts in weather. El Nino, which is the one that we’re looking at now, we’ve had now, three national weather services, or climatologists, say, “Hey, this looks like a trend.” We’re seeing warming in the Pacific and certain parts of the Pacific that usually leads to this. The last time we had El Nino, it produced massive droughts in Australia, South America, and the United States, huge decreases in crop production…all of that. It looks like this might be on the horizon for this year—next year. For this cycle—cycles tend to last for a while. The volatility here in the agricultural commodities is going to be really incredible. If you remember that this year’s harvest is supposed to be a record harvest, really good harvests in everything, from Argentina to Australia, to the United States and Canada, for wheat and corn rebuilding. Stocks have been drawn down during the last drought cycle, so we’re going to go from a period where the harvests are record highs to a period where, once again, we’re looking at stressed harvests, worries about shortfalls, et cetera.

You know, we don’t get a, kind of, turn in this overnight. We’re going to be building up some stocks again and then, if we get drought, we’ll draw them down, but you’re going to start to see, I think, a reversal of some of the overall assumptions that, hey, commodity futures should go lower, and lower, and lower. I think what we’re looking at is probably enough news on the other end of that to start to stabilize prices for some of these commodities, and, that would be, in the short run at least, good for the producers of agricultural chemicals and seeds, and farm income-dependent companies like Deere, but it’s really not good, ultimately, for consumers, because drought and lower yields don’t do anything good for prices of the stuff that you and I eat.

This is Jim Jubak for the MoneyShow.com video network.

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