El Niño comes in many flavors: How do they differ, and what is their impact on South American grains and soft commodities?

The Earth’s atmosphere and oceans have a certain amount of natural rotation or spin, which is called angular momentum. This spin affects weather patterns.

During El Niño events, the trade winds weaken in the tropical Pacific, which normally blows from east to west. This allows the equatorial ocean currents to speed up. The faster-moving ocean currents cause an increase in the Earth’s rotation and global angular momentum. Hence, warm ocean waters move further east from near Australia to the eastern Pacific. This means GLAAM is usually positive.

Normally, GLAAM (Global Angular Momentum) is positive when the Trade Winds reverse blowing warm waters from west to east. So positive GLAAM is most present during roughly 75% of all El Niño events. Currently, GLAAM is negative, which means less torque or rotation along the equator. This could potentially weaken the warm waters blowing from west to east.

It is very difficult to predict if GLAAM will stay negative. If it does, below are the most likely scenarios for global commodities in the next few months.

Should El Niño become strong and we have a continuation of a positive Indian Dipole and negative GLAAM, then the 2014-2015 analog could be a good forecasting tool.

The only moderate-strong El Niño that had negative GLAAM and a positive India Dipole all winter (Southern Hemisphere summer) was the infamous 2014-2015 El Niño:

• A volatile early winter for the natural gas market (cold November and warm December)
• After a steep autumn sell-off in cocoa futures, a strong, dry Harmattan Wind helped prices rally during the winter. I have remained bullish on cocoa longer-term. 

This wind (or not), will be critical for movement in the cocoa market between December-February. Without it, the West African cocoa crop could recover from recent crop problems.

• Following a dry second half of October 2014 for Brazil’s coffee, improved rainfall through January 2015 created a bear market for prices.
• Higher late autumn prices for corn and soybeans followed by neutral winter price action and a longer-term bear market in corn and soybeans with decent 2015 South American and Midwest crops.
• Some autumn crop problems (Southern Hemispheric summer) for wheat in Australia and Argentina. (This is indeed happening today). Seasonally higher wheat prices through November, followed by a rebound in global wheat crops (as in 2015) and a major bear market.

Monitor our reports about what El Niño does over the next few months and whether GLAAM remains negative or becomes positive, and you will learn what this means and how to implement potential successful trade strategies in grains, soft, and energy commodities. 

Thanks for your interest in commodity weather!

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