Get Ready, Commodities Traders: El Nino May Be Back by Winter

(Bloomberg) -- It’s time to start watching natural gas, coffee and cocoa markets again -- because a weather-changing El Nino could be arriving just in time for winter.

The U.S. Climate Prediction Center issued an El Nino watch across the equatorial Pacific Thursday, with the odds jumping to 64 percent chance that it will come from December to February. That’s up from a 49 percent chance in the agency’s monthly report in May.

“Conditions are now favorable for the emergence of El Nino sometime in the next six months,” said Michelle L’Heureux, a forecaster with the Climate Prediction Center in College Park, Maryland. “The watch hinges on that word, ‘favorable.’ We’re just above the threshold that we want to see to issue a watch.”

El Ninos, which occur when the ocean warms and the atmosphere reacts, can have profound impacts on the planet, and on financial markets. A big one in 2015 cut cocoa, tea and coffee harvests throughout Asia and Africa, helped choke Singapore with smoke from wildfires and ushered in the warmest winter on record in the contiguous U.S., stifling natural gas demand.

El Nino winters are typically cooler and stormier across the U.S. South, rainy in California and warmer in the Pacific Northwest and northern Rocky Mountains. In South America, Brazil can get drought, while Argentina may get more rain.

Global Pandemic

Some past El Ninos have brought massive mayhem, including fires, floods and droughts that killed at least 30,000 people globally and caused $100 billion in economic damage in 1997 and 1998. And in 1918 and 1919, the phenomenon may have contributed to a global flu pandemic, according to the Climate Program Office.

Forecasters have seen signs the ocean’s surface is starting to warm, L’Heureux said, including a “slosh” of warm water across the basin -- technically called a down-welling Kelvin wave. “That’s a hint that things are warming up.”

It’s not certain that El Nino will arrive. It requires the atmosphere above the Pacific to react to the warmer surface, which still hasn’t happened.

“We say there’s about a 65 percent chance an El Nino will come for winter, but that’s a way to say there’s a 35 percent chance nothing will happen,” L’Heureux said. “It’s always good to reinforce that.”

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