Ed Ballard
El Niño is an awe-inspiringly complicated network of relationships across air and ocean, tying snowfall in Chile with drought in Papua New Guinea and connecting floods in Texas with Antarctic sea ice.
But is it also a winning brand?
That's the view of Les Finemore, an Australian agricultural commodities trader based in Mexico City. He runs a hedge-fund firm, Moreton Capital Partners, that bets on the price of everything from American grains to Southeast Asian palm oil to Brazilian sugar and soybeans.
El Niño is associated with drought and misery for farmers and epic food-price inflation. Finemore is hoping the recent emergence of what is expected to be the strongest El Niño on record will lure investors. Moreton trades from accounts managed on behalf of various institutional backers, but it is collecting money for a fund to bet on El Niño-related disruption.
He is hoping to bring in between $300 million and $400 million for the vehicle by September-a little less, and a little later, than he originally hoped. He has missed the beginning of the weather window. Still, the global temperature spike driven by El Niño won't peak till next year. If the coming months deliver bad harvests and good returns for investors, Finemore hopes that investors will stick with the firm and put their capital into a broader fund.
"It's a bit of a leader from a marketing standpoint, and also a great trading opportunity," Finemore said of the El Niño fund.
There are other recurrent, globe-spanning climatic phenomena, but few people have heard of the Madden-Julian Oscillation, or the Southern Annular Mode, or the Atlantic Multidecadal Variability.
El Niño's infamy is due to the chaos it is prone to causing, of course. But perhaps its name helps. It provides a unified-and somewhat badass-identity for a confusing set of weather correlations. For companies that must buy and sell the physical commodities themselves, this can be a pain.
Cocoa futures, for example, have been rising as fears mount that the coming months could see a repeat of the 2023-2024 El Niño. That episode was blamed for chocolate-price inflation after floods followed by dry winds devastated cocoa harvests in key producers Ivory Coast and Ghana. Chocolate-industry executives have been saying the recent price jump is overdone.
"We do not expect cocoa to remain at current levels long-term," said Hershey Chief Executive Kirk Tanner on an earnings call last month. He blamed "El Niño speculation."
"This is what I love to hear," said Finemore. His firm is bullish for agricultural commodities in general, and is betting on rising cocoa prices in anticipation of El Niño disruption in West Africa and other exposed places, such as Ecuador.
Oran van Dort, a cocoa analyst at Rabobank, said extended dry conditions in West Africa could push up prices. But he leans toward Tanner's view. Unlike last time, when El Niño hit a market in deficit, supplies are ample today, partly thanks to confectioners shrinking chocolate bars and tweaking recipes to use less cocoa after the last price surge. It would take a lot of bad weather to erase that surplus.
An unpredictable adversary
Hershey points out a more fundamental objection to Finemore's thesis: El Niño years can bring good cocoa harvests as well as bad ones. The climate's messy reality can collide with neat story lines about how the coming months will play out.
Moreton devises trades by feeding reams of weather data and historical prices into machine-learning models. But El Niño only comes along every few years, so there is only so much data to draw from. It remains to be seen how trading algorithms deal with a weather phenomenon that the climate scientist S. George Philander described in his 2004 book on the subject as "frustratingly whimsical."
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Today's email was written by Ed Ballard in London. Contact him at ed.ballard@wsj.com. Contact the team at climate@wsj.com.