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El Niño’s Arrival Could Trigger Global Commodity Price Spikes

El Niño’s Arrival Could Trigger Global Commodity Price Spikes

As the East Coast continued to experience a thick plume of smoke from Canadian wildfires, weather officials declared another El Niño has arrived. The weather pattern, characterized by above-average temperatures on the surface of the Pacific Ocean, can cause severe weather, triggering swings in commodity prices.

  • The National Weather Service said chances are good that it will be particularly strong this time. El Niño could bring milder U.S. temperatures near-term, Citigroup analysts said, lowering demand for air conditioning, which could hit results at utilities such as CMS EnergyDTE Energy, and Duke Energy.
  • A weaker Atlantic hurricane season could lower oil and gasoline prices because oil rigs in the Gulf of Mexico could remain operational. Liquefied natural gas exports, by such companies as Cheniere Energy, would also face less risk of being disrupted.
  • Insurers are pulling out of disaster-prone California, Louisiana, and Florida. State Farm will stop selling new homeowner policies in California, for example. From 2018 to 2022, the U.S. saw an average of 18 weather disasters every year with more than $1 billion losses.
  • Wheat prices stabilized after spiking on Tuesday when a dam collapsed in a key agrarian region of southern Ukraine. The spike won’t affect consumers down the line, economists said. Ukraine has planted less wheat in that region since Russia’s 2022 invasion, and wheat prices are down 20% from last year.

What’s Next: The price of wheat contributes only a small percentage to U.S. retail prices. The loss of production in Ukraine’s flooded region isn’t going to be material, said Tanner Ehmke, lead economist for grains and oilseeds at CoBank. “I wouldn’t be hoarding bread anytime soon.”

Avi Salzman, Hannah Ziegler, and Janet H. Cho