El Nino, the infamous and recurring weather phenomenon characterized by an abnormal warming of the Pacific Ocean, has long been a topic of interest for meteorologists and scientists. With the advent of El Nino in 2023, the world is preparing to face the associated climatic shifts and the ripple effects they will bring to global economies.
There is a 60% chance for a transition from ENSO-neutral to El Nino during May-July 2023, and this will rise to about 70% in June-August and 80% between July and September, according to the update, which is based on input from World Meteorological Organization. However, while challenges are expected across various industries, certain sectors stand to gain from these changes.
Against this backdrop, below, we highlight a few ETF areas that draw attention at the current level.
Agriculture Investing: A Beneficiary
El Nino’s impact on agricultural output is often detrimental, primarily due to altered rainfall patterns causing floods and droughts. The 1982-83 and 1997-98 El Nino events, two of the most intense episodes of the past century, led to widespread crop failures. Wheat, corn and soybeans — three of the world’s staple crops — are particularly vulnerable.
For example, during the 1982-83 El Nino, Brazil, a major soybean producer, experienced severe drought conditions. This resulted in a significant reduction in soybean yield, with harvests falling as much as 30%. Similarly, corn production in the United States decreased 20% during the 1997-98 El Nino.
Erratic weather is likely to disrupt crop yields, leading to supply shortages and higher prices, which is a boon for agricultural commodity investors. Betting on Teucrium Wheat ETF (WEAT), Teucrium Corn ETF (CORN) and Teucrium Soybean ETF (SOYB), iPath Dow Jones-UBS Cocoa Subindex Total Return ETN NIB and Teucrium Sugar Fund CANE could be gainful.
A Bright Spot for Renewables
El Nino often brings altered wind and solar patterns, which can impact energy production. Regions with increased sunlight or stronger winds could see a boost in renewable energy production. Consequently, companies in the renewable energy sector, especially those operating in regions favored by these changes, could see significant gains. This puts focus on Invesco WilderHill Clean Energy ETF PBW.
Insurance Sector: A Mix Bag
With the increase in extreme weather events associated with El Nino, the demand for insurance coverage—particularly property, agriculture, and disaster insurance—may see a significant uptick. This could lead to a profitable period for insurance companies, making this sector another potential winner.
However, such adverse weather conditions often lead to higher insurance claims, impacting the profitability of insurance companies and shaking the respective stocks. Such possibilities put SPDR S&P Insurance ETF (KIE) in focus.
Infrastructure: Rebuilding and Reinforcing
The destructive weather patterns of El Nino often necessitate significant infrastructure repair and reinforcement, particularly in regions prone to flooding or other extreme weather events. This could lead to increased demand for construction and engineering services, potentially benefiting companies within these industries. Invesco Dynamic Building & Construction ETF PKB may thus gain ahead.
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Invesco Dynamic Building & Construction ETF (PKB): ETF Research Reports
Invesco WilderHill Clean Energy ETF (PBW): ETF Research Reports
Teucrium Sugar ETF (CANE): ETF Research Reports
iPath Bloomberg Cocoa Subindex Total Return ETN (NIB): ETF Research Reports
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