El Nino

El Nino is a periodic warming of surface waters in the central and eastern Pacific Ocean that shifts rainfall and temperature patterns across major growing regions worldwide.

El Nino develops when trade winds weaken and warm water that is normally pushed toward Asia spreads back across the central and eastern Pacific. That shift in ocean temperature reorganizes rainfall patterns across the tropics and beyond, typically bringing wetter conditions to parts of South America and drier conditions to Southeast Asia, India, and parts of Australia, though the exact pattern varies with each event.

Commodity markets watch El Nino because so much agriculture sits in the affected regions. Palm oil in Southeast Asia, sugar and coffee in parts of Asia, and wheat in Australia can all see yields hurt by an El Nino-linked dry spell in the same season. Because the event can be identified months in advance from ocean temperature data, markets often start pricing in expected crop effects well before a harvest is at risk. See El Nino and La Nina.