Extreme Cold Winter is Coming…

From El Niño to La Niña (feat. Price of Corn & Wheat, Biofuel, Gasoline Oil, Electricity, Aluminium and inflation)

Even though it’s already October, many regions of the world are still experiencing unseasonably warm days. This summer’s extreme heat waves caused global suffering, and an even harsher winter is expected.

1. The Earth rotates from West to East, creating winds that blow from East to West.

2. During the Age of Exploration, ships used these consistent winds to sail from East to West across the oceans to trade.

3. This is why these winds, blowing from east to west, are called “Trade Winds.”

4. Trade winds push the Pacific Ocean’s surface waters toward the West.

5. As Trade winds push central Pacific waters westward, cold, nutrient-rich water rises to the surface from the ocean floor.

6. The nutrients from the ocean floor lead to the formation of abundant fishing grounds.

7. The sea level around Indonesia is about 0.5 meters higher than on the South American coast due to these trade winds pushing water westward.

8. However, at times, these winds weaken for unknown reasons.

9. When this happens, less cold water from the ocean depths rises, causing sea surface temperature to increase.

10. Ecuadorian fishermen noticed that around Christmas every few years, their catch would decrease significantly.

11. They began calling this phenomenon “El Niño” (meaning “the little boy” or “baby Jesus” in Spanish), as it coincided with the Christmas season.

12. During El Niño, the weaker trade winds mean fewer nutrients rise from the ocean depth, which reduces fish populations.

13. With fewer nutrients in the water, fish don’t come to the surface, leading to a drop in Ecuador’s Christmas fish catch.

14. El Niño’s warming of sea surface temperatures affects regions differently.

15. For instance, El Niño brings extreme heat to countries like India, Pakistan, Thailand, Laos, Myanmar, and thought Southeast Asia, as well as parts of the Middle East and China.

16. Meanwhile, Latin America and Australia experience severe droughts.

17. In Australia, these droughts lead to wildfires, while in Latin America, they reduce the capacity of the Panama Canal, driving up continuer shipping rates.

18. El Niño also causes significante fluctuations in grain prices.

19. The U.S. is the largest corn producer, accounting for 30% of the global corn supply.

20. During El Niño, the U.S Midwest – where much of the country’s corn is grown – experiences wetter conditions, which lead to bumper corn crops.

21. However, while the Midwest benefits from increased rainfall, the northern U.S. and Australia suffer from drought.

22. This drought negatively impacts wheat production in the U.S. North and Australia, both major wheat exporters.

23. As a result, during El Niño, corn prices often drop while wheat prices rise.

24. The Bumper corn crop in the U.S. also affects oil prices.

25. Each year, the U.S. converts around 40% of its corn production (approximately 150-160 million metric tons) into ethanol, which is used as a biofuel and blended with gasoline.

26. At U.S. gas station, E-15 (a fuel blend containing 15% biofuel) is typically sold at a lower price than regular gasoline.

27. The Biden administration is promoting infrastructure improvements to expand biofuel use as part of the Inflation Reduction Act (IRA).

28. The share of U.S. corn used for biofuel production increased from 16% in 2021 to 32% in 2022, and this percentage is expected to grow.

29. If a large portion of the abundant corn harvest is converted into biofuel, it could help lower fuel prices.

30. However, things are expected to change starting this summer as El Niño wanes…

31. La Niña is expected to take over from El Niño.

32. La Niña, meaning “the little girl” in Spanish, occurs when trade winds strengthen, the opposite of El Niño.

33. As stronger trade wines push more cold water to the surface, sea surface temperatures in the Pacific drop.

34. La Niña typically brings drought to the U.S. West while causing heavy rains and floods in Australia, Southeast Asia, and China.

35. Grain prices rise, and flooding hampers mining operations, making it harder to transport minerals.

36. The U.S. Climate Prediction Center (CPC) estimates an 85% chance of La Niña occurring this year.

37. As El Niño tails off, Southeast Asia is experiencing higher demand for air conditioning due to extreme heat, while La Niña is expected to bring cold snaps to the U.S. and Europe, increasing demand for heating.

38. The connection between El Niño and La Niña is expected to boost demand for electricity, natural gas, and heating fuels from summer through winter.

39. If electricity demand surges, aluminum prices are likely to rise.

40. Producing aluminium requires more electricity than the cost of its raw material, alumina.

41. In fact, electricity accounts for around 30% to 40% of aluminium production costs.

42. La Niña impacts the prices of grains, electricity, aluminium and natural gas.

43. In years when El Niño transitions to La Niña, the U.S. has experienced prolonged heat waves and severe summer temperatures, especially in the southern and western regions.

44. Some parts of the U.S. particularly in the Southwest, could face extended periods of tropical nights, where nighttime temperature remain abnormally hight for over a month.

45. La Niña events have been recorded since 1892.

46. Although there are no detailed record for the U.S. from the 1892-1893 La Niña, but Beijing saw a record law January average of 17.4°F (-8.1°C).

47. The 1917 La Niña brought sever cold to the U.S., with temperatures dropping to -25°F in Indiana and -21°F in Kentucky, freezing the Ohio River.

48. Most La Niña events cause cold, dry winters in the northern U.S., particularly affecting the Midwest and Northeast.

49. NOAA predicts an 80~85% chance of La Niña this winter, likely brining colder temperatures to northern regions and droughts to the south.

50. La Niña raises heating demand in the U.S. and Europe, pushing natural gas prices higher.

51. Rising natural gas prices increase the cost of nitrogen-based fertilisers, which leads to higher grain prices, including wheat and corn.

52. Higher grain prices, driven by La Niña, impact both food costs and biofuel production.

53. La Niña’s colder winter could significantly increase hearting cost, putting pressure on household budgets, and energy markets in the U.S.

54. On the other hand, colder temperatures could drive strong demand for winter apparel, offering retailers an opportunity to capitalize on the extended cold season during La Niña​.

One Liner comments

If El Niño heated up the world this summer with droughts and high temperatures, it’s time to prepare for La Niña’s winter cold. As La Niña’s impact looms, it’s worth keeping an eye on natural gas and grain prices like wheat and corn. In the end, successful investing might just start with watching the weather.