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Futures Measures

Family Fight: Look out for El Niño's Sister, La Niña!

Futures Measures

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Pete switches gears today, looking at the big picture of the global climate and what it could mean for futures prices over the next year.

El Niño has been the hot topic weather pattern recently, given the mild winter to start the season. Not only have heating costs been lower, but the beneficial rains and cooler summers have lead to bumper grains in the U.S. and in south America. This has led to lower food costs.

There is now a rapid cooling in the central and eastern Pacific, meaning the end of El Niño is approaching. If the cooling continues past the normal level then we will see the emergence of La Niña.

La Niña has followed 11 of the past 15 El Niños, and typically follow the stronger El Niños. This El Niño has been the strongest ever recorded, hence the possible La Niña effect could be intensified.

During La Niña The grain-growers across the U.S. Midwest are usually hit by hot dry summers, spiking soft commodity prices, especially grains. The following winter can be much colder, leading to a rise in natural gas prices with excessive demand.

Pete looks at two specifically bad La Niña patterns, one in 1983-84 and the other in 2012. Both had serious effects on corn and soybean production across the U.S. and South America.

Looking at the sugar market, Pete points out that the prices of sugar and coffee soared in 2012, due to production being impacted in Brazil .

Traders should watch for the effects of La Niña over the next few months, as the soft commodities could see large spikes if production is effected in 2016.

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