Here's How La Niña Could Affect Markets
This winter, El Nino was responsible for increasing sea surface temperatures which in turn gave rise to unpredictable weather, affecting agricultural commodities like palm oil, sugar and dairy. Unusual weather patters made it difficult for farmers to maintain their crop yields and prices rose in response to shortage concerns.
However, with many expecting El Nino to peak soon, investors are beginning to turn their attention to the possibility that wild weather isn't over yet. The reversal of El Nino, called La Niña, could continue to disrupt agricultural markets in the year to come.
What Is La Niña?
La Niña is a weather phenomenon that takes place when trade winds pick up speed. The event cools the central and eastern Pacific Ocean and causes some places, like the US and South America, to have drier than usual weather and others, like Australia and Indonesia to experience heavy rain.
La Niña can also cause tropical cyclones in the Pacific.
What Does It Mean For Agriculture?
La Niña could have just as much impact on the agricultural market as El Nino did. In fact, some analysts say the effects of La Niña on agricultural commodities could be even more severe. El Nino gave the US relatively mild weather, which resulted in a bumper corn crop this year.
The larger than expected corn yields pushed prices down, but La Niña could reverse that. If the weather pattern shows up this year, crop yields are likely to drop, which could level out prices.
What Does It Mean For Investors?
BMI Research recently investors to keep an eye on crops like corn, soybeans, wheat, sugar, cotton and coffee; all of which could be impacted by a La Niña weather pattern.
Many analysts suggest that traders who believe La Niña is coming invest in US-grown commodities as America is likely to suffer some of the largest effects.
Rising commodity prices would also give farmers more money to spend on infrastructure, so firms like Deere & Company (NYSE: DE) Lindsay Corporation (NYSE: LNN) that sell agricultural equipment may also see a lift should La Nina occur.
See more from Benzinga
© 2015 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.