Author | Gali, Rising Waves Beatz

For several consecutive days, Tianjin has been hit by sudden heavy rain. It was sunny when we left home, but halfway through the journey, we got drenched in the downpour. A friend's flight to Shenzhen was canceled due to a typhoon, and high-speed rail tickets to Zhejiang were all suspended.

Looking at the news on my phone, Fushun in Liaoning received over 329 mm of rain in a few hours, residents in Fangchenggang, Guangxi, described it as the most severe flooding in 20 years, and 7 national-level meteorological stations recorded single-day rainfall breaking historical records. The largest-scale heatwave alert in North China, with some areas approaching a ground temperature of nearly 50℃. In the first week of July, two to three typhoons were simultaneously forming in the Western Pacific, and the super typhoon "Bavi" was approaching the southeastern coast.

Since the summer of 2026, the weather in China has evidently become more erratic.

It's not just us experiencing this erratic weather. The seawater along the coast of Peru has been consistently warm, restricting anchovy fishing and causing fishmeal prices to rise by about 80% in the past year. The dry season in Southeast Asia has intensified, leading to concerns in the palm oil-producing regions of Malaysia and Indonesia. The monsoon rains in India have not yet reached the critical window, but the market is already betting on weaker-than-normal rainfall. Analysts have predicted a significant contraction in Australia's wheat planting area.

These extreme weather changes are scattered across different continents, seemingly unrelated. However, apart from the direct triggering mechanisms such as monsoon moisture, tropical storm peripheral circulation, location, and topography, they are likely all influenced by the same storm:

ENSO, El Niño.

El Niño, the Pacific Running a Fever

ENSO, short for El Niño-Southern Oscillation, is the largest interannual signal in the Earth's climate system. In simple terms, it describes the cyclic changes between Pacific Ocean temperatures and atmospheric circulation.

Under normal conditions, the eastern equatorial Pacific is cooler while the western part is warmer, and the trade winds push warm water towards the Western Pacific. However, if the trade winds weaken, warm water flows back eastward, causing a significant temperature rise in the central to eastern Pacific, leading to El Niño.

Meteorological agencies determine the occurrence of El Niño mainly by looking at a key area: the Niño3.4 region (a crucial area in the central equatorial Pacific, which can be seen as a "thermometer" for assessing the strength of El Niño). If the temperature in this area is more than 0.5℃ higher than normal for several consecutive months, it is considered to be in an El Niño state; if it is more than 2℃ higher, it is classified as a super El Niño. The years 1997 and 2015 saw two typical episodes of super El Niño.

This year's El Niño event could be the strongest since 1950.

On June 11, the National Oceanic and Atmospheric Administration (NOAA) officially issued an El Niño advisory, confirming the presence of El Niño conditions and projecting an intensification until late 2026 and early 2027. They believe that the probability of a super El Niño occurring from November this year to January next year is 63%. The Institute of Atmospheric Physics of the Chinese Academy of Sciences has a slightly more conservative estimate, with a probability of occurring at a moderate intensity of over 70%, and a super-strong probability of about one-tenth.

Meteorologist Ben Noll posted a Pacific sea surface temperature map on X with the title "Pacific Running a Fever." The map is filled with deep orange and red covering more than half of the Pacific Ocean, indicating the extent of this oceanic heatwave, which is over eight times the size of the contiguous United States.

For us, its impact is not about "directly causing a particular storm" but rather about changing the background atmospheric circulation. It will affect the position of the West Pacific subtropical high, alter the East Asian summer monsoon's moisture transport path, make it easier for the rain belt to deviate from its usual location, and increase the risks of high temperatures, droughts, and intense convective storms.

Coupled with global warming, for every 1°C increase in temperature, the atmosphere can hold about 7% more water vapor. Therefore, today's El Niño is not occurring in normal climate conditions but rather against a backdrop that is already hotter, more humid, and more prone to extremes.

While one side deals with monsoons and typhoons, the other side of the financial market has already sensed something, with some funds getting itchy.

On June 24, Bloomberg reported that hedge fund Moreton Capital Partners is raising $500 million for a special vehicle. The target of the trade includes South African corn, Malaysian palm oil, Australian wheat, and other crops that will be affected by El Niño. Co-founder Les Finemore gave only one reason: the market vastly underestimates the risks posed by this year's El Niño.

Weather is no longer just background noise in a commodity portfolio; to some extent, it can entirely stand alone as a separate investment theme.

Why can Finemore raise $500 million? Because making money through extreme weather events like El Niño is not just a theory; people have been making big profits from it for decades.

Founder of the "Turtle Trading Method's" First Pot of Gold

In 1972, the anchovy off the coast of Peru suddenly disappeared.

This small fish, which is only a few inches long, is rarely eaten by most people around the world in their lifetime. However, it is ground into fishmeal and is one of the most important protein sources in global animal feed.

The disappearance of the capelin is due to a sudden warming of the waters in the Equatorial Pacific, where cold water no longer upwells, breaking the marine food chain. Meteorologists later gave a name to this phenomenon: El Niño.

With the fishmeal gone, feed producers had to find substitutes, pushing up the price of soybean meal, consequently causing a rise in soybean prices.

In the Chicago Mercantile Exchange, a young trader, Richard Dennis, who was under 26 years old, saw the price continuously hitting new highs and kept buying soybeans. In 1974, he made about $500,000 trading soybeans and became a millionaire by the end of the year.

Young Richard Dennis

And that young trader who made his first fortune, Richard Dennis, later became the famous founder of the "Turtle Traders," and his name became one of the founding fathers of trend-following trading.

Another typical story comes from Anthony Ward, also known as Chocfinger. In 1998, he founded Armajaro in London, specializing in cocoa and coffee. What set this company apart was not the trading desk but the meteorological department: they built their own network of weather stations, hired full-time meteorologists, and deployed a research team of over 20 people in West Africa.

His logic was that slight weather changes could cause a 10% fluctuation in crop yields. Whoever knew the weather first knew the prices first. In 2002, he took delivery of three-quarters of the London commodity exchange's cocoa for the month, making a pre-tax profit of £10.4 million. On July 17, 2010, he received a one-time delivery of 240,100 tons of cocoa worth £658 million, which accounted for 7% of the global annual supply, essentially representing all visible European stocks at the time. Cocoa prices surged to their highest levels since 1977.

Let's now look at some examples from recent years.

In 2024, cocoa was the wildest commodity globally. Ivory Coast and Ghana in West Africa, where 70% of the world's cocoa is produced, faced unusually high temperatures and dry Harmattan winds (a hot dry wind blowing from the Sahara toward the West African coast). The cocoa pods were extensively damaged, coupled with diseases, aging trees, and low stocks. Cocoa futures surged over 400% in two years, briefly exceeding $10,000 per ton.

It's not just the cocoa industry insiders who have cashed in on the market madness, but also a group of quantitative trend-following funds. Razvan Remsing of Aspect Capital said it was their best first quarter in 25 years. AQR's managed futures strategy surged about 17.4% in the first quarter. Capital Fund Management's trend-following fund rose around 17.5%. Aspect's flagship fund was up 21.4% by late April. Winton, founded by David Harding, saw its diversified macro fund rise by about 13% in the first quarter.

During the same period, Winton not only made a significant profit on cocoa but also scored big in another direction: El Niño usually leads to a milder winter in parts of the U.S. With less cold weather, the demand for heating gas weakens, inventories pile up, and the U.S. natural gas benchmark price, Henry Hub (equivalent to Brent in the oil market), fell to near 30-year lows.

Bet on Cocoa or Sugar?

Fast forward to 2026. This round of El Niño hasn't peaked yet, but the market has already taken off.

Crude palm oil surged from ¥9,400 to ¥9,993 in late April before retracing. Rubber started its climb from the April low and briefly broke through ¥18,300 in mid-May. Sugar has been seesawing between ¥5,200 and ¥5,450. Peanuts rallied for seven consecutive days on drought concerns and cost support.

The strange thing is, the fundamental realities of these commodities do not support the price hikes. Malaysia's palm oil inventories were still rising by the end of May, with domestic sugar stocks up 1.83 million tons year-on-year and palm oil domestic stocks up 25.68% year-on-year. Production has not yet begun to decline, but prices have risen. The only reason for the rise is the anticipation of production cuts due to the El Niño event 6 to 12 months later.

Over the past fifty years, every El Niño event of moderate to strong intensity has left its mark on the commodity market. In 1982, palm oil surged by 169% during that event. From 2009 to 2010, Indonesia's rubber production fell by 11.3%, and spot prices rose by 157.79% over two years. From 2015 to 2016, sugar prices rose by 65%.

In Southeast Asia, it brings drought, affecting palm oil and rubber production. In India, it weakens the monsoon, impacting sugar and cotton. In Peru, it causes anchovy disappearance, driving up fishmeal prices. However, at the other end of South America, it brings more rainfall, potentially benefiting soybeans and sugarcane in Brazil and Argentina. In the mining regions of Chile and Peru, the heavy rains are affecting copper mines rather than farmland. In the U.S., the warm winter is affecting natural gas demand.

The overseas community is still discussing this El Niño event.

Commodity blogger @tleilax__ posted two prediction charts. One chart shows how much higher global temperatures will be from July to September this year compared to the same period in previous years. The chart is mostly red, and this period happens to coincide with the crucial growth stage of grains, oilseeds, Asian rice, and sugar.

The other chart indicates whether there will be more or less rainfall than usual during the same period. Large areas of India and Southeast Asia are shown to be drier, aligning with the market's biggest concern of a weakened monsoon.

Therefore, the conclusion is that India and Southeast Asia may experience the weakest monsoon rainfall in decades, and this is happening against the backdrop of a global fertilizer shortage. The post has received over 1.08 million views so far.

A commodity column on Substack has identified palm oil, cotton, and cocoa as the cluster with the clearest risk-return profile for the next 6 to 12 months. The Singapore investment community has been examining Malaysian plantation stocks one by one, concluding that pure upstream planters are benefitting from all the price elasticity, while companies like IOI Group with a focus on midstream and downstream processing are seeing their margins squeezed by rising palm oil prices. The U.S. stock community is discussing a more convoluted argument: Brazilian and Argentine agribusiness company Adecoagro is a "weather hedge for tech-heavy portfolios" because El Niño brings rain to South America instead of drought, and when prices spike due to reduced Asian production, its output is actually expanding.

With much of this market movement script still waiting to unfold, it's not necessarily advantageous to buy in early. There aren't many hard indicators that can change position direction, but each one is crucial:

Whether the Niño3.4 Index in autumn and winter breaks through 2.0°C, which is the dividing line between moderate and strong El Niño events, and the switch that escalates overall agricultural price volatility. Rainfall data from India's monsoon season from June to September will steer the direction for sugar, cotton, and rice. Monthly inventory reports from the Malaysian Palm Oil Board will determine how quickly high inventories are being absorbed, dictating when the expected market trend will align with the actual trend. The duration of July rainfall in Guangxi and the number of consecutive hot days in North China, with the former affecting sugar and the latter electricity. The subsequent fundraising scale of weather-specific funds like Moreton, where institutional funding will decide whether weather trading is a short-term pulse or the overarching theme for the whole year.

The experiences from 1972 and 2024 point to the same time lag: the true price effect of El Niño mostly occurs after the peak of the event. Dennis only made money two years after the herring crash, and cocoa only took off after ENSO transitioned to a neutral phase. Market trading in the second half of 2026 is based on expectations, while 2027 trading will reflect the actual production decline.

Initially, Nobody Paid Attention to This Storm

Aside from these trading opportunities, what is more thought-provoking is the two highly retweeted posts by financial blogger @FinanceLancelot on X.

One post mentioned that NOAA (the U.S. National Oceanic and Atmospheric Administration, one of the most frequently cited climate monitoring agencies globally) was predicting a never-before-seen "Super El Niño" since 1878, implying warming, widespread drought, crop failures, and famine risks in the next two to three years, accompanied by a Sky News video titled "11% of the Global Population."

The other post had a similar viewpoint: global energy maritime supply had fallen by 60% in the past 60 days, accompanied by a shipping fuel flow chart showing a cliff-like drop from the early year's peak. His conclusion was that a fertilizer shortage coupled with El Niño could lead to a global food shortage within 3 to 4 months.

The wording of these posts carried a clear apocalyptic tone, not to be taken at face value.

However, they reflected one thing: a group of people in the market had already been connecting the dots of El Niño, energy supply disruptions, fertilizer shortages, and tensions in the Strait of Hormuz into a narrative, and this narrative is gaining traction and attention.

More importantly, this narrative points not only to gains and losses in futures accounts but potentially to impacts on everyone, adding to everyone's cost of living.

Initially, nobody paid attention to this storm. It was just a typhoon, a heavy rain, a slight increase in sea temperature.

But a storm does not stop just because nobody pays attention. Torrential rains around the world, canceled flights, disappearing anchovies in Peru, rotting cocoa pods in Ghana, sugar shortages – these are already part of the storm, ultimately landing in different people's lives.

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