Author: Jia Liu, Zhangsheng Beatz
It rained heavily and unexpectedly for several days in Tianjin. You'd leave home in sunshine only to get soaked halfway. A friend's flight to Shenzhen in the evening was canceled due to a typhoon, and all high-speed train tickets to Zhejiang direction were suspended.
Checking the news on the phone: rainfall exceeded 329 mm in just a few hours in Fushun, Liaoning. Residents in Fangchenggang, Guangxi, said it was the most severe flood in 20 years. Daily precipitation records were broken at seven national meteorological stations. The largest high-temperature warning in northern China was issued, with ground temperatures approaching 50°C in some places. In the first week of July, two to three typhoons were queuing up to form in the Western Pacific, with super typhoon 'Bavi' approaching the southeast coast.
Since the start of summer in 2026, the weather in China has clearly become more restless.
And it's not just us. Sea temperatures off the coast of Peru remain persistently warm, limiting anchovy catches, with fishmeal prices rising about 80% over the past year. As Southeast Asia enters the dry season, drought signals are strengthening, putting palm oil producing regions in Malaysia and Indonesia on edge. The crucial window for the Indian monsoon hasn't arrived yet, but markets are already betting it will be weak. Analysts have flagged Australian wheat planting area as potentially shrinking significantly.
These extreme weather changes are scattered across different continents, seemingly unrelated. But in fact, beyond the direct trigger mechanisms like monsoon moisture, tropical storm peripheral circulation, location, and topography, they most likely have all been influenced by the same storm:
ENSO, El Niño.
El Niño: The Pacific is Running a Fever
ENSO, translated in Chinese as El Niño–Southern Oscillation, is the largest interannual signal in Earth's climate system. Simply put, it describes the periodic changes between Pacific sea temperatures and atmospheric circulation.
Under normal conditions, the eastern equatorial Pacific is relatively cool, and the western part is relatively warm. Trade winds push warm water toward the western Pacific. But if the trade winds weaken, warm water flows back eastward, abnormally raising sea temperatures in the central and eastern Pacific, resulting in an El Niño.
Meteorological agencies judge whether an El Niño is occurring mainly by looking at a key region: the Niño3.4 region (a critical area in the equatorial central Pacific, understood as the "thermometer" for judging El Niño strength). If this region's temperature remains 0.5°C above the normal for several consecutive months, it's considered an El Niño state; if it's 2°C above, it's a super-strong level. 1997 and 2015 were two typical super-strong El Niño events.
This year's El Niño could become the strongest one since 1950.
On June 11, the U.S. National Oceanic and Atmospheric Administration (NOAA) officially issued an El Niño watch, confirming that El Niño conditions have emerged and are expected to strengthen through late 2026 to early 2027. They estimate a 63% probability of a super-strong El Niño occurring from November this year to January next year. The judgment from the Chinese Academy of Sciences' Institute of Atmospheric Physics is slightly more conservative, with a probability of over 70% for a moderate event and about 10% for a super-strong one.
Meteorologist Ben Noll posted a Pacific sea temperature map on X with the caption "Pacific fever." Deep orange and red cover most of the Pacific on the map, showing the area of this marine heatwave exceeds 8 times the size of the contiguous United States.
For us, its impact is not "directly creating a specific rainstorm," but rather altering the underlying tone of atmospheric circulation. It influences the position of the Western Pacific Subtropical High, changes the path of water vapor transported by the East Asian Summer Monsoon, making rain belts more likely to deviate from their normal positions, and increasing the risk of high temperatures, droughts, and severe convection.
Compounded with global warming, for every 1°C increase in atmospheric temperature, its capacity to hold water vapor increases by about 7%. So today's El Niño isn't happening in a normal climate but against a backdrop that is already hotter, wetter, and more prone to extremes.
Here we have monsoons and typhoons, but over there in financial markets, some have already caught the scent, and funds are stirring.
On June 24, Bloomberg reported that hedge fund Moreton Capital Partners is raising $500 million for a dedicated vehicle. The assets targeted are agricultural products affected by El Niño, such as South African corn, Malaysian palm oil, and Australian wheat. Co-founder Les Finemore's rationale was simply: the market is vastly underestimating the risks brought by this year's El Niño.
Weather is no longer just background noise in a commodity portfolio; to some extent, it can stand alone as a separate theme for capital raising.
How can Finemore raise $500 million? Because profiting from extreme weather like El Niño isn't theoretical; people have been making big money from it for decades.
The First Fortune of the 'Turtle Trading' Founder
In 1972, the anchovies off the coast of Peru suddenly disappeared.
This tiny fish, about a dozen centimeters long, is something most people in the world will never eat, but when ground into fishmeal, it's one of the most important protein sources in global animal feed.
The disappearance of the anchovies was precisely because the equatorial Pacific waters suddenly warmed up. Cold water no longer upwelled, breaking the plankton chain. Meteorologists later named this phenomenon: El Niño.
With no fishmeal, feed manufacturers had to find substitutes, pushing up the price of soybean meal, which in turn drove up the price of soybeans.
At the Chicago Mercantile Exchange, a young trader not yet 26, Richard Dennis, saw prices hitting new highs and kept buying soybeans. In 1974, he made about $500,000 on soybeans and became a millionaire by year-end.
Richard Dennis in his youth
And this young trader, Richard Dennis, who made his first fortune, would later become the famous founder of the "Turtle Traders," his name enshrined as one of the patriarchs of trend trading.
Another classic story is that of Anthony Ward, nicknamed Chocfinger. He founded Armajaro in London in 1998, specializing in cocoa and coffee. What set this company apart was not its trading desk but its meteorology department: a proprietary weather station network, employing full-time meteorologists, and a research team of over 20 people in West African producing regions.
His logic: small weather changes could cause crop yields to fluctuate by 10%; whoever knows the weather first knows the price first. In 2002, he took three-quarters of the London exchange's cocoa delivery for the month, with a pre-tax profit of £10.4 million. On July 17, 2010, he received 240,100 tonnes of physical cocoa in one go, valued at £658 million, about 7% of global annual production, essentially all visible inventory in Europe at the time, pushing cocoa prices to their highest since 1977.
Let's look at some more recent examples.
In 2024, cocoa was the craziest commodity globally. West Africa's Côte d'Ivoire and Ghana, producers of 70% of the world's cocoa, suffered from abnormally high temperatures and dry Harmattan winds (a dry, hot wind blowing from the Sahara to the West African coast). Cocoa pods rotted on a large scale, compounded by disease, old trees, and low inventories. Cocoa futures rose over 400% in two years, briefly surpassing $10,000 per tonne.
Those who captured the bulk of this move weren't just cocoa industry players, but a group of quantitative trend funds. Razvan Remsing of Aspect Capital said it was their best first quarter in 25 years. AQR's managed futures strategy rose about 17.4% in Q1. Capital Fund Management's trend fund rose about 17.5%. Aspect's flagship fund was up 21.4% by late April. Winton, founded by David Harding, saw its diversified macro fund rise about 13% in Q1.
During the same period, besides making significant money on cocoa, Winton also made a lot on another front: El Niño typically brings warmer winters to parts of the U.S. A less cold winter means weaker heating demand for natural gas, inventories build up, and the U.S. natural gas benchmark price, Henry Hub (equivalent to Brent in the oil market), fell to near 30-year lows.
Bottom-Fishing Cocoa, or Sugar?
Back to 2026. This round of El Niño hasn't peaked yet, but the market has already front-run one wave.
Palm oil futures surged from 9400 yuan in late April to 9993 yuan before retreating. Rubber rose from its April low, briefly breaking 18300 yuan in mid-May. Sugar fluctuated repeatedly between 5200 and 5450 yuan. Peanuts rallied for seven consecutive sessions, supported by drought conditions and cost factors.
The strange thing is, the actual fundamentals of these commodities don't support the rise. Malaysian palm oil inventories were still increasing month-on-month by the end of May. Domestic sugar inventories in China were 1.83 million tonnes higher year-on-year. Domestic palm oil inventories were up 25.68% year-on-year. Production hasn't started falling yet, but prices rose first. The only reason for the rise is the anticipation of reduced yields 6 to 12 months later due to El Niño.
Over the past fifty years, every round of moderate or stronger El Niño has left its mark on commodity markets. In the 1982 round, palm oil rose 169%. From 2009 to 2010, Indonesian rubber production fell 11.3%, and spot prices rose 157.79% over two years. From 2015 to 2016, sugar rose 65%.
In Southeast Asia, it brings drought, suppressing palm oil and rubber yields. In India, it weakens the monsoon, affecting sugar and cotton. In Peru, it makes anchovies disappear, pushing up fishmeal prices. But at the other end of South America, it brings more rain, potentially improving soybean and sugarcane conditions in Brazil and Argentina. In the mining regions of Chile and Peru, heavy rainfall impacts not farmland but copper mines. In the U.S., a warm winter suppresses natural gas demand.
Overseas community discussions about this El Niño are still fermenting.
Commodities blogger @tleilax__ posted with two forecast maps. One map shows how much higher global temperatures from July to September this year are expected to be compared to the same period in previous years. The map is almost entirely red, and this timeframe coincides with the crucial growing period for grains, oilseeds, Asian rice, and sugar.
The other map shows whether rainfall will be higher or lower than the historical average for the same period. It shows large swathes of India and Southeast Asia as drier than usual, precisely matching the market's biggest fear: a weak monsoon.
His conclusion: India and Southeast Asia could experience the weakest monsoon rainfall in decades, and this is happening against a backdrop of a global fertilizer shortage. This post has garnered over 1.08 million views so far.
A commodities column on Substack listed palm oil, cotton, and cocoa as the cluster with the clearest risk-reward profile for the next 6 to 12 months. The Singapore investment community is scrutinizing Malaysian plantation stocks one by one, concluding that pure upstream planters capture the full elasticity, while companies like Wilmar International, focused on midstream and downstream processing, get their margins squeezed by rising palm oil prices. The U.S. stock community is circulating an even more nuanced argument: Adecoagro, an agricultural company in Brazil and Argentina, is a "weather hedge for tech-heavy portfolios" because El Niño brings rain, not drought, to South America; its output expands while Asia's production declines, pushing up prices.
The script for this round's market move is still largely unwritten, so it's not necessarily better to buy earlier. There aren't many hard indicators that can change position direction, but each is crucial:
-
Whether the Niño3.4 index breaks above 2.0°C in autumn/winter. This is the dividing line between moderate and super-strong, and the switch for overall agricultural volatility to step up.
-
Indian monsoon rainfall data from June to September. The steering wheel for the sugar, cotton, and rice group of commodities.
-
Monthly inventory reports from the Malaysian Palm Oil Board. The speed at which high inventories are drawn down determines when the expected market move connects with the actual market move.
-
Rainfall in Guangxi, China, in July and the consecutive days of high temperatures in North China. The former governs sugar, the latter electricity.
-
The subsequent fundraising scale of weather-focused funds like Moreton. The volume of institutional capital determines whether weather trading is a short-lived pulse or a year-long theme.
The experiences of 1972 and 2024 point to the same time lag: the real price effects of El Niño mostly occur after the event's peak. Dennis made his money two years after the anchovy collapse. Cocoa truly exploded after ENSO turned neutral. In the second half of 2026, the market is trading on expectations; in 2027, it will trade on the actual production shortfall itself.
At First, No One Cared About This Storm
Beyond these trading opportunities, what's more thought-provoking are two highly shared posts on X by finance blogger @FinanceLancelot.
One said NOAA (the U.S. National Oceanic and Atmospheric Administration, one of the world's most frequently cited climate monitoring agencies) is predicting a "super El Niño" unseen since 1878, implying warming, widespread drought, crop failures, and famine risks over the next two to three years. It was accompanied by a Sky News video titled "11% of the global population."
Another post expressed a similar view: global energy and maritime supply has fallen 60% in the past 60 days, accompanied by a shipping oil product flow chart showing a cliff-like drop from the start of the year. His conclusion: fertilizer shortages coupled with El Niño could lead to food shortages globally within 3 to 4 months.
The wording of these posts carries obvious doomsday overtones and shouldn't be taken at face value.
But they reflect one thing: a group of people in the market are already weaving a narrative connecting El Niño, energy supply disruptions, fertilizer shortages, and tensions in the Strait of Hormuz. And this narrative is gaining traction and attention.
More importantly, this narrative points not just to gains and losses in futures accounts, but to potential impacts on the lives of ordinary people, adding to everyone's cost of living.
At first, no one cared about this storm. It was just a typhoon, a downpour, a slight rise in sea temperature.
But the storm doesn't stop just because no one cares. The heavy rains around the world, the canceled flights, the disappearing anchovies in Peru, the rotting cocoa pods in Ghana, the sugar shortages—these are already part of the storm, destined to land in the lives of different people.
