La Nina may further disrupt commodity markets via hurricanes -Braun
As if commodity markets needed any more drama this year, this year’s Atlantic hurricane season could be the seventh-consecutive with above-average activity, raising risks for U.S. grain exports as well as oil production and refining capacity.
Significant disruptions for U.S. commodities resulting from hurricanes are more the exception than the rule, but tight global stocks, high prices and geopolitical conflicts could amplify any storm impacts that surface this year.
Present for a third consecutive year, La Nina is the primary culprit for forecasters’ beefier predictions for hurricane season, which tends to peak in the second week of September.
La Nina-induced droughts have already contributed to higher global grain prices, wrecking soybeans and corn in South America over the last two seasons and whittling this year’s U.S. hard red winter wheat crop to a 59-year low.
Unfortunately for commodity markets, the Gulf of Mexico is a common destination for Atlantic hurricanes. Louisiana ports are the busiest for U.S. grain exports, and about half of U.S. petroleum refining capacity resides along the Gulf Coast.
In August 2017, Harvey made landfall in Texas as a major hurricane, knocking up to 23% of U.S. refining capacity offline at one point. U.S. gasoline futures surged as much as 30% in the days following landfall, though the resulting prices were still only half of today’s record levels.
Four years later, Hurricane Ida damaged or destroyed several Louisiana grain export terminals, capping September 2021 U.S. corn and soybean exports at just half the typical volume.
Strong grain exports returned in October 2021 and gasoline futures corrected within days of Harvey’s 2017 arrival, though there may be less room for error today. Global grain shipments are already precarious with Ukraine’s offerings still very limited.
U.S. distillate fuel oil stocks have dropped to more than 15-year lows and record lows along the East Coast, which relies on supplies from the Gulf. Low stocks in Europe and pressures from sanctions on Russia may not be able to help pad U.S. supplies in case of a hurricane-fueled shortage.
Sometimes hurricanes can benefit agriculture, as in 2012 when storm remnants dumped rain on drought-withered soybeans in the eastern United States. But impacts are usually negative, frequently hampering grain and feed transportation, livestock operations and cotton production.
LA NINA AND FRIENDS
The U.S. National Oceanic Atmospheric Administration (NOAA) last month placed 65% odds on an above-average Atlantic hurricane season including six to 10 hurricanes, between three and six of them considered major. NOAA had 60% confidence for above-normal activity ahead of the 2021 and 2020 cycles.
The 2020 season, encouraged by La Nina’s development, was the most active for Atlantic hurricanes on record. However, it did not feature any Category 5 storms, the strongest rating on the Saffir-Simpson scale.
La Nina conditions occur when the eastern equatorial Pacific Ocean becomes sufficiently cooler than normal, opposite to the warm phase, El Nino. La Nina has been present since mid-2020 and is favored to persist through at least early 2023.
La Nina tends to reduce wind shear over the tropical Atlantic Ocean, often favoring hurricane formation. Wind shear characterizes how wind speed and direction change with height, and storm development can be hindered when shear is too strong.
Warm sea surface temperatures and an area of organized, long-lasting thunderstorms, in addition to weak wind shear, provide the breeding ground for hurricanes. The Atlantic Ocean and Caribbean Sea are warmer than normal, supporting the forecast for an active season, which began on June 1.
Frequent Atlantic hurricanes are not guaranteed with La Nina as near-average seasons have coincided, but below-average activity was extremely uncommon. Likewise, the strongest El Nino years have featured a lower number of hurricanes.
According to NOAA, increased hurricane activity in recent years can be attributed to the warm phase of the Atlantic Multidecadal Oscillation (AMO) that began in the mid-1990s, favoring stronger and longer-lasting storms like Harvey.
Scientists believe AMO, which measures sea surface temperature variability in the North Atlantic Ocean, is driven by a mix of internal climate variability and changes in small airborne particles or aerosols. Karen Braun is a market analyst for Reuters. Views expressed above are her own.
Source: Reuters (Editing by Matthew Lewis)