El Niño is a weather and climate phenomenon which is characterized by unusually warm sea and surface temperatures and can be measured by ocean temperatures and atmospheric convection activities. The change in the sea temperature can affect the timing of when the heat transfers from the oceans into the atmosphere, which can affect temperature and rainfall patterns. Historically, El Niño has immediately impacted the agriculture sector, but its effects can also be felt later in the global marketplace.
A strong El Niño is often associated with warm weather, drought, and torrential rain in various parts of the world, each effect varying depending on where you live. Some analysts predict that Asian economies would be impacted negatively, but the U.S. stands to gain from the changing weather patterns. El Niño can lead to severe drought in parts of Southeast Asia and heavy flooding in North America, as well as crop failures and severe flooding, which can cause food shortages in some of the world’s poorest countries. Somalia has experienced crop failure and food shortages, and 3 million people are in need of support. Ethiopia is experiencing its worst drought in 30 years and the drought in Central America is the most severe on record. There has been a disruption in commodity production and price increases; for example, reduced monsoon rain in India could lead to a smaller output of rice and sugar crops. Nickel production in Indonesia would decrease because dry weather in Indonesia would mean that there is less water to run hydro-powered mining equipment, and wet weather in Chile could lead to flooding in copper mines and decrease copper supplies. In addition, the drought in Australia could devastate production of wheat and other crops, but warm weather in Brazil could alleviate the risk of frost, which can reduce crop output.
International climate models suggest that El Niño is approaching its peak and will decrease in the first quarter of 2016. El Niño weather pattern could last until the middle of 2016, so farmers and growers across the globe could continue to struggle with unseasonable weather conditions. Agricultural prices have rallied due to fears of weather-related supply shortages; the prices of sugar, dairy, and palm oil have all risen. The U.S. economy stands to gain from the shift in weather patterns as a milder winter would support growth in consumer spending and housing. In addition, the added warmth can add 0.1 percent to inflation adjusted GDP in the first quarter and 0.55 percent for the year. In contrast to the past two years, cold weather stunted growth in the first quarter. It is believed that the increase in growth would be largely in construction and consumer spending. The slightly stronger growth in the first quarter could be because of the seasonal adjustment used to compensate for the normal slowdown in activity, which may be disrupted because of the previous year’s weaknesses.