El Niño: Ready to Wreak Havoc This Winter?

According to NOAA scientists, El Niño conditions are emerging in the Pacific and are expected to last through the 2009-10 winter. It is still too early to tell the severity of this year’s El Niño, with computer model forecasts ranging from relatively weak to strong intensity. But, given El Niño’s tremendous capacity for influencing weather worldwide … and thus, cost drivers for business … it’s worth monitoring the situation and taking some precautionary measures.

When we think of weather’s impact on supply chain costs, risks and logistics, we’re usually discussing discrete events, such as hurricanes. But El Niño is a whole other beast, capable of turning weather patterns on their heads for months at a time. Think back to the winter of 1997-98, the last year we had a severe El Niño. As The Times reported, that winter “torrential rains pulverized California, heatwaves swept across Australia and Brazil, forest fires blanketed Indonesia, eastern Africa was flooded while southern Africa withered under drought, and floods and storms caused billions of dollars’ damage to crops and buildings.” Undoubtedly, supply chains and corporate bottom lines across the world experienced the wrath of El Niño.

This year, it’s a potentially daunting situation for a global economy that will (hopefully) be coming out of a recession. And if it does turn out to be a moderate-to-strong El Niño, we can expect significant repercussions in a few areas:

• Commodity Prices - When weather breaks from the norm, it can devastate crops. If there are floods in dry climates and droughts in typically humid environments, we can expect commodity prices to rise. Add in the political, social and supply chain risks that could result from food scarcity and high prices (particularly at a time of global economic malaise), and you can see how the situation could go from bad to much, much worse very quickly. After all, El Niño may have even been the catalyst for the French Revolution. So, it’s no stretch to think it could raise the cost of your cake.
• Transportation Networks - As with any risk posed by natural or man-made disaster, having a good contingency plan for vital transportation routes will keep your supply chain and sales channels moving. The complexity of creating a Plan B for an El Niño event may be far more daunting than hurricane season, but that just means it’s that much more important to asses your situation sooner than later.
• Green Momentum - Look, I’m not saying anthropogenic global warming definitely caused this year’s El Niño. The truth is that yearly variability is FAR outside of the range of global warming numbers and direct causation is nearly impossible to prove. But that won’t stop opportunists from trying to connect those dots, or rational people from thinking about the costs of climate change, man-made or otherwise. Either way, if it’s a winter filled with wild, severe weather, there will likely be additional pressure on government and the private sector to speed up their plans to combat global warming.

***I can’t write a post about El Niño with linking to Chris Farley’s translation***

Disclosure: No positions

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.

Comments

[doubleguns:]

Silver lining, the tuna fishing out of San Diego should be awesome.

Jul 14 08:53 AM

[Neil459:]

From the article, "computer model forecasts ranging from relatively weak to strong intensity" and these same computer models, some would have you believe, forecast global warming as absolute. They can not accurately forecast rain tomorrow or this winter, why would anyone except an idiot believe they can forecast 20 years out.

Jul 14 09:07 AM

[tedfoo:]

Since my day job is an operational meteorologist, I'll offer my insight to anyone willing to read these few sentences.

This El Nino cycle is expected after the recent episode of La Nina, the counterpart to El Nino, but much less publicized. This is a perfectly normal cycle that has been documented by weather instruments for the last 100 years, and likely been occurring for several thousand years before it. Yes El Nino can cause a shift in a weather pattern in some places to warmer-drier-colder-we... seasons, but the correlations are fairly weak for the majority of the hemisphere.

I've had a look at the computer model ensemble data and have come to the conclusion that this will not be a strong event, or we would have seen better signals by now. The 97-98 event was especially strong, but overhyped 100 fold by the media after California had been hit by a series of winter storms. Thereafter every flood, drought, fire, locust swarm, tornado, and crying baby around the world was blamed on El Nino.

The author seems to suffer from the same media illusion that El Nino is a bad "storm" only to bring chaos where ever it goes. El Nino is not a storm, nor can it ever be blamed for a bad storm or weather event.

If you're expecting to play the El Nino into your investment arsenal, consider yourself warned. We've had 3 weak to moderate El Nino events since 97-98, and I'll bet you didn't even know it. Where was the chaos then?

Jul 14 10:26 AM

[GMiki1:]

An interesting article and interesting comments. I had heard that the effect of the El Nino was lower hurricane risk, meaning less chance of oil supply disruption in the Gulf of Mexico.

Jul 14 10:42 AM

[Larrysyr:]

Weather is fickle. In my part of the rust belt, El Nino brings mild, wet summers and warmish, low-snow winters. The winter of 97-98 was especially tranquil here. If we're in for a repeat this winter, I won't be complaining.

Jul 14 01:15 PM

[Justin Fogarty:]

Thanks for the feedback everyone. Some great points about the difficulty with forecasting, the sky-is-falling tendencies of the media, and the positive effects of El Nino in some areas (more tuna and sunshine).

Just a little on my background - I have an MSc in Satellite Remote Sensing from University College London, where I wrote my dissertation on hurricane prediction modeling. But don't get me wrong....that experience taught me that models are often wrong. Especially for complex phenomenon like El Nino (although new research points to an improved ability to forecast more accurately and further out by looking at an El Nino "subset" - www.usatoday.com/weath...).

Anyway, the point I hope to get across is that an El Nino event has the potential to change the odds of more acute weather events (hurricanes, floods, draughts, etc). And as companies and investors weigh their risks and develop contingency plans, such as hedging commodities or identifying back-up transportation routes, this is one other thing to keep an eye on.

Jul 14 05:11 PM

[jerrydd:]

I live in Fla and this as most El Nino's are very welcome as they brig us out of our cyclical dry spells and out last one was bad.

One can expect good growing conditions here, fatter feeder cattle to ship out west and cooler summer high temps with warmer nights.

Normally it means decreased hurricane activity. So We like El Nino!! Nor do I think Cal mind more rain other than the dumb ones who build on hills that like to slide downward. I'd expect Cal crops to do much better with more clean, less salty irrigation water. Those like in Huntington Beach who live below sea level will get flooding.

Jul 15 09:09 AM

[Badgolfer:]

Perhaps you can deal with the double effect of modern record low production of Sun Spots.If we're into the early beginning of a mini ice age,then all bets are off.

New England is having no summer

Jul 15 02:48 PM

[Justin Fogarty:]

Couple of interesting El Nino notes I pulled from the business press today:

"Cia. de Bebidas das Americas, Latin America’s biggest brewer, gained the most in three weeks after Deutsche Bank AG said hotter weather sparked by the El Nino weather pattern will lead people to guzzle more beer and soda. " www.bloomberg.com/apps...

"El Nino May Hurt Vancouver Olympics" seattletimes.nwsource....

Jul 15 03:26 PM