IMPACTS OF THE RECENT MULTI-YEAR CALIFORNIA DROUGHT
Too much, too soon--that is what California residents and farmers have been worried about, following multi-year droughts that have decimated the Almond and other industries.
An extreme California drought happens once every 20 to 50 years and wreaks havoc on crops. An exceptional drought, meanwhile, comes every 50 to 100 years, causing true water emergencies by draining reservoirs, streams and wells. Until these deluges and record Western snows, benefiting many ski resorts from Tahoe to Utah and Colorado, California had the driest 3 year stretch since 1895. California's climate varies tremendously, from temperate rainforests on the North Coast to the extreme aridity of Death Valley. Conditions were so dry that all of the state was to be considered to be in a drought. More than 80 percent of the state was in extreme or exceptional drought. So why has the drought finally ended? It's a complex combination of a volatile weak La Nina pattern that at times has acted more like an El Nino and changing Pacific Ocean currents. The high pressure ridge off the West Coast has finally died. Think of it as a mountain of air - that sat for months over the eastern Pacific Ocean. The name was coined by Daniel Swain, a doctoral student at Stanford University who writes The California Weather Blog. Our Climatech program predicted this 2 months ago and more heavy rains and snows will persist for at least 2-3 more weeks.
The ridge sent storms that normally would hit California up over the Alaskan panhandle and the Yukon, leaving California unusually dry. The ridge extended from British Columbia down the coast of California, blocking storms from making their way to the Golden State.
This has created incredible volatility and complexity in the U.S. weather pattern and has whip-sawed the natural gas market for weeks (UNG). This makes trading volatility the way to go in the natural gas market ([[DGAZ]], UGAZ).
Up until recently, continued deep groundwater, while reducing the economic impacts of the drought for the agricultural sector now, has shifted the burden to others, including current and future generations forced to dig deeper wells, find alternative drinking water sources, and repair infrastructure damaged by subsidence.
Last year, California Gov. Jerry Brown had asked restaurants not to serve water unless diners ask for it. He let lawns at the state Capitol turn brown. Farmers in the Central Valley were getting just a trickle of the water they usually do. Conspicuous water wasters - commercial and residential - faced fines of $500 a day.
California farms, which guzzle 80 percent of the water used by humans in the state, were feeling the heat. Farmers in the dry Central Valley alone may lose close $810 million last year from keeping their fields idle, according to the UC Davis Center for Watershed Sciences. They also spent an extra $453 million on pumping water out of the ground. The state lost close to 17,100 agricultural jobs because of the drought.
California produces nearly half of the fruits, vegetables and nuts grown in the United States.
In the past 20 years, nut trees, like almonds, have become more popular to plant because the crops are lucrative. In a dry year, a nut tree still needs water to survive, while an annual crop, like rice or tomatoes, could not be planted that year and the field left fallow.
Food Prices. Hasn't There Been Inflation?
Some farmers in these areas have invested in lucrative crops that have to be watered year-round or they die. This means the drought started to hit our pocketbooks as farmers idled land, driving up prices. The U.S. Department of Agriculture predicted fruit prices would rise another 6 percent this year, while vegetables may go up as much as 3 percent nationwide. However, the incredible, fast easing of the drought will be a shot in the arm for California farmers this summer and may help to "cap" many vegetable and fruit prices here in the U.S. This could curb food inflation in the U.S. Interestingly enough, many folks do not realize that "food prices" were taken out of the Consumer Price Index back after the infamous global 1983 El Nino, which sent food prices soaring. No question that food prices have soared in recent years and California droughts and occasional global weather disasters for coffee, sugar or cocoa, can have times have inflationary effects!!
Trading the California Floods and Weather Related Commodities
So how can one play certain equities in based on too much rain, too soon in California? Here are 3 stocks that may be introducing to look at in order to clean up what will likely be a further mess from mud-slides and record rains and snows in the weeks ahead.
With respect to commodities, it is the ETF (NYSEARCA:JO) that I recommended traders look into a couple weeks ago, as growing world weather issues to coffee is creating havoc, especially to Robusta coffee crops in NE Brazil and Vietnam, from flooding. You can listen to more of my ideas about commodities and weather, here.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.