The Pacific is 'Burning': How Extreme Weather Became a Cash Cow for Wall Street?

Author: Jia Liu, Zhang Sheng Beatz

Tianjin has been hit by sudden heavy rain for several days; it was sunny before I went out, but I got drenched halfway. A friend's flight to Shenzhen was canceled due to a typhoon, and all high-speed train tickets to Zhejiang were sold out.

Checking the news on my phone, I saw that Fushun in Liaoning experienced over 329 mm of rainfall in just a few hours, and residents in Fangchenggang, Guangxi, said this was the worst flood in 20 years. Seven national meteorological stations recorded daily precipitation that broke historical records. North China issued its largest heat warning, with surface temperatures nearing 50°C in some areas. In the first week of July, two to three typhoons formed simultaneously in the Western Pacific, with the super typhoon "Bavi" approaching the southeastern coast.

Since the summer of 2026, the weather in China has evidently become restless.

It’s not just us who are restless. The sea temperatures off the coast of Peru remain unusually warm, limiting anchovy catches, and fishmeal prices have risen by about 80% over the past year. After entering the dry season, drought signals have intensified in Southeast Asia, causing tensions in oil palm production areas in Malaysia and Indonesia. The Indian monsoon rains have not yet reached the critical window, but the market is already betting on weaker rainfall. Analysts have noted a potential significant reduction in Australia’s wheat planting area.

These extreme weather changes are scattered across different continents and seem unrelated. However, apart from direct triggering mechanisms such as monsoon moisture, tropical storm outer circulation, location, and terrain, they are likely all influenced by the same storm:

ENSO, El Niño.

El Niño: The Pacific is Burning

ENSO, translated into Chinese as "El Niño-Southern Oscillation," is the largest interannual signal in the Earth's climate system. In simple terms, it describes the cyclical changes between Pacific sea surface temperatures and atmospheric circulation.

Under normal circumstances, the eastern equatorial Pacific is cooler, while the western side is warmer, with trade winds pushing warm water towards the western Pacific. However, if the trade winds weaken, warm water flows back east, causing abnormal warming in the central-eastern Pacific, which is known as El Niño.

Meteorological agencies determine whether El Niño is occurring mainly by observing a key area: the Niño 3.4 region (a critical area in the central equatorial Pacific that can be understood as a "thermometer" for assessing the strength of El Niño). If this area remains above 0.5°C higher than normal for several consecutive months, it is considered to have entered an El Niño state; if it exceeds 2°C, it is classified as a super El Niño. The years 1997 and 2015 were two typical instances of super El Niño.

This year's El Niño could potentially be the strongest since 1950.

On June 11, the U.S. National Oceanic and Atmospheric Administration officially issued an El Niño warning, confirming that El Niño conditions have emerged and are expected to strengthen until late 2026 or early 2027. They estimate a 63% probability of a super El Niño occurring between November this year and January next year. The Chinese Academy of Sciences' Institute of Atmospheric Physics has a slightly more conservative assessment, with a probability of moderate intensity exceeding 70% and a super El Niño probability of about 10%.

Meteorologist Ben Noll posted a sea surface temperature map of the Pacific on X, titled "The Pacific is Burning." The deep orange and red areas cover more than half of the Pacific, indicating that this marine heatwave covers an area more than eight times that of the continental United States.

For us, its impact is not about "directly causing a specific rainstorm," but rather about changing the underlying atmospheric circulation. It will affect the position of the subtropical high in the western Pacific, altering the path of moisture transport by the East Asian summer monsoon, making it easier for rain bands to deviate from their usual positions, thus increasing the risks of high temperatures, drought, and strong convection.

When combined with global warming, for every 1°C increase in temperature, the atmosphere can hold about 7% more moisture. Therefore, today's El Niño is not occurring in a normal climate but in a context that is already hotter, wetter, and more prone to extremes.

On one side, there are monsoons and typhoons, but on the other side, the financial markets have already caught a whiff of something, with funds starting to stir.

On June 24, Bloomberg reported that hedge fund Moreton Capital Partners is raising $500 million for a specialized tool. The target of the trades includes crops like South African corn, Malaysian palm oil, and Australian wheat, which will be affected by El Niño. Co-founder Les Finemore provided only one reason: the market has vastly underestimated the risks posed by this year's El Niño.

Weather is no longer just background noise in the commodity portfolio; to some extent, it can completely stand alone as a separate project and fundraising theme.

How can Finemore raise $500 million? Because making money from extreme weather like El Niño is not just theoretical; people have been making significant profits from it for decades.

The First Bucket of Gold from the Founder of the "Turtle Trading Method"

In 1972, anchovies suddenly disappeared off the coast of Peru.

This small fish, about a dozen centimeters long, is something most people in the world will never eat, but it is ground into fishmeal, one of the most important protein sources in global animal feed.

The reason for the anchovy's disappearance was the sudden warming of the sea in the equatorial Pacific, which stopped cold water from upwelling, breaking the planktonic food chain. Meteorologists later named this phenomenon El Niño.

With the fishmeal gone, feed manufacturers had to find alternatives, which drove up soybean meal prices, and thus soybean prices followed suit.

In the Chicago Mercantile Exchange, a young trader named Richard Dennis, not yet 26, saw prices continuously hitting new highs and kept buying soybeans. By 1974, he had made about $500,000 from soybeans, becoming a millionaire by the end of the year.

Young Richard Dennis

This young trader, who made his first bucket of gold at that time, later became the famous founder of the "Turtle Traders," and his name became one of the founding figures of the trend-following trading style.

Another typical story comes from Anthony Ward, nicknamed Chocfinger. In 1998, he founded Armajaro in London, specializing in cocoa and coffee. The most distinctive feature of this company is not its trading desk but its meteorological department: it has built its own network of weather stations and employs full-time meteorologists, with a research team of over 20 people in West Africa.

His logic is that small weather changes can cause crop yields to fluctuate by 10%; whoever knows the weather first knows the prices first. In 2002, he bought up three-quarters of the cocoa delivery volume for that month on the London Exchange, with a pre-tax profit of £10.4 million. On July 17, 2010, he received 240,100 tons of cocoa in one go, worth £658 million, accounting for 7% of the global annual production, essentially all visible stocks in Europe at that time. Cocoa prices were pushed to their highest since 1977.

Let’s take a look at some examples from recent years.

In 2024, cocoa is the craziest commodity globally. Côte d'Ivoire and Ghana in West Africa, which account for 70% of the world's cocoa production, are experiencing abnormally high temperatures and the dry Harmattan winds (a hot wind blowing from the Sahara to the West African coast), causing widespread cocoa pod rot, compounded by diseases, old trees, and low inventories. Cocoa futures have risen over 400% in two years, once breaking $10,000 per ton.

Those who capitalized on the market surge are not just people in the cocoa industry but also a group of quantitative trend funds. Razvan Remsing from Aspect Capital said it was their best first quarter in 25 years. AQR's managed futures strategy rose about 17.4% in the first quarter. Capital Fund Management's trend fund rose about 17.5%. Aspect's flagship fund rose 21.4% by late April. Winton, founded by David Harding, saw its diversified macro fund rise about 13% in the first quarter.

During the same period, Winton not only made a lot of money from cocoa but also profited significantly in another direction: El Niño typically causes milder winters in some parts of the U.S. When winter is not so cold, the demand for heating gas weakens, leading to inventory accumulation, and the benchmark price of U.S. natural gas, Henry Hub (equivalent to Brent in the oil market), fell to near 30-year lows.

Bottom Fishing for Cocoa or Sugar?

Back to 2026. This round of El Niño has not yet reached its peak, but the market has already jumped the gun.

Palm oil futures surged from 9,400 yuan to 9,993 yuan in late April before retreating. Rubber started from its low point in April and briefly broke through 18,300 yuan in mid-May. Sugar fluctuated between 5,200 and 5,450 yuan. Peanuts have seen seven consecutive days of gains due to drought and cost support.

The strange thing is that the fundamentals of these varieties do not support price increases. Malaysia's palm oil inventory was still increasing month-on-month by the end of May, domestic sugar inventory was 1.83 million tons higher year-on-year, and domestic palm oil inventory was 25.68% higher year-on-year. Production has not yet started to decline, but prices have already risen. The only reason for the increase is the imagination of reduced production due to El Niño in 6 to 12 months.

Over the past fifty years, every instance of moderate to strong El Niño has left its mark on the commodity market. In 1982, palm oil rose by 169%. From 2009 to 2010, Indonesia's rubber production decreased by 11.3%, and spot prices rose by 157.79% over two years. From 2015 to 2016, sugar prices rose by 65%.

In Southeast Asia, it brings drought, affecting palm oil and rubber production. In India, it weakens the monsoon, impacting sugar and cotton. In Peru, it causes anchovies to disappear, pushing up fishmeal prices. But on the other end of South America, it brings more rainfall, potentially improving soybean and sugarcane production in Brazil and Argentina. In the mining areas of Chile and Peru, heavy rainfall impacts copper mines rather than farmland. In the U.S., a warm winter suppresses natural gas demand.

Discussions in overseas communities about this El Niño continue to ferment.

A blogger in the commodity circle, @tleilax__, posted with two prediction maps. One map shows how much higher global temperatures will be from July to September this year compared to the same period in previous years. The map is almost entirely red, coinciding with the critical growth period for grains, oilseeds, Asian rice, and sugar.

The other map shows whether rainfall will be more or less than in previous years. The map indicates large areas of dryness in India and Southeast Asia, corresponding to the market's greatest concern about a weaker monsoon.

Therefore, his conclusion is: India and Southeast Asia may experience the weakest monsoon rains in decades, occurring against the backdrop of a global fertilizer shortage. This post has currently garnered over 1.08 million views.

A commodity column on Substack lists palm oil, cotton, and cocoa as the clearest clusters of risk and return for the next 6 to 12 months. The Singapore investment community is scrutinizing Malaysian plantation stocks, concluding that pure upstream growers will capture all the elasticity, while companies like Wilmar International, which focus on downstream processing, are squeezed for profits by rising palm oil prices. The U.S. stock community is circulating a more convoluted argument: Brazilian and Argentine agricultural company Adecoagro is a "weather hedge for tech-heavy portfolios," as El Niño brings rain rather than drought to South America, and when Asian production decreases and prices rise, its output expands.

The script for this round of market action still has more than half to unfold, so it’s not necessarily better to buy in early. There are few hard indicators that can change the direction of positions, but each one is crucial:

• Will the Niño 3.4 index break 2.0°C in autumn and winter? This is the dividing line between moderate and super strength and the switch for overall agricultural product volatility.

• Rainfall data for the Indian monsoon from June to September, which serves as the steering wheel for sugar, cotton, and rice.

• Monthly inventory reports from the Malaysian palm oil board; the speed of high inventory digestion determines when expected market trends align with reality.

• The duration of rainfall in Guangxi in July and the continued high temperatures in North China; the former affects sugar, while the latter affects electricity.

• The subsequent fundraising scale of weather-focused funds like Moreton; the volume of institutional funds determines whether weather trading is a pulse or a main line for the entire year.

Experiences from 1972 and 2024 point to the same time lag: the true price effects of El Niño mostly occur after the peak of the event. Dennis made money two years after the anchovy collapse, and cocoa only truly exploded after ENSO returned to neutral. The market in the second half of 2026 will trade on expectations, while in 2027, it will trade on the actual reductions in production.

Initially, No One Paid Attention to This Storm

Aside from these trading opportunities, what’s more thought-provoking are two posts by financial blogger @FinanceLancelot on X that sparked a lot of shares.

One post stated that NOAA (the National Oceanic and Atmospheric Administration, one of the most cited climate monitoring agencies globally) is predicting a "super El Niño" not seen since 1878, which means risks of warming, widespread drought, food shortages, and famine in the next two to three years, accompanied by a Sky News video titled "11% of the Global Population."

Another post echoed a similar sentiment: global energy shipping supply has decreased by 60% in the past 60 days, accompanied by a shipping oil flow chart showing a dramatic drop from the high levels at the beginning of the year. His conclusion is that the combination of fertilizer shortages and El Niño could lead to food shortages globally within 3 to 4 months.

The wording of these posts carries a clear apocalyptic tone and should not be taken at face value.

However, they reflect one thing: a group of people in the market is 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 only to gains and losses in futures accounts but also to potential impacts on all ordinary people, adding to everyone's cost of living.

Initially, no one paid attention to this storm. It was just a typhoon, a heavy rain, a slight rise in sea temperatures.

But storms do not stop just because no one is paying attention. The heavy rains around the world, canceled flights, the disappearing anchovies in Peru, the rotting cocoa pods in Ghana, and the shortage of sugar are all part of the storm, which will ultimately affect the lives of different people.

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