El Niño is a weather phenomenon which occurs once every five years on average. The phenomenon involves warm water in the Pacific Ocean that can cause droughts in some regions (possibly leading to famine), while it can cause floods due to high rainfall in other places. Once every twenty years, the impact of El Niño on the environment is extra strong. The last time the world witnessed an extra strong El Niño cycle was in 1997-1998 resulting in the deaths of around 2000 people and damages worth of tens of billions US dollars. Forecasts of the aforementioned institutions suggest that this year's El Niño may be rather strong.

The cycle is expected to cause a dry summer in North America, West Africa, Australia and Southeast Asia (including Indonesia). This will then impact on the production rates of the agricultural commodities that are cultivated in those regions and thus impact on commodity prices. Therefore, the Goldman Sachs Group recently released its view on the possible impact of the new El Niño cycle. The group believes that - as the cycle will cause relatively mild weather conditions in the Atlantic Ocean - it implies less disruptions in the oil industry in the Gulf of Mexico. It is also expected to result in a relatively mild summer in North America, which means that less gas supplies are required to fuel air-conditioners, providing opportunity for easing gas prices. Goldman Sachs sees a larger impact on agricultural commodities. Droughts in Asia, West Africa as well as Australia will curb production of various crops such as palm oil, cocoa, sugar, coffee and (albeit less heavily impacted) wheat, triggering higher prices. Corn and soy, on the other hand, will benefit from the mild summer in the USA and thus these prices may decline.

Further Reading:

Chances of New El Niño Cycle in 2014 Impact on Agricultural Commodities
Commodity Update: Anticipating Higher Prices of Coffee, Palm Oil and Cacao
Concern about El Niño and Ukraine Tensions Impact on Commodities
Overview of Palm Oil in Indonesia
Analysis of Coffee in Indonesia
What are the most Important Commodities of Indonesia?
Natural Disasters in Indonesia