Commodity Watch: When Oceans Move Markets

<div class="grid grid--33-66-col"><div class="col"><img loading="lazy" src="/getContentAsset/061c994a-a452-418f-bfa0-f2cf3cf5c577/cb87803a-320c-480f-ab75-7b9029eaaf79/Ahmad-Al-Sati-new.png?language=en" alt="Ahmad Al Sati - insights" title="Ahmad Al Sati - insights" style="width: 180px" class="fr-fic fr-dii"></div><span style="font-size: 12px"><div class="col"><strong>AHMAD AL-SATI<br></strong>PORTFOLIO MANAGER<br><br><p>Ahmad is the President and Portfolio Manager for Gemcorp Capital Advisors LLC, based in New York.&nbsp;<br><br>Ahmad has spent most of his career in the global credit markets. Prior to Gemcorp, Ahmad was President of Pandion Mine Finance and RiverMet Resource Capital, LP - a fund focused on investing in precious metals, where he was responsible for managing the investments and the day-to-day operations of the registered investment adviser.&nbsp;</p></div></span></div><hr><p>In the 1600s, fishermen off the coast of Peru and Ecuador noticed that, in different years, fish yields were lower and waters warmer. They called it “El Niño de Navidad” because it occurred around Christmas. For centuries, El Niño (caused by the weakening Pacific trade winds, which suppressed the upswell of nutrient rich cold water from deep in the Pacific into the fishing waters) was seen as a local event. In the 1960s scientists began to understand that El Niño was a global phenomenon affecting weather from New York to Brisbane. They also measured an opposing pattern that impacted global weather and named it La Niña.&nbsp;</p><p>El Niño and La Niña drive aberrant weather changes worldwide. El Niño causes warmer, drier winters in the north of the US and Canada and more rain in the southeast of the US. La Niña increases rain and floods across the western Pacific Rim (Asia and Australia), causes less rain in Argentina and increases the likelihood of a snow day in NYC.&nbsp;</p><p>The impact is significant and varied. Aon estimates that the total cost of La Niña in the last five years was around $300 billion. Studies have shown that El Niño correlates with lower home prices in the US (which is unexpected). Both weather events drive spreads for LatAm sovereigns higher. They contribute to inflation and higher commodity prices. During the 2020 La Niña, futures went up by 35% for soybean, 28% for corn and 40% for palm oil. Weather changes also cause economic damage. In the spring of 1997, El Niño caused severe droughts and forest fires across Southeast Asia and floods in China that damaged agricultural production regionally, increasing poverty by 15%. Months later, in July 1997, the Asian financial crisis erupted.</p><p>These events continue to disrupt the production, processing and transport of essential commodities. For example, increased rain in Indonesia (from La Niña) disrupts the logistics for agricultural products (rice and palm oil) and increases the likelihood of mudslides at mines (see the Grasberg mine’s unfortunate incident in 2025, as discussed in a previous post). On the other side of the Pacific, water shortages (from the same La Niña) negatively impact copper production in Chile and lower agricultural yields in parts of Brazil.</p><p>La Niña and El Niño are not binary. They occur in different strengths (we are currently experiencing a weak La Niña) and varying intervals, though they are becoming more common. The weather volatility adds complexity and increases information asymmetry. It makes it harder for most portfolios to take directional bets on commodities and gives physical owners or traders an edge. The financialisation of futures markets in commodities does not help. Yet the demand for these essential materials is continuous and increasing. The benefits of commodities to portfolios are well documented (such as hedging, inflation protection and diversification). Providing capital to meet demand and mitigate risk is a growing opportunity. Determining the right approach to this opportunity should be on the agendas of allocators, advisors and fund investors.</p>