How has the Pacific "fever" turned extreme weather into a cash machine for Wall Street?

Author: Jia Liu, Zhang Sheng Beatz

Tianjin has experienced several days of sudden heavy rain; it was sunny before going out, but halfway there, I got soaked. A friend's flight to Shenzhen was canceled due to the typhoon, and all high-speed train tickets to Zhejiang were sold out.

Opening my phone to check the news, I saw that Fushun, Liaoning had over 329 millimeters of rain 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 breaking historical extremes. The largest heat warning in North China, with surface temperatures approaching 50℃ in some areas. In the first week of July, two to three typhoons were forming simultaneously in the western Pacific, with the super typhoon "Bavi" approaching the southeastern coast.

Since the summer of 2026, the weather in the country has clearly started to become restless.

It's not just us who are restless. The sea water along the coast of Peru has continued to be unusually warm, limiting anchovy fishing, and fishmeal prices have risen by about 80% over the past year. After entering the dry season, drought signals have intensified in Southeast Asia, and oil palm production areas in Malaysia and Indonesia are becoming tense. The Indian monsoon rains have not yet reached a critical window, but the market is already betting that it will be weak. Analysts have marked the wheat planting area in Australia as likely to shrink significantly.

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

ENSO, El Niño.

El Niño, the Pacific is Heating Up

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

Under normal circumstances, the eastern equatorial Pacific is cooler, and 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, and the sea surface temperature in the central and eastern Pacific rises abnormally, this is 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 is consistently above 0.5℃ higher than normal for several months, it is considered to be in an El Niño state; if it exceeds 2℃, it is classified as super strong. The years 1997 and 2015 were two typical instances of super strong El Niño.

This year's El Niño may become the strongest since 1950.

On June 11, the National Oceanic and Atmospheric Administration (NOAA) officially issued an El Niño warning, confirming that El Niño conditions have emerged and are expected to strengthen until the end of 2026 or early 2027. They believe that from November this year to January next year, the probability of a super strong El Niño occurring is 63%. The judgment from the Institute of Atmospheric Physics at the Chinese Academy of Sciences is slightly more conservative, with a probability of moderate intensity exceeding 70% and a super strong probability of about 10%.

Meteorologist Ben Noll posted a sea surface temperature map of the Pacific on X, titled "The Pacific is Heating Up." The deep orange and red areas cover more than half of the Pacific, showing 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 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, and increasing the risks of high temperatures, drought, and strong convection.

Adding to this is global warming; for every 1℃ 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 sensed something, with some funds getting ready to act.

On June 24, Bloomberg reported that hedge fund Moreton Capital Partners is raising $500 million for a specialized tool. The targets of the trades are 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 brought 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.

What gives Finemore the ability to raise $500 million? Because making money from extreme weather like El Niño is not just theoretical; many have made significant profits from it over the decades.

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

In 1972, anchovies suddenly disappeared from 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 sources of protein in global animal feed.

The reason for the disappearance of anchovies was the sudden warming of the sea water in the equatorial Pacific, which stopped the upwelling of cold water, breaking the plankton chain. Meteorologists later named this phenomenon: El Niño.

With fishmeal gone, feed merchants had to find substitutes, which pushed 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. In 1974, he made about $500,000 on 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 trading school.

Another typical story comes from Anthony Ward, nicknamed Chocfinger. In 1998, he founded Armajaro in London, specializing in cocoa and coffee. The most unique aspect of this company is not its trading desk but its meteorological department: it has built a 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 changes in weather 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 on the London Exchange for that month, 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 global annual production, essentially all visible inventory 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 in the world. Côte d'Ivoire and Ghana in West Africa, which account for 70% of global 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 inventory. Cocoa futures have risen over 400% in two years, once breaking $10,000 per ton.

Those who benefited from 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 that was their best first quarter in 25 years. AQR's managed futures strategy rose about 17.4% in the first quarter. The trend fund under Capital Fund Management 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 made significant profits in another direction: El Niño usually causes some regions in the U.S. to have warmer winters. With milder winters, the demand for heating gas weakens, leading to inventory buildup, 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 Cocoa or White Sugar?

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

Palm oil futures surged from 9,400 yuan in late April to 9,993 yuan before falling back. Rubber started from its low in April and briefly broke 18,300 yuan in mid-May. White sugar fluctuated between 5,200 and 5,450 yuan. Peanuts rose for seven consecutive days due to drought and cost support.

The strange thing is that the real fundamentals of these varieties do not support the rise. Malaysia's palm oil inventory was still increasing month-on-month at the end of May, domestic white 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 risen first. The only reason for the rise is the imagination of reduced production brought by El Niño in 6 to 12 months.

Over the past fifty years, every round 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 fell by 11.3%, and spot prices rose by 157.79% over two years. From 2015 to 2016, white sugar rose by 65%.

In Southeast Asia, it brings drought, suppressing palm oil and rubber production. In India, it weakens the monsoon, affecting 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, which may improve soybean and sugarcane production in Brazil and Argentina. In the mining areas of Chile and Peru, heavy rainfall impacts not farmland but copper mines. In the U.S., a warm winter suppresses natural gas demand.

The overseas community's discussion of this El Niño is still fermenting.

A blogger in the commodity circle, @tleilax__, posted with two forecast maps, one showing how much higher global temperatures will be from July to September this year compared to previous years. The map is almost entirely red, and this time coincides with the important growth period for grains, oilseeds, Asian rice, and white sugar.

The other map shows whether rainfall will be more or less than in previous years. The map shows large areas of India and Southeast Asia being drier, corresponding to the market's biggest concern about a weak 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 received 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 investigating Malaysian plantation stocks one by one, concluding that pure upstream growers will capture all the elasticity, while companies like Wilmar International, which focus on midstream and downstream processing, are instead 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," because El Niño brings rain rather than drought to South America, and when Asian production declines and prices rise, its production is actually expanding.

The script for this market cycle still has more than half to unfold, so buying in early is not necessarily better. There are not many hard indicators that can change the direction of positions, but each one is crucial:

• Whether the Niño 3.4 index breaks 2.0℃ in autumn and winter, which is the dividing line between moderate and super strong, and also the switch for overall agricultural product volatility.

• Rainfall data for the Indian monsoon from June to September, which will steer the direction for sugar, cotton, and rice.

• Monthly inventory reports from the Malaysian palm oil board, as the speed of high inventory digestion determines when expected prices will align with actual market prices.

• The number of rainy days in July in Guangxi and high temperatures in North China, with the former affecting sugar and the latter affecting electricity.

• The subsequent fundraising scale of weather-specific funds like Moreton, as 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 turned neutral. In the second half of 2026, the market will be trading expectations, while in 2027, it will be trading the actual reduction in production.

Initially, No One Paid Attention to This Storm

In addition to these trading opportunities, it is even more thought-provoking to consider two posts by financial blogger @FinanceLancelot on X that sparked a lot of shares.

One post states that NOAA (the National Oceanic and Atmospheric Administration, one of the most frequently 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 expresses a similar viewpoint: global energy shipping supply has decreased by 60% in the past 60 days, accompanied by a shipping fuel flow chart showing a cliff-like drop from high levels at the beginning of the year. His conclusion is that the combination of fertilizer shortages and El Niño may 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.

But 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 profits 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 increase in sea temperature.

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, rotting cocoa pods in Ghana, and the shortage of white sugar are already part of the storm, and they will ultimately affect the lives of different people.