The weather has a deep impact on commodity prices: for this reason, understanding the weather is an advantage for commodity business, particularly when global stocks are low, which make a particular commodity market more vulnerable to an unanticipated disruption to supply or a sudden increase in demand, be it is caused by changes in the weather or anything else.
Food items with a shorter shelf life and fast production times are particularly vulnerable to extreme weather. Extreme or difficult climatic conditions make right crop yields and agricultural production suffer. For this reason, the weather can also affect the supply of livestock and the products derived from them. High temperatures lead to stressed out cattle and poultry, resulting in less milk and fewer eggs.
Drought can even affect the production of metals: first, by reducing the hydroelectric electricity generation used to power the mines; and second, by lowering the water levels of the inland waterways that are vital for the ore transportation.
The appearance of regular, but volatile and very important, weather patterns like El Niño or La Niña are watched out for by farmer’s all over the world because they cause prolonged changes in weather conditions in significant agricultural producing regions. El Niño, for example, typically results in drier conditions across Australia, South East Asia, Brazil and West Africa, but wetter conditions around the southern US states and the coastal areas of South America. La Niña, meanwhile, drenches Australia, South East Asia and South America.
If the weather is too windy (a hurricane, for example), then many oil rigs and transport facilities operating are likely to need to shut down or may even suffer damage. The loss of oil production may then lead to higher oil prices.
The demand for energy is also strongly affected by weather. Very warm and very cold temperatures dramatically increase the demand for energy for cooling and heating. Extreme conditions may stress electric transmission and distribution systems, causing increased maintenance costs and limiting the ability to meet peak customer demand.
For this reason, if you search on Linkedin through trading companies, you’ll see that they hire meteorologists in many of their fundamental analyst teams.
If the commodity business is your real passion, check all the newest commodities jobs and apply to the ones that match your skillset!
