[SINGAPORE] El Nino increases returns from grains by as much as 25 per cent because of the impact on crops, and potentially lowers profits from energy, Citigroup Inc said.
While the event, which can cause droughts in Asia and wetter, cooler summers in North America, may add to returns from industrial metals, it has no price impact on precious metals, the bank said in a report dated June 16 and based on an analysis of El Nino cycles and returns back to about 1970.
Australia last month declared the El Nino, the first since 2010, and has said it shows signs reminiscent of the most severe event in 1997-1998.
The US predicts the pattern may last through January and beyond, while India says it will crimp this year's monsoon, potentially hurting food output. The United Nations' Food & Agriculture Organization expects the event to cut global wheat output by 1.4 per cent.
"Momentum is building about the potential disruption to commodity supplies ahead, especially staple food crops," analysts including Aakash Doshi and Ed Morse wrote. "Agriculture is the most exposed sector."
The event has often boosted world food-price inflation and is a major tail risk for the global economy in the second half, the analysts wrote.