Climate and its ultimate offspring, the weather, remain one the most important, contentious and in my opinion mis-represented features of the global landscape. The great drought of 2012 reminds us of that. Sure, geo-political and macro-economic events are almost always more press-worthy, but climate and weather are always there, always in motion and always working to deliver a unique combination of variables that remains just out of the grasp of researchers today. Lest you think I am disparaging climate research, far from it. But I believe it is best to characterize it as several steps forward followed by several steps backward, which is to say that the answer to one question almost always generates another or several more questions. That is the power and beauty of science! But climate science has made outstanding leaps in the past 50 years, not in the least because of the advent of satellites and the capabilities to collect a more robust spectrum of data from around the globe, especially the oceans. ENSO (El Nino/Southern Oscillation) makes regular headlines these days, but back in the late 1970’s it was strictly a topic for academic researchers. 1982/83 changed all that and brought ENSO to the forefront. Historical data and climate models now show relationships between ENSO (climate) and weather. But they are, as are all attempts at modeling the atmosphere, imperfect….which reminds me of one of my favorite quotes….”Every theory of the course of events in nature is necessarily based on some simplification of the phenomena and is to some extent therefore a fairy tale” – Sir Napier Shaw: Manual of Meteorology: I, 123.
So where I am going with this? Simply enough, I want to remind people that, despite what you hear in the press almost every day, much much less is known about the climate system than you are told to believe. It is human arrogance that leads us to believe with perhaps a few hundred years of global land data, a half century of satellite data, and limited ice cores and tree rings from millenia, that we really understand what is going on in the climate system. Case in point today is with the Pacific Decadal Oscillation (PDO).
The PDO is sea surface temperature dipole in the North Pacific, of which records go back to just over 100 years ago (in other words, insignificant in the climate history of planet Earth). But as stated above, we are continuing to learn how these medium to long term climate oscillations interact with shorter term climate oscillations (ENSO) and a myriad of other variables the ultimately govern the winds on this planet. As a slight detour, here are some other climate indices: AMO (Atlantic Multi-decadal Oscillation), IDO (Indian Dipole Index), AO/NAM (Arctic Oscillation/Northern Annular Mode), NAO (North Atlantic Oscillation), SAM (Southern Annular Mode), QBO (Quasi-biennal Oscillation), Solar Flux/Sunspots, etc. Complex indeed.
But back to the PDO. It has multiple periodicities of approximately 20 and 60 years, which are incompletely understood. But we can surmise that a positive PDO (left picture) has on average a greater abundance of warm water in the tropical Pacific to support El Nino’s and that as such they will be more frequent and more intense on average in the phase. The converse is true of the negative phase. On average cooler waters will support less frequent and intense El Nino events, and more frequent and intense La Nina events. Why do we care about this?
Because El Nino/La Nina have differential impacts on the global weather. Despite the localized devastation that El Nino wreaks, in general La Nina tends to be more damaging to global agriculture, and we are entering a period of the negative phase (recall 20 and 60 year periodicities, so we are here for a while) and will on average tend to have a greater risk of threats to agriculture than not. Also note a warm tropical Pacific, given its expansive reach, also generally warms the planet. The extended growing seasons, the almost unbelievable run of the Indian Monsoon in the last 25 years (much fewer failures than before), and the relative absence of crippling US droughts in the same time frame…until this year…should remind us that the last several decades have seen less climatic disruptions in key areas than prior periods.
Thus, the high prices and more importantly the extreme price volatility will remain a feature of these markets, and more so than ever will demand an integrated disciplined approach to managing risk, from farm-gate to table. If you don’t know, understand and manage your risk, then without a doubt the market will do it for you. It is not a sufficient strategy to hope for good weather. The grain markets of 2012 have spoken, and in fact are not done speaking, but the real question is ,who is listening?
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