How Volcanoes Erupting in Russia Impact Where You Should Be Investing Money

+Hans Schoff wrote:

The Agriculture and Energy sectors have two good things going for them this year if you’re looking at investing money somewhere: bad weather & bad politics.

Most people are probably acutely aware of both of these factors, but here’s how they are likely to positively impact the agriculture and energy sectors this year.

According to Evelyn Browning Garriss of The Browning Newsletter, one of the most acclaimed, accurate and sought after forecasters on earth, we are currently experiencing lots of volcanic activity in the north pacific, especially in Russia near Alaska with 6 volcanoes steaming or erupting.  One of these volcanoes is actually spewing some debris into the stratosphere where it will continue to linger for several months.  This volcanic debris high up in the atmosphere blocks out incoming sunlight which cools temperatures, resulting in changes to air pressure which changes wind directions and wind patterns.

There’s a strong wind that blows around the arctic area – the arctic oscillation – normally pins up the cold arctic air in the arctic region when winds are strong.  But when the winds are weak due to the change in air pressure, the cold air escapes and goes south which is exactly what has happened.  Typically when there are some large volcanic eruptions near that arctic region, you see the arctic oscillation weaken and cold air escapes down south which we’ve seen throughout this winter.

If you’re considering Investing Money in Energy:

This affects the whole world.  Beijing for example had the worst snowfall in 60 years (people were even dying from the cold in India) due to these volcanic eruptions.   The resulting shifts in weather patterns has created a drought in the southern regions preventing their hydro-electricity from being able to function.  All these factors only increase demand (for energy) as China now needs to import even more coal yet the coal mines in Queensland, Australia (where they import their coal from) are washed over from the massive floods, causing supply to plummet, thereby further raising prices.  Who would have thought an erupting volcano in Russia would have such an impact around the world regarding investing money?

If you’re considering Investing Money in Agriculture:

Weather patterns this year are likely to play an important role in how the agriculture sector performs as well.  First, it is important to understand the “naturally occurring” climate cycles of El Niño and La Niña and how they impact the US in particular:

El Niño and La Niña are extreme phases of a naturally occurring climate cycle referred to as El Niño/Southern Oscillation. Both terms refer to large-scale changes in sea-surface temperature across the eastern tropical Pacific. Usually, sea-surface readings off South America’s west coast range from the 60s to 70s F, while they exceed 80 degrees F in the “warm pool” located in the central and western Pacific. This warm pool expands to cover the tropics during El Niño, but during La Niña, the easterly trade winds strengthen and cold upwelling along the equator and the West coast of South America intensifies. Sea-surface temperatures along the equator can fall as much as 7 degrees F below normal.

El Niño and La Niña result from interaction between the surface of the ocean and the atmosphere in the tropical Pacific. Changes in the ocean impact the atmosphere and climate patterns around the globe. In turn, changes in the atmosphere impact the ocean temperatures and currents. The system oscillates between warm (El Niño) to neutral (or cold La Niña) conditions with an on average every 3-4 years.

US IMPACT of La Niña: La Niña often features drier than normal conditions in the Southwest in late summer through the subsequent winter. Drier than normal conditions also typically occur in the Central Plains in the fall and in the Southeast in the winter. In contrast, the Pacific Northwest is more likely to be wetter than normal in the late fall and early winter with the presence of a well-established La Niña. Additionally, on average La Niña winters are warmer than normal in the Southeast and colder than normal in the Northwest.

- NOAA.gov

If the La Niña patterns continue through the spring and summer as most agencies around the world are predicting, this will produce heat waves, especially on the east coast and south east coast (GA, AL, FL).  The North American pacific coast normally gets the tropical express that dumps lots of rain on Vancouver and Washington state during a La Niña weather pattern.  But because of the arctic oscillation, it is pushing that system further south which is causing all the rain and flooding in southern California and as far inland as Utah where some places are receiving 800% of their normal annual rainfall.  In general, the US should fare well – and better than most regions – with plenty of heat and a decent amount of rainfall ( though not as much or as timely as rain last year), but this year’s crop will not be as good as last year’s.

The bad politics is probably a factor that is more obvious and easier to see and understand it’s impact on investing money in these sectors.  With both energy and agriculture, the government continues to act and legislate in such a way that reduces the amount of supply in these sectors as demand continues to increase and as prices rise (great environment for investing money).

One great example involving both is ethanol. Not only does it cost more energy to produce ethanol with corn than it creates (not to mention the amount of water needed), but the production of the fuel itself heavily impacts the corn market, drastically cutting the available supply for agriculture which again drives up the price (good for farmers and stock holders, bad for consumers).  And because producing ethanol requires more energy than it creates, that further increases the demand and decreases the supply of available energy to the market at a time when the US desperately needs a reliable, steady supply of energy (due to the drilling memorandums, the lack of a viable replacement for energy we currently receive from unfriendly regimes, peak oil, an exploding and energy-thirsty China, etc).

It is plain to see with these problems only continuing to get worse over time that “bad politics” and the emerging “bad weather” will continue to be bullish for investing money in the energy and agriculture sectors for the foreseeable future.

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Originally posted 2011-02-04 15:44:59.

Original post can be found here: “How Volcanoes Erupting in Russia Impact Where You Should Be Investing Money