Those investors keeping close tabs on global weather patterns know that a stronger than usual El Nino is developing. Experts say it’s the strongest in 20 years, and expect it to peak in November and continue into 2016, dumping, among others, colossal amounts of rain on the main corn and soybean producing areas of North and South America, notably Brazil—a country that for multiple reasons, is probably the least favorite emerging market, but could, some say, stand to benefit from the El Nino effect.
Recently, Standard & Poor’s downgraded Brazil’s credit rating to junk status. The Brazilian real has suffered a massive depreciation and the dramatic fall in commodity prices has impacted Brazil, a major exporter, in a bad way. The Brazilian economy is battling inflation and political tension in the country is rife.
But Brazil accounts for much of global food production and is slated to produce 40% between 2015 and 2020, said Michael Underhill, co-founder of agribusiness investment firm Capital Innovations. As such, increased precipitation as a result of the El Nino effect and subsequent increased production could provide a “tailwind” to the economy.
“Right now, Brazil looks like it’s bottoming so this could be an opportunity to pick up companies on sale,” Underhill said.
A good example is South American agricultural company Adecoagro, which owns farmland in Brazil, Argentina, Uruguay and elsewhere in South America, Underhill said. The company went public in 2013, catching the eye of high profile investors like George Soros as a long-term investment play for its arable land holdings.
Underhill is also optimistic about sugar production in Brazil, where a rise in the production of sugar-based ethanol is expected as a result of the increase in the mandatory blending ratio in gasoline and the provision of favorable tax incentives. At the same time, though, increased food production has translated to a fall in food prices, and last week, the United Nations’ Food and Agricultural Organization (FAO) flagged a 5.2% drop in world food prices, the biggest slide since 2008, which has brought food prices to a six-year low.