This week, the NOAA (National Oceanic and Atmospheric Administration) officially confirmed the formation of El Nino after months of speculation. El Nino, which has been greatly affected by climate change in recent years, is likely to yield extreme weather later this year.
After three years of the La Nina climate pattern, which often lowers global temperatures, El Nino is back in action. El Nino often brings warmer temperatures, and early signs of these higher temperatures are affecting food producers across Asia, while American growers are hoping for a wetter summer from the weather phenomenon to alleviate issues stemming from a severe drought.
Across the globe, all agricultural commodities are at risk. Coffee and sugar futures rose dramatically upon the NOAA advisory, with experts saying that a strong El Nino could massively affect sugar production in India and Thailand while also potentially affecting Brazil’s sugarcane harvest.
According to a study published in the Science Magazine last month, this year's El Nino could lead to staggering economic losses to the tune of $3 trillion dollars, shrinking GDP as severe weather negatively affects agricultural production and manufacturing. Because of this, countries such as Peru and the Philippines are setting aside billions of dollars to help deal with the impacts of El Nino.
Even worse, climate change has been making El Ninos increasingly more powerful. The 2014-2016 El Nino, the strongest event on record, caused 2016 to be the hottest year ever with oceans recording their warmest temperatures ever at the time. Due to this, a third of Australia’s Great Barrier Reef died and fisheries in South America were heavily impacted as large masses of warm water disrupted marine ecosystems and led to a decline in fish populations. In terms of agriculture, droughts and flooding affected the food security of over 60 million people, with millions of hectares of agricultural purpose land being affected by severe weather that resulted in significant crop losses.
One company that is set to potentially be negatively impacted by El Nino is Deere & Co. (DE). Deere & Company, commonly known as John Deere, is a multinational corporation that specializes in the manufacturing and distribution of agricultural machinery, equipment, and related products. They offer a wide range of technologically advanced machines such as tractors, combines, sprayers, and harvesters, serving the needs of farmers worldwide.
Deere & Co’s business has proven in the past to be highly sensitive to El Nino and massive changes in weather patterns that can affect agricultural output. Looking at the 2016 10-K for Deere & Co., you can see the effect the 2014-2016 El Nino had on the company’s net sales and revenues. In 2014 (when El Nino formed in May), net sales were (in millions) $32,960.6, compared to $25,775.2 in 2015 and $23,387.3 in 2016. The same trend can be seen in revenues as well. Revenues (in millions) were $36,066.9 in 2014, $28,862.8 in 2015, and $26,644.0 in 2016. While this may seem coincidental, 2017 revenues (in millions) were $29,644 and 2018 revenues were $37,358. With the 2014-2016 El Nino dissipating around June of 2016, it seems that this revenue dip and subsequent rebound coincided perfectly with El Nino.
To add credence to this point, insiders have been net sellers of shares since Q2 of 2022. Since Q2 of 2022, insiders have been net sellers of 94,368 shares, representing $35,671,104 worth of shares at current market prices. In Q2 of 2023 alone, insiders were net sellers of 34,368 shares, representing $12,991,104 worth of shares at current market prices. You can check out Quiver Quantitative’s Insider Trading Dashboard (Insider Trading Dashboard - Quiver Quantitative) to view all insider trading activity on Deere & Co.
