|
 "We are trying to pinpoint companies that should see something more
than temporary disruptions that will only last one quarter," said
Marshall, who runs the $2 billion Hodges Small Cap fund in Dallas.
His fund sold its position in ski resort operator IntraWest Resort
Holdings Inc in part because of expectations of lower than normal
snowfall at some of its properties, including Stratton in Vermont,
Snowshoe in West Virginia, Tremblant in Quebec and Blue Mountain in
Ontario.
With the warm weather in the United States contributing to a selloff
in oil that's pushed prices down to 2009 lows, El Niño's effects are
rippling beyond traditional crops and mining interests to boost
business for insect control companies, dine-at-home services and
roofing specialists.
Already, 23 U.S. companies are expecting a hit - good or bad - from
El Niño, ranging from GrubHub restaurant delivery service to auto
parts supplier O'Reilly Automotive, according to a review of
transcripts of earnings calls by Reuters. For example, bug killer
Orkin, owned by Rollins Inc, has already forecast more mosquitoes,
ants and flies on the way for the United States. "Warmer, wetter
conditions favor pest activity," said Ron Harrison, director of
technical services for Orkin.
"If the experts are right about El Niño, the pest control industry
will benefit, no doubt about that," said Jamie Clement, senior
analyst for industrials at Macquarie Capital. GrubHub, which says it
does business in more than 900 US cities and London, is salivating
at the prospect of rainy nights keeping diners at home. "Fifty
degrees and rain is better for us, frankly, than 35 degrees and
sunny," Chief Executive Officer Matt Maloney told analysts last
month on an earnings call.
The conventional wisdom for betting on El Niño has favored going
long grain prices - as droughts menace big producers like Australia
and India - and base metals, where flooding in South America can
disrupt mining. During the last major El Niño in 1997-98, heavy
rains and flooding led to thousands of deaths, loss of crops and
extensive damage to infrastructure in Ecuador, Peru and Bolivia,
while in Indonesia and Malaysia, drought hit palm oil production and
pushed prices higher, according to a report by Schroders.
ONE OF THE STRONGEST
The latest cycle is now expected to become one of the strongest on
record, the U.N.'s weather agency said last month, adding its effect
could be compounded by climate change. Areas that experience a
milder winter could generate lower revenues for auto parts supplier
O'Reilly Automotive, as car batteries will survive better. "Extreme
weather is generally good for us," O'Reilly said on a call with
analysts.
In the northern United States, fewer snow storms should be good news
for commercial insurers because claims for damages to roofs or pipes
or for household leaks should all be down. But less snow could
encourage more driving and bump up accidents. "The conditions are
ripe for commercial insurers to see lower losses related to winter
storms, but higher losses for auto insurers because there will be
more people on the roads," said Rob Haines, senior insurance analyst
at CreditSights.
[to top of second column] |
To be sure, El Niño has very different effects depending on
geography and, like most weather patterns, is still hard to forecast
with certainty. It defied expectations and did not show up in 2014
-- which was, nevertheless, the hottest year on record. And this
time around, the world has massive stocks of grains after several
years of bumper harvests and no shortage of base metals -- partly
due to slowing growth in China and new supplies coming to the
market.
"So far, the current El Niño episode hasn't generated big moves in
agricultural goods prices," according to a research report from the
Chicago Mercantile Exchange (CME), the world's biggest grain futures
market, published on Nov. 18. The United States and Canada had large
harvests of corn, soy and wheat while Argentina and Brazil have had
bumper harvests of soy and wheat.
In addition, according to Michel Jarraud, secretary-general of the
U.N.'s World Meteorological Organization (WMO), the world is better
prepared than before. He said the worst-affected countries are
planning ahead and putting disaster management campaigns in place to
save lives and minimize economic damage.
Worldwide, El Niño brings drier weather to Southeast Asia and
Australia, with drought that can shrivel crops. India is having its
first back-to-back droughts in nearly three decades, depressing its
rice output and corn production, the government said in its latest
crop forecast. In southeast Asia, the hot weather caused by El Niño
could lower palm oil output and push prices up more than 13 percent
by March or April, according to prominent industry analyst Thomas
Mielke.
But the system could bring good news for insurers, according to
Morgan Stanley, with fewer cyclones to damage property and lower
payouts on car crashes in Australia, where more accidents occur in
wet weather. "El Niños have historically been positive for insurers'
reported earnings," said Andrei Stadnik, insurance and diversified
financials analyst at Morgan Stanley Australia. In Texas, where El
Niño may bring an unseasonal chill, Cabela's is hoping that it will
help to shift old stocks of cold weather hunting gear. "If it gets
cold and rainy or cold and snow, that's really great for our
business," Tommy Millner, Caleba's chief executive, said on a call
with analysts.
(Additional reporting by Colin Packham in Sydney, Mayank Bhardwaj in
New Delhi, Rajendra Jadhav in Mumbai, Naveen Thukral in Singapore
and Luc Cohen in New York. Editing by John Pickering)
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