Fwd: The hedge fund targeting El Niño risk
Loretta Lohman
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Investors are mis-pricing the risk of a super El Niño disrupting and eventually reshaping global food supply chains — and, where there’s a mismatch, there’s money to be made. Today’s newsletter brings you an exclusive interview with a Mexico-based hedge fund manager that’s raising money to trade on El Niño risk. We also have the latest on the heat wave scorching Europe and London climate week. Subscribe to Bloomberg.com for unlimited access to all our stories. Trading El Niño riskBy Agnieszka de Sousa and Mumbi Gitau The growing threat posed by a so-called “super El Niño” to global food supplies is spurring the creation of a new commodities fund. Hedge fund Moreton Capital Partners is targeting $500 million for a special-purpose vehicle to trade multiple commodities that stand to be impacted by the weather phenomenon, including South African corn, Malaysian palm oil and Australian wheat. The markets are underestimating risks, according to Moreton’s co-founder Les Finemore. “We think it’s going to be a dramatic reshaping of the global food situation,” Finemore said in a video interview from Mexico City. “We feel like today the market is seriously mis-pricing that risk.”  A burnt
ear of corn during a heat wave in Mexico
Photographer:
Hector Quintanar/Bloomberg
El Niño, confirmed by scientists earlier this month, is characterized by a warming of the Pacific Ocean that alters global weather patterns, which can damage crops. The phenomenon could be one of the strongest on record and already top rice exporter India has been hit by a delayed start to the monsoon. The World Bank warned that El Niño could push food prices above current expectations, just as farmers contend with the impact of the Iran conflict on the fertilizer and fuel costs. “We all know it’s here, but the scale and the severity of this, I mean, that’s kind of the part that concerns us for a lot of these crops,” Finemore said. “This could be the worst El Niño on record and if that plays out, that has incredible implications for food inflation.” The MCP Special Opportunities Fund is aiming to raise the funds by the end of September and will seek various trading strategies from cross-commodity relative-value trades to long and short positions in futures and swaps. The fund will target large institutional investors, including insurers, endowments, and pensions that have significant weather-risk exposure. Moreton also sees opportunities in commodities such as soybeans, sugar, coffee and vegetable oils, along with water. There may even be opportunities beyond agriculture, like the Shanghai aluminum contract, if there is dryness in China that puts pressure on hydropower, a source of energy for smelting, Finemore said. “We will kick off trading almost immediately in early July,” Finemore said. “We’ve been focused on the Iranian war situation. The next event will be El Niño.” For more news about how weather impacts agriculture markets, subscribe to the Business of Food newsletter. Read
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Expensive tomatoes40% Price increase of US tomato prices between January and April New normal“You start to have a situation that is more like a new shock happening every year” Maximilian Kotz Researcher at the Barcelona Supercomputing Center London climate week updateBy Olivia Rudgard and Alastair Marsh London’s efforts to deal with rising temperatures come at a considerable financial cost that will require the city to turn to private investors for help, the mayor of the UK capital said. Instead of being a “future threat,” extreme heat is now “a growing reality for Londoners,” the office of London Mayor Sadiq Khan said in a statement on Thursday.  Visitors
attempt to keep cool opposite the Bank of England
during a heat wave in the City of London.
Photographer:
Chris J. Ratcliffe/Bloomberg
It’s already clear that even short bursts of high temperatures can leave a major dent in the city’s finances. Heat waves in 2022 — the year Londoners first experienced 40C — cost £1.5 billion ($2 billion), the mayor’s office said in a report. Around 1 million London homes are at high risk of overheating, it said, and it would cost somewhere between £9 billion and £45 billion to make the most vulnerable homes more resilient. Given the costs ahead, the city of London will require private investment to help it pay for all the upgrades needed to deal with heat in the years to come, according to Thursday’s report. The assessment come as attendees at London Climate Action Week have struggled to stay cool during panels and events intended to address global warming. Temperatures this week have hovered around 35C (95F), rendering conditions in parts of London unbearably hot. Meanwhile, former US secretary of state John Kerry said the Iran war has changed perceptions of energy markets, with oil and gas viewed as vulnerable to trade choke points while sources like solar and wind gain ground. 
 There can be “no question” that the current tensions in the Middle East have accelerated demand for renewable energy, Kerry, who is co-executive chair of investment manager Galvanize, said in an interview with Bloomberg Television’s Guy Johnson. “I think if you talk to knowledgeable folks in the business world, while they don’t make a lot of noise about it right now, they are moving forward,” he said. This week’s Zero listenThe common narrative is that the US renewables industry is struggling. But that’s not the case for the whole sector. This week on Zero, Akshat Rathi talks with Kevin Smith, chief executive officer of Cypress Creek Energy, which recently secured $3.5 billion in financing to build one of the biggest solar and battery projects in the US. Even as the current American administration dismantles clean-energy policies, Smith sees a bright future for solar and batteries. Listen now, and subscribe on Apple, Spotify or YouTube to get new episodes of Zero every Thursday. OpinionMore from GreenMore from Bloomberg
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