November 5, 2009

Upon hearing the word monsoon, a conjecture of torrential rains, swollen riverbanks, and slick mudslides fills the mind. Although that might be a factor during monsoon season somewhere, it is not true for all monsoon regions. Much like the sea breezes felt along a coastline on a daily basis, a monsoon is simply defined as a shift in winds.Therefore, every continent on our blue planet experiences some sort of annual monsoon flow which is primarily dictated by uneven solar heating between the land and the surrounding bodies of water.

Now of course the magnitude of the event differs around the globe where some countries experience slight to mild monsoon conditions and others face the distressing task failed crops or other forms of widespread destruction. The actual strength of the event is dependent on several factors with two of the most important being the time of year and the topographical features of the land in question.

As the earth makes its annual pass around the sun, the angle of the sun relative to the horizon increases and decreases, confined within the boundaries of the Tropic of Capricorn and Cancer. Some of the strongest monsoon features in the world are found where that shift is the greatest; primarily between Asia and Australia.   The Asian-Australian monsoon circulation can be further divided into four subcategories; each affected a particular part of the geographic region.

During the summer months, intense solar heating on the Asian subcontinent creates a low pressure system over the dry land.  As air moves counterclockwise towards the low, it spirals in very warm moist air from the Indian and Pacific Ocean.  The convergence of this air creates a forced ascent of air and thus heavy thunderstorms.  These heavy thunderstorms can wreak havoc on local productions of commodity exports.  Asia produces close to 90% of the world’s rice supply, with 60% hailing straight out of China and India.  India also leads the world in sugar and tea production, and is third in the global production of wheat. 

On the contrast, the winter months witness the exact opposite scenario.  With the ocean temperatures being substantially warmer than the land temperatures, the low pressure center situates itself offshore.  As the air rushes offshore to spiral towards the offshore low, cold dry sinking mountain air rushes downwards to replace it creating a high pressure over the land, and therefore dry conditions.  This on-and-offshore movement of air is what the monsoon is, by definition.  In reality, the monsoon can be a welcomed curse.  Topography of the land can drastically magnify the effects.  Mountains chains, and features such as the “roof of the world” Tibetan Plateau can and will produce rain shadow effects.

Figure 1, courtesy of the Climate Prediction Center (CPC) branch of the National Oceanic Atmospheric Administration (NOAA), shows the observed wind direction/speed and precipitation for the month of October, averaged from 1976 to 2006.  Green areas show where there is an increase in precipitation due to a stronger monsoon.  Vice versa, the brown swaths indicate a decrease in precipitation due to a weaker monsoon.  The length of the arrow indicates the magnitude of the wind speed.   Looking at the average precipitation of a region helps to strengthen the accuracy of a forecast.  If it used to happen back then, then there is weight to the idea that it will likely continue to happen.   When a computer model incorporates these types of climatology features as part of its data input, a well-rounded picture of the best case scenario emerges. 

Figure 1. Average wind speed/direction and precipitaion for the month of October from 1979 to 2006

Increased amounts of precipitation is necessary and a positive factor in crop growths such as sugar in India, wheat in Australia, or even tea in Bangladesh, but too much can blast a devastating blow in populated rural regions .  Deluges of rain increase the loss of businesses and homes, aids in the pollution of necessary water sources which leads to an increase in diseases, and can destroy agricultural crops.  If tea leaves are in heavily saturated soil, the leaves tend to grow a mildew and mold that makes them unusable.  When the dryer side of the monsoon occurs, crops such as rice suffer the consequence, as it usually necessitates very wet conditions.  Table 1 provides a description of the Asian-Australian circulation by region index and its correlating precipitation outcome for the month of October, averaged from 1979 to 2006. 

Table 1) Average wind speed/direction and precipitation for the month of October from 1979 to 2006.

Monsoon rains and droughts drastically affect nations in various ways. From an economic standpoint, the world depends on the exports produced in the nations that are the most drastically affected by these seasonal shifts. The people depend on the production for their own livelihoods and standards of living. Grasping a better understanding and trying to work with nature, seems to be the only way to bring stability to the fragile infrastructure of life.

While seasonal trends may potentially impact supply and demand in certain commodities, seasonal aspects of supply and demand have been factored into futures & options market pricing.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial.  Past performance is no guarantee of future trading results.