What is the Indian Ocean Dipole?
The Indian Ocean Dipole (IOD) is a climate phenomenon affecting the Indian Ocean. During a positive phase, warmth is pushed to the Western part of that body of water, while cold deep waters are brought up to the surface in the eastern end of the Indian Ocean. This pattern is reversed during the negative phase of the IOD. It is also known as the Indian Niño, as it draws similarity with the El-Niño Southern Oscillation (ENSO).
What are we looking at?
The plot tracks the conditions in the Indian Ocean, showing the phase of the IOD both now and in the past. Right now we are in a negative phase.
When the value of the time series is positive (red shading), the warm phase of the IOD is present with higher sea level in the western Indian Ocean and lower sea level in the eastern Indian Ocean.
When the value is negative (blue shading on graph above), the cool phase of the IOD is present with lower sea level in the western Indian Ocean and higher sea level in the eastern Indian Ocean. This is what we have today.
Why is it important in commodity trading?
The IOD influences tropical commodities in Africa, Australia and Southeast Asia the most.
During the positive phase of the IOD, the high temperatures along the coast of Africa cause heavy rains and droughts in Australia.
During a negative phase the high temperatures and rainfall patterns are reversed. The sea-level changes associated with the IOD can also lead to increased threats of coastal flooding and associated impacts. However, for west Africa, a negative IOD phase coupled with an El Niño can bring bull markets for cocoa with dry spring and summers often occurring affecting the main crops in Ivory Coast and Ghana.
Presently, we have an El Niño neutral situation and a developing negative Indian Dipole. Hence, the situation is a bit confusing, but could portend a decent (not great) main cocoa crop and possibly take the steam out of the recent two year bull market.
Source: Jim Roemer (Climatepredict software): “If there was an El Niñno in 2025, which there is not, drier weather and a potential bull market would occur this summer“
My cocoa Spider has been bullish recently on a weaker dollar and a poor mid-crop hitting the market. These Spiders appear in my WeatherWealth newsletter (each week) to help grain farmers and traders in multiple markets around the world. Special 70% discounts to WeatherWealth are available for small traders and farmers after your free trial.
The negative phase of the IOD brings about the opposite conditions of a positive IOD, with warmer water and greater precipitation in the eastern Indian Ocean, and cooler and drier conditions in the west.
The IOD also affects the strength of monsoons over the Indian subcontinent. This is what we have presently: A negative Indian Ocean Dipole, whose effects should be for a general good monsoon in India that tends to be bearish commodities such as sugar.
The impact of monsoons on Indian farmers
A majority of India’s GDP is dependent on the growth and production of agriculture. India is an agrarian nation, with more than 50% of the population earning their livelihood in agriculture.
The monsoon is the most important season for farmers in this country. A majority of Indian agricultural land is watered by the southwest monsoon. Field crops such as sugar, cotton, wheat, rice, and legumes are staple foods in India. They require strong rainfall in order to grow.
Does the Indian Monsoon affect summer corn belt weather?
There is only a little evidence that the Indian monsoon has a significant or consistent effect on Midwest Corn Belt weather. The Midwest’s weather and crop yields are primarily influenced by local factors such as precipitation recycling, land use, and groundwater, as well as larger-scale patterns like El Niño and La Niña. While global weather systems can sometimes interact, and changes in major monsoon systems may have indirect or minor effects on global atmospheric circulation, any direct linkage between the Indian monsoon and Midwest Corn Belt weather is not established in the search results.
You can see on my ClimatePredict program below (available to subscribers to WeatherWealth newsletter), there is a slight (-.31) correlation of the Indian Dipole and July corn belt rainfall.
In other words, a negative IOD, which is negatively correlated, suggests a slight chance for above normal corn belt rains (two negatives = a positive value). Notice, however, the correlation is much higher with El Niño/La Niña (+1.01). An El Niño (warm ocean signal) is positively correlated with corn belt rain. In other words wet, while La Niña is the opposite– a dry bullish signal like 2011 and 2012. Right now, we have mixed “El Niño neutral” conditions.
July temperature tends to to be hotter than normal for the Midwest corn belt with a negative IOD. Here too, the correlation is much weaker with the IOD than El Niño/La Niña and other teleconnections
Conclusion:
It promises to be another wild summer for the grain market, as the potential for hot summer weather will increase market volatility. The Indian Ocean Dipole being negative and an “El Niño neutral” event does suggest that most (not all) of the Midwest grain belt should have decent summer rains.
With respect to soft commodities, potential crop problems may continue for parts of West African cocoa, while Robusta coffee and sugar crops recover in Southeast Asia. This could keep these two commodities in a more longer term bear market. Of course, the behavior of the Brazilian Real, US dollar and crops in various locations will also play a role.
