LONDON/NEW YORK: Global forecasters say an El Nino weather pattern is strengthening and could develop into a ‘very strong’ event that boosts temperatures, disrupts rainfall and poses risks to crops the world over.
What is El Niño and why are commodities grown in tropical regions, known as soft commodities, especially exposed?
EL NIÑO El Niño is a periodic warming of sea surface temperatures in the eastern Pacific caused by weakening trade winds. It occurs naturally every two to seven years and tends to last between nine and 12 months.
The weather pattern typically results in warmer temperatures across the globe, drought in regions including South and Southeast Asia, Australia and Southern Africa, and heavy rainfall in others including the southern parts of South America and the United States.
The US Climate Prediction Center upgraded its El Nino forecast last week, saying there is a greater than 90percent chance of a very strong event during the northern hemisphere fall and winter 2026-27. El Niño-driven dryness, heat or excess rains are a blow for farmers already grappling this year with the fertiliser and diesel price shocks spurred by the US-Israeli war on Iran.
Soft commodities have consistently seen strong price gains during past El Niño episodes.
COCOA
Every strong El Niño in the past 55 years has reduced cocoa output, according to investment firm WisdomTree. During the last El Niño, which ran from mid-2023 to mid-2024 and was considered moderate-to-strong, top grower West Africa was initially hit by double its normal rainfall, which left cocoa trees exposed to a fungal disease.
In 2024, the weather pattern flipped and West Africa was hit by intense heat and by Harmattan winds that were unseasonably dry and strong, causing the disease-weakened trees to drop their flowers. “Everyone thinks El Niño is only associated with droughts in West Africa. This is not necessarily true. Due to climate change … the result, at times, (is) too much (initial) rain. Right now, this is my biggest concern,” said Jim Roemer of consultancy Best Weather. About half the world’s cocoa is grown in Ivory Coast and Ghana, the world’s first- and second-largest bean growers. Ecuador is the world’s third-largest, and typically sees excess rains during El Niño episodes. Cocoa prices nearly tripled in 2024 after the West African harvest failed. They rose to record levels above USD12,000 a metric ton by late 2024, making the chocolate ingredient more expensive than many industrial metals. COFFEE El Niño is especially problematic for robusta coffee as it typically brings higher temperatures and reduced rainfall to top grower Vietnam and No. 3 grower Indonesia from the middle of the year onwards. The adverse weather hits the two countries, which jointly account for some 50percent of the world’s robusta output, during the crop development phase. Its impacts are then felt from the fourth quarter, during the harvest.
SUGAR
For sugar, one of the most widely traded soft commodities, El Niño typically brings excess rain in the second half of the year, which can disrupt and reduce the quality of the harvest in top grower Brazil. In No. 2 sugar grower India and No. 2 exporter Thailand, by contrast, the weather pattern typically reduces rainfall during the summer monsoon.
Comments