Key Takeaways:
The strongest El Niño in 75 years is forming over the Pacific, threatening to disrupt agricultural supply chains where the top three exporters control 60% to 90% of global trade in staple crops.
The U.S. Climate Prediction Center estimates an 81% probability the event reaches "very strong" intensity and a 97% chance it persists through early spring 2027. Sea surface temperatures in the east-central Pacific already exceed normal levels by at least 1 degree Celsius, with some areas showing anomalies as high as 2.7 degrees. The Southern Oscillation Index has fallen to its lowest since 2005, confirming a weakening of the trade winds that sustains the warming pattern.
"Global agricultural supply is highly concentrated in a few regions, making markets extremely vulnerable to localized weather shocks, geopolitical events, or policy changes," said Lina Thomas, commodities research analyst at Goldman Sachs. "Even a modest supply disruption — or the mere fear of one — can trigger export restrictions that shrink available supply far more than the original weather damage."
Vegetable oil prices have already begun rising as markets price in supply risks. Goldman Sachs identifies three compounding threats: the El Niño itself, higher biofuel mandates that divert crops from export markets, and potential disruption to fertilizer shipments through the Strait of Hormuz — a chokepoint that handles about 21% of global seaborne fertilizer trade.
The concentration risk
For soybeans, corn, rice, sugar and palm oil, the top three exporting nations collectively account for 60% to 90% of global trade, according to Goldman Sachs. That means a drought in one major producing region — or a policy response in another — can cascade through global prices with disproportionate force.
The last comparable El Niño, in 2015-2016, pushed food price indices up 17% over 12 months, according to the United Nations Food and Agriculture Organization. Palm oil prices surged 45% during that episode as dry weather slashed yields across Southeast Asia. Sugar prices rose 30% as India and Thailand, the world's second- and third-largest exporters, faced production shortfalls.
This time, the risk is amplified by a protectionist tilt in trade policy. Major agricultural exporters have increasingly used export restrictions and biofuel mandates to prioritize domestic food and energy security. The International Food Policy Research Institute tracked 63 export-restrictive measures on food commodities globally in 2025 alone, up from 41 in 2023.
Three near-term risks converge
Goldman Sachs estimates a 63% probability that this El Niño develops into a "super" event. Historically, rice, sugar and palm oil — crops whose major exporters are concentrated in El Niño-sensitive regions — face the most adverse growing conditions during such episodes. Even if actual crop damage proves limited, the preventive imposition of export caps could tighten global availability well before harvest data confirms any shortfall.
Energy prices add a second layer of risk. Higher crude oil prices in the first half of 2026 and fuel security concerns may push governments to raise biofuel blending mandates, diverting sugar, corn and vegetable oils from export markets into domestic fuel production. Brazil, the world's largest sugar exporter, already channels about 50% of its sugarcane crop into ethanol.
The third risk centers on fertilizer supply. The third quarter is the critical procurement window for major nitrogen fertilizer importers ahead of the下半年 planting season. Any disruption to shipping through the Strait of Hormuz — which Iran has periodically threatened — would directly impact urea and ammonia supplies, raising input costs for farmers globally and potentially reducing planted acreage.
What happens next
The World Meteorological Organization projects the El Niño will intensify rapidly between July and September 2026, with the key monitoring region's seasonal average sea surface temperature anomaly expected to exceed 2 degrees Celsius — the threshold for a "strong" classification. The European Centre for Medium-Range Weather Forecasts confirmed on July 7 that this year's event may set a new intensity record.
For import-dependent economies across Asia and Africa, the stakes are high. Food price inflation remains a political flashpoint in countries where households spend 30% to 50% of income on food. The last El Niño cycle contributed to social unrest in several emerging markets as staple prices climbed.
If the three risk factors materialize simultaneously, the impact on global food supply chains could exceed the 2015-2016 episode, Thomas said. The key variable is whether exporting nations resist the temptation to impose preemptive restrictions — a pattern that, if repeated, would further fragment global trade and amplify price volatility.
This article is for informational purposes only and does not constitute investment advice.
