State media has once again turned the spotlight on El Ni帽o. Citing the World Meteorological Organization's latest bulletin from September 3, the phenomenon has officially formed, is expected to intensify further, and is likely to develop into a super-strength event. The disruptive weather patterns linked to it could persist at least until February 2027.
For the agricultural commodities traded on futures markets, this is an unavoidable variable. Many institutions conducted their own reviews and outlooks on this during the first half of the year. So, where do the most El Ni帽o-sensitive commodities stand right now?
Palm Oil
Starting with palm oil, its fundamentals are gradually improving. Between June and August, Indonesia experienced persistent drought and significantly below-average rainfall. Compared with several historical years of extreme production shortfalls, this dry spell has arrived earlier and appears more severe. The Indonesian Palm Oil Association (GAPKI) has accordingly trimmed its 2026 production forecast slightly, with the 2027 estimate further reduced to around 56.8 million tons. The probability of reduced output in the distant months is rising. Meanwhile, although the sector is currently in its peak production season, the recovery of near-term output has been less than ideal due to drought and wildfire disruptions. With the main contract already shifted to the 2027 delivery year, expectations for the longer end are being steadily reinforced.
Following the supply thread, we can also broaden the lens to the entire oils and fats market, which is not exactly loose. Geopolitical conflicts have hampered Black Sea shipping, keeping sunflower oil supply tight. Meanwhile, Argentina, another key source of sunflower oil, has limited new-crop supplies and farmers are holding back sales. This has made the global tightening of vegetable oils more apparent, an environment that is also favorable for palm oil.
On the demand side, there are bright spots as well. Data from Jin Shi shows India's August palm oil imports rose 7% month-on-month to 780,000 tons, a six-month high. Indonesia continues to implement its B50 biodiesel policy, with a senior energy ministry official recently urging companies to clear B40 inventories by the end of September and switch to the B50 standard. The demand growth logic from biodiesel is relatively clear. Therefore, palm oil currently faces a situation of supply disruptions combined with recovering demand. The two forces are resonating, strengthening the case for buying dips in the distant months.
Sugar
Sugar remains in the familiar pattern of weak domestic fundamentals versus strong overseas expectations, with the domestic board largely following raw sugar. The domestic market is weak mainly due to the structure of beet sugar warrants, high spot inventory, and a soft basis, leaving little room for near-term improvement on its own. Looking at the overseas market, however, the bullish logic appears more robust. Brazil's latest data shows more cane being diverted to ethanol production, with the sugar-to-alcohol ratio falling year-on-year and sugar output correspondingly lowered. Thailand and the European Union both have expectations of reduced output in the new season.
India's supply disruptions are relatively concentrated: last season's output already fell short of expectations, and with insufficient monsoon rainfall, concerns over India's domestic sugar supply may continue to grow. The policy suspending white sugar exports was originally scheduled to last until the end of September. Whether it will be extended could become a short-term speculative trigger for the market and deserves close attention in mid-to-late September. Additionally, India recently approved duty-free imports of 1 million tons of raw sugar, which may implicitly signal concerns about its own production supply.
Looking further ahead, while the global sugar market remains in surplus for the 2025/26 season, the supply-demand balance could gradually shift toward a deficit once the 2026/27 new season begins in October, a view the ISO has previously suggested. Back at home, however, the new season is still expected to lean toward inventory accumulation. So, in the coming period, if one hopes for a strong rally in domestic sugar, the first thing to watch is the overseas raw sugar trend. Only if the external market continues to strengthen can the domestic market be expected to recover in tandem.
Cotton
The cotton market has already traded one round of the US drought narrative, with both domestic and international price centers moving higher. The core bullish driver lies in the US cotton-producing regions: according to USDA's weekly crop progress report, as of the week ending August 30, 2026, US cotton condition was rated 39% good-to-excellent, still well below the 51% recorded at the same time last year. Texas growing areas remain in poor shape, and expectations of reduced new-crop output continue to ferment. Among other major producers, India's planting is essentially complete, with total area slightly below last year, but rainfall performance in September remains a key variable. Brazil, on the other hand, has seen its production forecast revised upward, weighing somewhat on prices.
On the demand side, downstream support is relatively limited. Overseas consuming countries are generally cautious about high-priced cotton, with Vietnam, Pakistan, and Bangladesh showing little enthusiasm for import purchases. Domestic cotton spot transactions are also dominated by lower-priced goods. Spinning mills are facing poor profits, and industry confidence in the peak season is not strong. At the same time, old-crop carryover inventories in China remain high, reserve cotton continues to be released to the market, and futures warrants are being generated — all of which cap the upside for prices. The core contradiction for cotton therefore revolves around weather developments in US producing regions, but the true bottleneck at current price levels is demand's ability to absorb the supply. Watch the September 11 USDA supply-demand report and the potential logic shift when new cotton hits the market in concentrated volumes.
Rubber
Rubber trading is also centered on the supply side at the moment. Major producing regions both domestically and overseas are in the seasonal supply recovery phase, but persistent rainfall is disrupting tapping operations, limiting the release of raw materials and providing support at the feedstock level. Synthetic rubber is also lending a hand. With crude oil firm and butadiene fundamentals improving, synthetic rubber prices have been holding up well. Since there is a substitution relationship between the two rubber types, strength in synthetic rubber has helped push natural rubber higher as well. Combined with ongoing destocking in domestic spot inventories and traders' price-supportive stance, the support under the board has become sturdier.
For rubber, the risk currently lies on the demand side. Although some companies' export orders have improved slightly after concentrated shipments at month-end, downstream buyers are not actually accepting the current high feedstock prices. Tire manufacturers' output controls are still in place. In the upcoming traditional peak season, whether downstream consumption can see substantive improvement will be the key observation point for whether prices can open up further upside.
Time of writing: September 4, 2026, 13:22
Comments