The investment research division of CITIC SEC has released a report indicating a high probability of an El Ni帽o event occurring in 2026. Monitoring indices from both China's National Climate Center and the U.S. National Oceanic and Atmospheric Administration have already surpassed the threshold for a strong El Ni帽o, with forecasts suggesting continued intensification within the year. Analysts believe the event's strength could rival the magnitude of three historically extreme episodes.
Among agricultural commodities, palm oil and sugar have the clearest transmission chains, marking them as high-certainty beneficiaries. Coffee is expected to show divergence within its varieties, while wheat faces a triple squeeze from drought-related El Ni帽o conditions, soaring fertilizer costs, and disrupted logistics in the Black Sea region, creating a notable upward price trend. For base metals, potential supply disruptions in copper and aluminum due to El Ni帽o could be amplified by existing structural shortages. Lithium, due to the vulnerability of solar evaporation processes in Chilean salt flats, may also experience upward price pressure.
The potential 2026 El Ni帽o event could be particularly intense. According to CCTV reports, since mid-July, China's National Climate Center has recorded the Ni帽o3.4 index stable above +2.0掳C. The NOAA Climate Prediction Center updated its Ni帽o3.4 index to 2.6 on August 5, with projections for continued growth through the year. NOAA CPC estimates a 97% probability of El Ni帽o conditions persisting into early spring 2027, with warnings also issued by the World Meteorological Organization and Australia's Bureau of Meteorology. These meteorological bodies show remarkable consensus, suggesting the 2026 event could match the intensity of the super El Ni帽os in 1982-1983, 1997-1998, and 2015-2016.
In agricultural commodities, palm oil and sugar possess the most transparent transmission mechanisms and historically stable elasticities. Palm oil recorded triple-digit price increases during all three super El Ni帽o events, a rare occurrence in statistical analysis. This event's resonance with a positive Indian Ocean Dipole means Southeast Asia will face simultaneous drought pressure from both oceans, typically manifesting in price pressures 9-12 months after production declines. Sugar follows closely behind. According to the Indian Sugar Mills and Bio-Energy Manufacturers Association, forecasted Indian sugar production for the coming year will fall short of demand, with current inventories at their lowest since 2016. The Indian government has already banned sugar exports since May. The research team assesses that low inventories combined with export restrictions create upside risks for sugar prices exceeding historical averages.
The impacts on cocoa and coffee remain uncertain, while wheat faces geopolitical shocks. During El Ni帽o cycles, West Africa typically experiences above-average rainfall, which is detrimental to cocoa trees, potentially significantly impacting yields. However, West African government pricing policies and inventory buffers reduce price sensitivity to supply shocks, making the certainty lower than for palm oil and sugar. Coffee shows divergence within its varieties: Arabica faces bearish pressure due to reduced frost risk in Brazil, while Robusta faces supply pre-emption due to drought in Vietnam, making the spread between varieties worth monitoring. For grains, wheat faces three independent pressures: Australian drought, soaring fertilizer costs, and disrupted Black Sea logistics. According to India Times, about 70% of India's urea and 60% of its natural gas in 2025 are imported from Gulf states, while Brazil's fertilizer import dependence reaches 80-85%. Disruptions in the Strait of Hormuz drive up costs. Odessa's monthly throughput has fallen from 6 million tons to approximately 4 million tons, with shipping costs doubling. The research team believes the market may be underestimating the combined effects of fertilizers and logistics.
Base metals are also affected by El Ni帽o, highlighting vulnerability in supply disruptions. For copper, amid tight concentrate supplies, flooding in South America has led to downward revisions in Chilean production forecasts, while African drought has caused guidance reductions for several local copper mines. Aluminum faces three-pronged pressure from Yunnan's hydropower, Guinea's export controls, and Australian drought. The report suggests that the El Ni帽o premium for aluminum has not yet been fully priced in. Nickel supply contraction could result from El Ni帽o potentially leading to reduced Indonesian quotas, though certainty is lower than for copper and aluminum. Lithium represents the most supply-vulnerable commodity. According to Chile's Subsecretariat of International Economic Relations, Chilean lithium production in 2025 accounts for 19% of global output, predominantly through traditional solar evaporation. El Ni帽o could significantly increase local precipitation, sharply reducing evaporation efficiency. The global market is already in a state of tight balance, where marginal supply reductions could have a very pronounced price leverage effect.
Risk factors include geopolitical risks exceeding expectations, global climate change overshooting projections, U.S. inflation surpassing forecasts, global economic growth falling short of estimates, and monetary policy deviations from expectations by the Federal Reserve and other global central banks.
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