This summer, markets may be trading more than just "hot weather." The focus could be on how an El Niño event redistributes global rainfall, tightens agricultural supplies, disrupts mine production, and elevates costs for power and fertilizers. The most critical factor to watch is not the average temperature, but the tail-risk scenario: if its intensity approaches that of 2015-16, the shocks could ripple from farmlands to food ingredients, copper mines, Yunnan's aluminum production, Asian coal power, and Indian inflation.
According to a cross-asset research note from Barclays dated May 15, a core judgment from analysts including Craig Rye is: "Climate forecasts increasingly point to a significant El Niño event around mid-summer 2026; the base case remains a moderate-to-strong event, roughly comparable to 2023-24, but the tail-risk scenario is quite prominent, with some model paths suggesting the potential for a 'super' event on par with 2015-16."
Within this framework, the most immediate pressure points include cocoa, palm oil, sugar, fishmeal/fish oil, copper, aluminum, and Asian power. Energy and fertilizer volatility stemming from Middle East conflicts acts as another amplifier: weather alone can impact crops and hydropower, but if urea, ammonia, LNG, and shipping are simultaneously unstable, the pricing of farmer margins, food company working capital, and mining costs will be reassessed.
The projected path is also crucial: El Niño conditions may emerge in late spring 2026, intensify during the summer, and peak around the end of the year. Global average temperatures typically reach their highest point about four months after the peak El Niño intensity. This implies the winter of 2026-27 could be warmer than usual, with 2027 carrying the risk of setting new global temperature records. What will truly move prices are the specific regions experiencing drought when rain is needed and floods when it's not, and whether supply chains have inventory buffers.
"Super" Is Not an Adjective, But a Watershed for Supply Shocks
The definition of El Niño comes from anomalous sea surface temperatures in the tropical Pacific. An anomaly above +0.5°C signifies El Niño conditions; +1.0°C to +2.0°C typically corresponds to a moderate-to-strong event; anomalies above +2.2°C are often termed a "super" El Niño.
Past strong events provide market references: the 2023-24 event peaked around +2.0°C to +2.1°C, 2015-16 was near +2.8°C, 1997-98 was about +2.4°C, and 1982-83 was approximately +2.2°C. Current forecast distributions are wide. The base case is not a "certain super," but the tail outcomes are extreme enough, with some model paths even exceeding the intensity of any El Niño observed in at least the past 80 years.
2015-16 serves as the closest stress test. That event occurred against an already warming climate backdrop, with impacts spreading from food security to commodities and industrial supply chains. Related IMF analysis estimated that the extreme 2015-16 El Niño dragged down global economic output by approximately $3.9 trillion over the subsequent five years. The UN Food and Agriculture Organization described it as one of the strongest and most widespread events of the past century, damaging agriculture, food security, and nutrition for about 60 million people.
At the commodity level, cocoa, palm oil, sugar, and fishmeal experienced disruptions that year; floods in northern Chile also temporarily halted several copper mines, affecting roughly 90,000 tonnes of copper supply, about 0.5% of global output. If a similar intensity repeats in 2026-27, the problem is that many of these markets are starting from a position of tightness.
Agricultural Impact: Not Simple Global Shortfalls, But a Rainfall Redistribution
El Niño's impact on agriculture does not equate to synchronized global harvest failures. Historical studies show El Niño tends to depress yields on about 22%-24% of harvested areas while improving harvests in another 30%-36% of regions. Globally, soybean production often improves by 2.1%-5.4%; outcomes for corn, rice, and wheat are more dispersed, ranging roughly from -4.3% to +0.8%, depending on the growing region and crop calendar.
For Latin America, the key is not simply "dry" or "wet," but *where* it's dry and *where* it's wet. Argentina and southern Brazil typically receive more rainfall, which can be beneficial for corn and soybeans; northern and central Brazil face drier risks, making planting windows, soil moisture, and heat stress more sensitive.
The 2024 floods in Rio Grande do Sul, Brazil, demonstrated another facet: El Niño doesn't only create droughts but can also amplify excessive rainfall. Attribution studies suggest such events have become 2 to 5 times more likely and 3% to 10% more intense in a neutral climate background compared to the past.
For sugar, it's not just a yield issue. Sugarcane in central-southern Brazil during El Niño years often faces higher rainfall and temperatures, leading to persistently weaker Total Recoverable Sugar (TRS) content. While tonnage impact varies by region and harvest timing, sugar quality itself is enough to affect processor margins.
Cocoa: The Most Sensitive Commodity Faces Renewed Weather Risk
Cocoa is one of the most classically El Niño-sensitive agricultural products. West Africa accounts for about 60%-75% of global cocoa supply. Weather disruptions in 2023-24 altered local rainfall patterns—first excessive rain, followed by drought—damaging yields and increasing disease in Côte d'Ivoire and Ghana, rapidly tightening global cocoa supply.
The price reaction was severe: cocoa prices surged above $10,000 per tonne in 2024. Subsequently, high prices crushed demand, leading to volume contraction, recipe adjustments, and "shrinkflation." With supply improving in 2025, prices retreated to around $3,000 per tonne by March 2026.
Now the risk is re-emerging. Cocoa prices have recently begun to climb. If the 2026 crop is damaged, a more significant price reaction could materialize in 2027. For a major processor like Barry Callebaut, cocoa constitutes about 50% of its raw material basket. While cost-pass-through mechanisms protect structural margins, volume elasticity under high prices has already been tested. The company's FY26 volume guidance was revised in Q2 to -1% to -3%, implying H2 growth of about 1%-5%; another cocoa price surge would narrow this recovery path.
The risk for AAK is more indirect. Its chocolate and confectionery-related business accounts for about 30% of Consumer & Confectionery Fats sales. This segment already saw volume decline in 2025 due to weak end-demand. If chocolate consumption continues to be suppressed by high cocoa prices, the recovery could be delayed.
Palm Oil, Sugar, Fish Oil: A Second Wave of Inflation in Food Ingredient Chains
The logic for palm oil follows two lines. The first is weather: Asian palm oil producing regions during El Niño are more prone to heat, dryness, forest fires, and haze; reduced rainfall lowers Fresh Fruit Bunch yields. The second is energy: rising crude oil improves biodiesel economics. Indonesia plans to increase its biodiesel blending mandate from July, with Malaysia, Thailand, and the US also having similar expansion plans. This diverts more palm oil to fuel use, squeezing exportable supplies.
AAK has greater exposure here, with palm oil comprising about 50% of its input cost basket. The company's rule of thumb is that a roughly 10% fluctuation in its raw material basket corresponds to a change of about SEK 7.5 billion in working capital. Weather disruptions coupled with price increases could reverse the recent tailwind in working capital and pressure businesses with less dynamic price pass-through, such as infant formula fats in China.
For sugar, a key variable is India. El Niño can bring drought-like conditions, weakening yields and potentially triggering export restrictions if the crop underperforms. The government can reduce the diversion of sugar for ethanol, but this only partially buffers supply impacts. At the company level, higher sugar prices typically benefit Südzucker and provide some support for Tate & Lyle's positioning in alternative sweeteners. Conversely, for Corbion, sugar accounts for about 25% of its raw material basket and is a key feedstock for lactic acid and algal oil fermentation, though its sugar exposure is hedged for about two years.
Fishmeal and fish oil represent a more direct transmission chain. During the 2023 El Niño, warm Pacific currents near Peru disrupted anchovy resources, leading to the cancellation of the first fishing season. As the world's largest exporter of fishmeal and fish oil, the result was a rapid spike in fish oil prices and a significant increase in aquaculture feed costs.
The starting point for 2026 is not loose. Peru's first anchovy fishing season quota is 1.91 million tonnes, down 36% year-on-year, a reduction of over 1 million tonnes. Wild fishmeal and fish oil constitute about 30% of salmon feed costs, with feed itself accounting for 40%-45% of total farming costs. This directly pressures the margins of salmon farmers like Mowi, SalMar, and Lerøy. On the other side, the algal-based Omega-3 alternatives from DSM-Firmenich and Corbion see improved competitiveness when fish oil prices are high.
Copper Risk Lies in Northern Chile: The Same 90,000 Tonnes, But Greater Sensitivity Today
The copper market's focus should be on northern Chile. In March 2015, extreme flooding in the Atacama region temporarily halted copper mines including Centinela, Antucoya, Michilla, Candelaria, and Salvador, estimated to have affected roughly 90,000 tonnes of copper supply. That shock accounted for about 0.5% of global supply.
Chile's risk is higher than Peru's because its mines are concentrated in the Atacama, Antofagasta, and Tarapacá regions—precisely the areas affected by the 2015 floods. Estimated copper production from these three regions in 2027 is about 4.2 million tonnes, or 17% of global supply. A one-week stoppage could impact about 80,000 tonnes. Peru's copper belt is mainly in the southern Andes, not overlapping with the northern coastal areas more severely affected by the 2017 coastal El Niño floods, implying relatively lower disruption risk.
If a super El Niño in 2026-27 peaks around October-November 2026, the high-risk rainfall window for the Atacama would shift to February-April 2027. The 2015 loss itself wasn't massive, but the copper market was in surplus at the time. This time, the global copper market is projected to face an annual deficit of about 300,000 to 400,000 tonnes in both 2026 and 2027. Small supply disruptions will have a greater price elasticity.
Corporate exposure is also clear: Antofagasta PLC's related copper production in northern Chile is about 323,000 tonnes, contributing roughly 41% to group EBITDA; BHP has exposure through Escondida, which at a 100% basis produces about 1.028 million tonnes of copper, contributing approximately 34% to group consolidated EBITDA; Rio Tinto's exposure to Escondida accounts for about 9% of group EBITDA. However, rising copper prices could partially offset the negative impact of any production disruption.
The Core Variable for Yunnan Aluminum is Hydropower, Not the Smelters Themselves
Yunnan's operating primary aluminum capacity is about 6.6 million tonnes per year, accounting for roughly 9% of global primary aluminum output. The region's power supply is highly dependent on hydropower, which constitutes about 60%-70% of provincial electricity generation. El Niño weakens the summer monsoon in the Bay of Bengal. If the wet season in Yunnan brings insufficient water inflow, low reservoir levels will carry the problem into the dry season.
Historical precedents exist. The 2015-16 drought led to capacity cuts of about 300,000 tonnes, roughly 20% of capacity at the time. During the 2023-24 drought, required capacity cuts reached 1.15 million tonnes, also about 20% of then-capacity. In the dry season of 2024, by February, operating capacity was about 400,000 tonnes lower than normal, with Yunnan declaring its most severe drought in 60 years.
Under a super El Niño scenario for 2026-27, the wet season from May to October 2026 may underperform, leaving reservoirs at low levels entering the dry season. The highest risk window would be Q4 2026 to Q1 2027. If a 20% production curtailment repeats, about 1.3 million tonnes of aluminum output would be at risk, representing about 1.7% of global supply.
Middle East conflicts have already tightened the aluminum market further. Approximately 2.5 million tonnes of global production (about 3.2% of supply) have been cut due to shortages or damage to raw material alumina, natural gas, or facilities. More cuts are possible short-term if alumina shipments via the Strait of Hormuz are constrained. About 5.5 million tonnes per year of Middle Eastern aluminum capacity relies on seaborne alumina or bauxite shipped via the Strait of Hormuz, accounting for about 7.2% of global production. Restarting idled smelters may take 6 to 12 months, while repairing damaged facilities could take up to two years.
Price elasticity is concentrated among aluminum producers. Norsk Hydro has the highest sensitivity to LME aluminum prices: a 10% increase in LME aluminum price adds about 17% to its projected 2026 EBITDA; a 10% increase in realized premiums adds about 3%. The corresponding figures are about 15% for South32 and about 4% for Rio Tinto.
Asian Coal: Short-Term Beneficiary, But Winter Logic Shifts
If the El Niño development phase coincides with the Northern Hemisphere summer, it can boost Asian cooling demand and potentially reduce hydropower output, which is beneficial for thermal coal demand. However, by the winter of 2026-27, warmer weather would weaken heating demand, meaning the logic is not a one-sided bullish story for the entire year.
India is a prime example. During the 2023-24 El Niño, India's hydropower generation fell 8% year-on-year in H1 2024, while coal-fired power generation grew 10%. This time, if the monsoon is weak and reservoir storage is reduced, coal substitution could be even more pronounced.
Middle East conflicts have already altered relative fuel prices in Asia. As of May 13, Asian LNG prices on a coal-equivalent basis were around $258/tonne, while Newcastle coal prices were about $140/tonne. Price-sensitive markets are more prone to "gas-to-coal" switching. South Korea has postponed the 2026 retirement of about 1.5 GW of coal capacity; Japan has temporarily relaxed restrictions on inefficient coal-fired operations until March 2027; the Philippines and Bangladesh are also increasing coal-fired generation.
Among covered companies, Glencore is sensitive to thermal coal prices: a 10% increase in thermal coal price adds about 3.2% to EBITDA and about 8% to EPS.
India: The Macro Hard Constraint – Monsoon, Food Inflation, Fertilizers
India's El Niño risk is not abstract. The June-September monsoon season contributes about 75% of India's annual rainfall, directly impacting agricultural output and food inflation. During the strong 2023-24 El Niño, monsoon rainfall was 5.5% below normal. During the "super" 2015-16 El Niño, the rainfall deficit reached 13.8%.
Historical examples illustrate the transmission to output and inflation. In 2015-16, India's kharif (summer) foodgrain production fell 2.3% year-on-year, and food inflation (excluding vegetables) averaged 6.2% from September to March. In 2023-24, kharif sowing grew a mere 0.2% year-on-year, foodgrain production rose 0.1%, and food inflation averaged 5.9% over the same period.
This time, the fertilizer variable is added. India has high import dependence on Middle Eastern fertilizers, and the conflict has exposed this vulnerability. The government tends to absorb price shocks through higher fertilizer subsidies. Estimated overspending is around 500 billion rupees against a budget of 1.7 trillion rupees, with upside risk.
As of mid-May 2026, India's total fertilizer stock is up 12% year-on-year. Current inventory can meet 51% of total kharif season demand, compared to a typical level of around 33%. Therefore, the main issue for the kharif sowing season may not be "availability" but higher prices, with the government bearing more of the cost. If the conflict persists into the rabi (winter) sowing season (December to March/April), supply concerns could re-emerge.
Latin America: Not a Simple Weather Trade, But a Map of Wet/Dry Distribution
The El Niño effect in Latin America is more akin to a risk redistribution. The Southern Cone—Argentina, Uruguay, southern Brazil—along with the Pacific coasts of Peru and Ecuador, typically see increased rainfall. Central and northern Brazil, Colombia, Central America, and parts of Mexico are more prone to becoming hotter and drier.
Wetter conditions are not necessarily bad for crop yields in affected regions. Improved rainfall in Argentina and southern Brazil is generally positive for crops and export chains, though excess moisture can affect quality, delay harvests, and disrupt port operations. Rising water levels in Brazil's Paraná River basin and surrounding reservoirs help alleviate power constraints, though under a strong event, floods, grid stress, and waterway disruptions become tail risks.
The problems in drier regions are more direct. If drought hits during the planting or pollination window for soybeans and second-crop corn in central-western Brazil, costs for grains and ethanol businesses rise, and Brazilian protein processors face feed cost pass-through. Pulpwood plantations in the north and Cerrado regions also face fire and yield risks. For utilities, reduced reservoir inflows lower hydropower output, forcing the system to rely on higher-cost thermal power.
Tourism and transportation are not immune assets. Mexican beach destinations facing severe weather could see pressure on tourist flows, already impacted by airlines cutting capacity due to high fuel costs. Cancún is particularly important for ASUR, while GAP has exposure to leisure destinations like Puerto Vallarta and Los Cabos.
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