According to Zhitong Finance APP, Wanlian Securities released a research report stating that the current El Nino has been confirmed as a super-strong level event and will become the strongest event since systematic monitoring began.
The climate shock from El Nino will be transmitted gradually along the industry chain. High temperatures and drought in Southeast Asia and South Asia, combined with restricted passage through the Panama Canal, will impact agricultural product supply from both production and landed cost perspectives. The impact pathways differ noticeably across midstream varieties. Palm oil has the highest probability of production decline but the farthest realization timeline. The net impact on sugar depends on Brazil's sugar-to-ethanol ratio. Corn faces amplified elasticity due to low inventories. Rubber requires continuous tracking of production area inventories and downstream demand. Downstream seed, agrochemical, and livestock sectors lag by about one year. Current sector weather expectations are already fully priced in, and subsequent excess returns will depend on production decline realization. In terms of allocation, focus should be placed on varieties with concentrated production areas, thin inventories, and aligned policy direction.
Wanlian Securities' main points are as follows:
This El Nino event has been confirmed to have entered "super-strong" status. El Nino is a climate phenomenon in which abnormally warm sea surface temperatures in the central and eastern equatorial Pacific alter global atmospheric circulation, leading to high temperatures and drought in Southeast Asia and South Asia, increased precipitation on the western coast of South America, and impacts on global crop production. At the same time, drought in Central America lowers the water level of Gatun Lake in the Panama Canal, making draft and passage restrictions stricter, which raises the landed cost of grain routes from the United States to Asia.
In this El Nino event, the ONI entered an upward channel in the spring of 2026 and rose rapidly. On October 9, 2026, the National Climate Center confirmed that a super-strong El Nino event had officially formed in September, and this event will become the strongest since systematic monitoring began, with the peak expected to appear in late autumn and early winter.
The impact of El Nino transmits along the industry chain, with clear differentiation in impact pathways and rhythms at each stage. For bulk varieties, palm oil reduces production through three timelines: sex differentiation, inflorescence abortion, and fruit bunch development. The probability of production decline is high, but the realization timing is relatively far off. Rubber production will decline due to damage to rubber tree vigor caused by drought in Southeast Asia. Sugar shows an offsetting pattern of reduced production in the Northern Hemisphere and bumper production in the Southern Hemisphere, with the net impact depending on Brazil's sugar-to-ethanol ratio. Corn and soybeans usually tend toward bumper harvests, but the waterlogging in South America that this super-strong event may cause, as well as the current drought in U.S. production areas, will both affect crop yields.
On the industry side, the seed sector begins with growers' increased preference for stress-resistant varieties. Drought expectations strengthen demand for breeding and promotion of stress-resistant varieties, improving the transmission from orders to revenue recognition. Agrochemicals are tied to farmers' planting budgets. After higher grain prices improve planting returns, demand for pesticides and fertilizers expands accordingly, and budget adjustments require waiting for a full planting season. In livestock, higher prices for raw materials such as soybean meal raise feed costs, deepening livestock losses and accelerating capacity reduction, corresponding to a contraction in commercial hog supply about 10 to 12 months later.
Investment recommendations: Current weather pricing in the agriculture and livestock sector is already relatively full, and the beta rally is basically over. Excess returns will depend on the pace of production decline realization. At the variety level, relative returns will mainly depend on whether production losses can be verified, the thickness of inventory safety buffers, and whether policy and production reduction directions are aligned. At the industry chain level, the export chain will realize first, while demand-rigid agricultural inputs have prominent defensive attributes. The bank maintains an "outperform" rating on the agriculture and livestock industry and recommends focusing on two main lines: 1) companies in related industry chains that may benefit from possible increases in agricultural product prices; 2) seed companies that may see increased demand for stress-resistant varieties under extreme weather, as well as export chain and demand-rigid agricultural input companies.
Risk factors: The risk that El Nino intensity and duration fall short of expectations; the risk of inventory and policy offsets; the risk that downstream demand and transmission fall short of expectations.
Comments