The rapid intensification of El Nino is sending shockwaves through various industrial chains, with impacts arriving at different times across sectors.
A recent report from China Merchants Securities highlights four primary channels through which El Nino affects industries: agriculture and biological resources, water resources and high-energy-consumption production, shipping and mining operations, and high temperatures coupled with electricity demand. The two most clearly defined pathways have already shown early changes: Peruvian fishmeal prices are climbing due to reduced catches, which is raising costs for aquatic feed producers, while the Panama Canal has tightened transit restrictions further due to water level pressures, compressing effective shipping capacity. In contrast, the primary impact periods for palm oil, natural rubber, and backup power systems in Southeast Asia lean more towards 2027; copper and other commodities are currently still driven mainly by their own industry cycles.
The report argues that El Nino acts more as an "amplifier" of industry trends rather than an independent driver. Historical analysis shows that weather shocks tend to translate into sustained market movements only when they align with underlying industry logic such as supply contraction or improving business conditions. Currently, livestock farming and shipping possess relatively stronger medium-term support.
From a climate intensity perspective, this El Nino event is still rapidly strengthening. The U.S. National Oceanic and Atmospheric Administration projects a greater than 90% probability of a very strong El Nino developing in the Northern Hemisphere during autumn and winter of 2026. There is also a roughly 69% chance that the Relative Oceanic Niño Index will reach 2.5°C or higher between October and December, surpassing all previous peaks since 1950.
The capital markets have yet to form a unified "El Nino rally." Since the confirmation of this El Nino event on June 11, related sectors such as agriculture, livestock farming, feed, aquaculture, planting, seed, tire, copper, and shipping have all outperformed the Wind All-A index, but the drivers behind their gains differ. Livestock farming is primarily supported by the hog cycle, while shipping is driven by both its own improving business environment and restrictions at the Panama Canal. The market is still waiting for weather impacts to further transmit into prices and corporate earnings.
The First Stop: Fishmeal and the Panama Canal - Impacts Have Already Landed
The first effects of this El Nino to materialize are in two areas directly linked to water resources and the marine environment.
The supply contraction of Peruvian fishmeal has already transmitted to the Chinese market. The first fishing quota for Peru's north-central zone in 2026 was set at 1.914 million tons, but as of August 20, cumulative catches totaled only around 471,000 tons, just 24.6% of the quota. The slow fishing progress has led to reduced Chinese fishmeal imports, a continued decline in port inventories, significantly higher prices for imported high-protein fishmeal, and a tangible impact on procurement costs for aquatic feed companies.
Looking ahead, the resource assessment and quota setting for the second fishing season will be a key variable on the supply side. For feed companies, differences in earlier inventory levels, procurement strategies, formula adjustments, and pricing power mean the extent to which fishmeal price increases ultimately affect profit margins will vary.
The Panama Canal, meanwhile, is experiencing a new round of capacity constraints. On August 20, the Panama Canal Authority announced it would gradually lower the maximum allowable draft for large vessels to 47.5 feet in early September and October, and further reduce the daily booking slots for transits starting in September.
This marks a shift from merely "vessel draft restrictions" to broader questions of "whether ships can pass and how many can get through." China Merchants Securities estimates that vessel waiting times and freight rates on some routes in the fourth quarter of 2026 will be higher than in the third quarter. If El Nino continues to suppress rainfall in the watershed into the first quarter of 2027, transit restrictions could be further tightened.
During the previous El Nino, daily transit slots at the Panama Canal fell to a minimum of around 22 vessels, and dry bulk carrier transits dropped by 47%, from 164 ships in October 2023 to 87 in November. Therefore, fishmeal and the Panama Canal can be considered the "first phase" of this trade, where impacts have already been realized.
The Second Stop: Hogs and Shipping - Market Has Priced Expectations, Next Comes Earnings
Compared to fishmeal and the Panama Canal, the logic for agriculture and shipping is more complex, as weather factors are now resonating with the sectors' own industrial cycles.
Looking at hogs first: the number of breeding sows at the end of Q2 fell to 37.8 million, a year-on-year decrease of 6.5%, and the decline is accelerating. Hog and pork prices have also recovered from their late-June lows during July and August, showing early signs of "capacity reduction first, price recovery later."
China Merchants Securities expects that hog price recovery in Q4 2026 will remain the core variable for improving profitability in livestock farming, with support likely continuing into H1 2027. However, the market has already priced in part of the expected hog cycle improvement: as of August 20, the livestock farming sector had outperformed the Wind All-A index by about 14.2%, but Wind consensus forecasts for 2026 net profit have been revised down by 34.8% over the past 13 weeks.
This means the next key for the hog market is no longer "whether capacity reduction is happening," but whether rising hog prices can genuinely translate into profits on the income statement.
Shipping faces a similar situation. The current Panama Canal constraints are occurring on a much stronger shipping market basis than in 2023. As of August 20, the Baltic Panamax Index stood at 2,088 points, 35.5% higher than the same period in 2023. The Shanghai Containerized Freight Index was at 3,355 points, roughly 3.3 times its level in the same period of 2023. Maersk reported a 4.1% year-on-year increase in loaded volumes for Q2 2026 and a 22% rise in average freight rates, showing clear improvements in industry profitability.
But stock prices are again running ahead of earnings. Since this El Nino was confirmed, the shipping sector has outperformed the Wind All-A index by approximately 21.9%, while FY1 earnings forecasts have only been revised up by about 2.6% over the past 13 weeks. The early market move has already priced in both the sector's own improving fundamentals and expectations of low water levels at the Panama Canal. The next step requires freight rate increases to further convert into earnings growth.
Within shipping, comprehensive companies with a higher proportion of dry bulk business and greater freight rate elasticity deserve more attention. During the previous low-water period, dry bulk transits fell by roughly 52% year-on-year, making them most sensitive to Panama Canal restrictions. While gas transport has high physical sensitivity, A-share listed companies in this area often operate with long-term charters and project-based models, resulting in relatively limited earnings elasticity. Container shipping is driven more by its own industry dynamics, with Panama Canal constraints acting mainly as a marginal catalyst.
Therefore, hogs and shipping represent the "second phase" of this trade: expectations have already been priced in by the market, and the focus now shifts to whether industry earnings can take over.
The Third Stop: Palm Oil, Natural Rubber, and Backup Power - The Real Trading Window Lies Ahead
Not all beneficiaries of El Nino have reached their earnings realization phase.
Backup power systems in Southeast Asia are a prime example. In H1 2026, Chinese exports of diesel generator sets to Indonesia, Malaysia, the Philippines, Thailand, and Vietnam totaled approximately 6.51 billion yuan, up 61.6% year-on-year. However, the current export growth is not entirely weather-driven; demand from data centers and other sources also provides significant support. As a result, the pressure from this El Nino on the power system is currently still lower than it was in 2023.
China Merchants Securities believes that the period from March to May 2027 may be a more critical window: low water inflow in the Mekong River basin, combined with rising cooling demand, could further strain local power systems, leaving room for continued growth in backup power equipment exports.
The impacts on palm oil and natural rubber also exhibit a lag. Global natural rubber production in 2026 is still expected to grow, providing a short-term supply buffer. Although palm oil inventories have declined somewhat, the effects of earlier weather on crop yields may become more apparent in 2027.
These sectors are thus currently in a trading phase characterized by "expectations forming, but supply impacts not yet fully realized."
Copper and White Goods: Not Everything Can Be Attributed to El Nino
One often overlooked aspect of the El Nino trade is that not all industries affected by weather deserve to be part of this specific investment theme.
Taking copper as an example, Chilean copper mine output fell 8.8% year-on-year from January to May 2026. However, reductions at some major mines are currently more attributable to maintenance, declining ore grades, and pre-existing operational issues, rather than region-specific production cuts caused by this El Nino. Therefore, copper prices are still primarily driven by global supply and demand dynamics and the miners' own situations.
White goods are similar. In H1 2026, Chinese exports of household air conditioners to the five Southeast Asian countries reached about 5.43 billion yuan, a 21.5% increase year-on-year. Yet, high-temperature demand has not yet led to significant upward revisions in sector earnings forecasts. Domestic demand and other overseas markets remain the primary sources of medium-term profitability.
This is also the most important lesson from historical review: El Nino itself rarely creates a sustained market rally. What truly determines the height of a rally is the industry's own supply-demand cycle.
In 2015 and 2019, the hog industry was in phases of supply contraction and extreme supply gaps caused by African swine fever, respectively. El Nino further amplified hog price and profitability elasticity. In 2023, despite a stronger El Nino, domestic hog supply remained ample, so the agricultural rally lacked sustainability.
Shipping is no different. The low water levels at the Panama Canal in 2023 significantly compressed effective capacity, but the shipping market was then in a post-pandemic downturn, and the weakening industry cycle partially offset the weather shock.
The El Nino Trade Is Not Over, But the Main Focus Is Shifting
Therefore, this "El Nino trade" is not merely a simple list of beneficiary sectors, but rather an industrial chain with a clear chronological sequence.
Fishmeal and the Panama Canal have already entered their impact realization phase. Hogs and shipping are transitioning from expectation trading to earnings verification. Palm oil, natural rubber, and Southeast Asian backup power are oriented more towards trading opportunities in 2027.
Historical experience also suggests that weather alone is rarely a sufficient condition for sustained market gains. What truly warrants attention is whether the supply, cost, and capacity shocks caused by El Nino can resonate with the industries' own cycles of capacity reduction and business upturns.
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