The current El Niño weather pattern is intensifying significantly, posing a serious threat to the world's most actively traded agricultural commodities. This has triggered sharp price fluctuations in goods like coffee and cocoa, while also amplifying food shortages and inflation risks.
The U.S. National Oceanic and Atmospheric Administration reported last month that there is a 97% probability the current El Niño will persist until the spring of 2027. The chance of it developing into a "very strong" event between October and December is 81%, potentially making it one of the most powerful on record since 1950.
Arabica coffee futures have surged approximately 30% since early June, reaching $3.12 per pound and recording their largest single-day gain in 47 years. In New York, cocoa futures climbed from around $3,950 per metric ton in mid-June to an eight-month high of $6,455 on July 9, a gain of over 63%. Although prices have since retreated to $5,600, they remain more than 40% above June's lows.
Analysts at Rabobank note that despite "vast differences" in the fundamentals of coffee and cocoa, their price correlation is increasing. This suggests investors are broadly applying an "El Niño risk premium" to soft commodities.
Research from the European Central Bank indicates that a strong El Niño event typically raises global food commodity prices by an average of 9%. Jefferies economists warned this Thursday that the impact of this El Niño could be more pronounced, given that the Iran conflict is already exerting upward pressure on commodity prices.
Analysts Warren Patterson and Thijs Geijer at ING Group stated that the effects of El Niño could extend to the broader food and agriculture sector, ultimately transmitting to the global economy. This threat comes as farmers already face a fertilizer shortage crisis caused by disruptions to energy and commodity flows due to the Iran war. Insufficient fertilizer supply may force farmers to reduce application when crops face drought, heat, or excessive rainfall, further weakening the crops' ability to withstand adverse weather.
Maximo Torero, Chief Economist at the U.N. Food and Agriculture Organization, highlighted that the most concerning crops right now are durum wheat and rice. The combination of El Niño, alongside reduced fertilizer use in major wheat-growing country Australia and the world's largest rice producer India, threatens crop yields, creating a dangerous compound effect.
According to estimates from the U.N. World Food Programme, El Niño could push at least 49 million people into severe food insecurity by the end of 2027.
The impact on physical supply is already visible in Peru, where unusually warm Pacific waters have made anchovy populations more vulnerable. The country suspended anchovy fishing in May, causing fishmeal prices to more than double year-on-year, while fish oil prices have risen more than threefold since July 2025.
Cocoa has been severely affected. Rabobank data shows that 88% of global cocoa production is concentrated in regions susceptible to El Niño's adverse effects, including West Africa, Ecuador, and Southeast Asia. Previous strong El Niño events have all been accompanied by significant production declines: global cocoa output fell 12% in 1982-1983, 9% in 1991-1992, 6% in 2015-2016, and 13% during the 2023-2024 event, which saw the quarterly cocoa average price surge 122%. The cocoa market has not fully recovered from consecutive years of poor harvests, meaning even relatively small production cuts can trigger amplified price reactions. Low soil moisture and poor pod development in Côte d'Ivoire are already threatening the next main crop, while excessive rainfall in Ghana has exacerbated the spread of black pod disease.
The coffee market is also pricing in the possibility of prolonged weather shocks. Rabobank noted that Robusta coffee futures prices are unusually high, indicating growing market concern about an event that could impact supply through 2027. Vietnam, Indonesia, and India account for the majority of global Robusta coffee production, and these regions typically experience hotter, drier weather during El Niño. Prolonged drought could deplete irrigation water reserves for coffee trees in Vietnam, harming flowering for the 2027-2028 harvest season. For Brazilian Arabica coffee, the most persistent impact is rising temperatures. Warmer winters reduce frost risk, but excessive heat combined with uneven rainfall can still stress trees and lower yields. Traders will focus on the flowering period from September to November, which will determine the potential of the next crop.
ING Group pointed out that sugar production in the Asia-Pacific region consistently declines during strong El Niño events. New Delhi has banned sugar exports until the end of September. Rabobank believes a more serious risk is that if the production shock is large enough, India could be forced to become a sugar importer. Thailand is also expected to see reduced harvested area due to lower profitability of sugarcane relative to alternative crops. Brazil may partially offset these losses with its massive sugarcane harvest, but El Niño-related excessive rainfall could disrupt crushing and delay subsequent crops. Citi forecasts that raw sugar prices will rise to 17 cents per pound within three months and to 19 cents per pound within a year.
Palm oil is also at risk. Indonesia and Malaysia together supply over 80% of the world's palm oil, and these regions typically experience drier weather during El Niño. Rabobank stated that production risks may emerge later this year and intensify in early 2027, as the delayed effects of water stress reduce yields.
Current weather shocks are being amplified by climate change. While El Niño is a natural phenomenon, it operates against a backdrop of global warming, leading to increased evaporation and heat stress. The Intergovernmental Panel on Climate Change has concluded that rainfall variability associated with El Niño and La Niña is very likely to increase in the latter part of this century.
Torero noted that crop losses could prompt governments to impose export restrictions, transmitting regional shortages to global markets, as happened during the 2023 rice price crisis. When countries face "low yields and low production," they often "implement export restrictions, which can put pressure on prices."
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