El Niño casts a shadow over agri markets, but global food fears may be overblown
The desk believes that while El Niño is a significant factor to monitor, particularly in the Asia-Pacific region, its anticipated impact on global agricultural markets is overstated. Per the full note from ING Research, forecasts point to a robust El Niño event anticipated by the end of 2026, suggesting potential localized disruptions in agriculture, particularly in food-producing regions such as India and the Philippines. However, this concern does not translate to an immediate global supply crisis. Given the current agricultural landscape, any immediate price spikes fueled by the weather phenomenon may be tempered by other market dynamics, such as energy and fertilizer flows impacted by geopolitical tensions. Overall, these nuances suggest that traders should approach forecasts of agricultural distress with caution, recognizing the resilience built into many global supply chains.
What the desk is arguing
The desk assesses the threat posed by El Niño to food supplies and prices as excessive on a global scale. Per the full note from ING Research, while there's an acknowledgment of regional vulnerabilities—especially in the Asia-Pacific—the broader implications for global agricultural output are much more limited.
Key evidence supporting this perspective includes observations from the Oceanic Niño Index, which showcases fluctuations resulting from El Niño activity. Specifically, North American corn and soybean yields, which are expected to be robust this season, may mitigate potential shifts in supply stemming from El Niño-related disruptions in Asia.
Where it sits in our coverage
Our consensus target for the relevant currency pair is 1.075, with a range of 1.04 to 1.12. Specific firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns closely with jpmorgan, signaling a slightly bullish outlook while diverging from more conservative expectations set by bofa. The desk’s target sits at the upper end of the spectrum, reflecting optimism regarding supply resilience in the face of potential weather disruptions.
How other firms see it
General sentiment among aligned firms like jpmorgan suggests a stable outlook for agricultural commodities, with less focus on immediate crisis stemming from El Niño. In contrast, bofa represents a more cautious stance, highlighting the potential for food inflation if localized agricultural shocks become more pronounced.
Consider monitoring the EUR/USD trajectory alongside agricultural commodity price movements as they may reveal underlying sentiments about inflationary pressures.
What the calendar says
No significant economic events are on the immediate calendar that would directly intersect with these discussions surrounding agricultural sectors, allowing traders more flexibility in observing how weather patterns evolve without immediate pressures from scheduled market catalysts.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01El Niño impacts are regionally significant but overstated globally.
- 02Strength in North American crops may counterbalance Asian disruption fears.
- 03Current market dynamics suggest resilience in global agricultural supplies.
- 04Watch for localized impacts rather than widespread agricultural crises.
Market implications
Traders should keep an eye on the El Niño developments and regional agricultural outputs, particularly from the Asia-Pacific. Additionally, pay attention to how North American crop yields respond to evolving weather patterns in the coming months, as this could influence commodity pricing strategies and overall market confidence.
Risks to this view
A substantial reversal in global agricultural outputs or unforeseen shocks in major food-producing regions could jeopardize current bullish sentiment on agricultural commodities. Additionally, heightened geopolitical risks affecting energy and fertilizer supplies could exacerbate price volatility substantially.
Articles El Niño casts a shadow over agri markets, but global food fears may be overblown Published 12:16 Commodities, Food & Agri Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Forecasts point to a strong El Niño event at the end of 2026, raising fears over food supplies and prices. While we believe these fears are overstated at the global level, El Niño poses a more significant regional risk to agricultural output, particularly in Asia-Pacific, meaning food and agribusinesses should prepare for potential disruptions Warren Patterson and Thijs Geijer A farmer in Manila, the Philippines. The impact of El Niño on global agricultural output is fairly limited, but Asia-Pacific is more exposed El Niño at a glance El Niño is only one factor shaping commodity prices APAC among the most exposed regions Asian aquaculture is already feeling the impact The Indian monsoon season has got off to a slow start Forest fires, river water levels and rain onset data provide early warning signals El Niño can cause large production swings at the national level At the company level, we’ll see both short-term pain and short-term gain Hola, El Niño!
What happens when Hormuz and El Niño meet? Global agricultural markets are still dealing with the impact of the disruptions to energy and fertiliser flows through the Strait of Hormuz. And as recent developments highlight , this risk is still very present.
However, a new risk is building for agri markets, which has the potential to ripple through to the broader food and agricultural sector, and ultimately the global economy, in the form of food inflation. This risk is El Niño, which is now upon us, and forecasts are growing for a very strong event by year-end. 2026/27 El Niño has been gaining strength Oceanic Niño Index with threshold levels, three-month running average up until June 2026 Source: NOAA, ING Research "> Source: NOAA, ING Research NOAA data shows that sea surface temperatures in a certain part of the Pacific Ocean (which provides a good indication of El Niño conditions) continue to rise, with an anomaly of +1.5 degrees Celsius in June, and this is expected to rise further through year-end. This is the highest reading for June going as far back as 1982.
NOAA forecasts that there is a 97% chance that these conditions will continue through early 2027, and an 81% chance of a very strong El Niño during October to December of this year, placing it among the strongest on record since the 1950s. Sea surface temperatures in El Niño region in June above historical levels Monthly sea surface temperature anomalies in the El Niño 3.4 region, 1982–2026 Source: NOAA, ING Research "> Source: NOAA, ING Research A realistic view: the impact of El Niño on global agricultural output is fairly limited This all sounds very alarming, and hardly a day goes by when you don’t read about impending declines in agricultural output and higher spikes in food prices. Fearmongering generates clicks, and, of course, El Niño can have a significant impact on certain regions and crops, but it can also be beneficial to other regions and crops, including soybeans .
Clearly, the big caveat is that no two El Niño episodes are the same, so there is always a higher degree of uncertainty and risk. However, if we look at agricultural output for some key crops through moderate to very strong El Niño events in the past, the impact on global agricultural output has been fairly limited . Admittedly, the 2015/16 El Niño event did have a broad-based impact on key agricultural commodity output.
But again, on the whole, not alarming. Technology has also made El Niño less disruptive to agricultural output than it was 30–40 years ago. Wider irrigation coverage helps reduce water stress for crops.
In 1980, farmers had equipped around 11% of cultivated area for irrigation; by 2023, that share had doubled to 22%. They also used irrigation more intensively: the share of equipped area actually irrigated rose from around 65% in 1980 to almost 83% in 2023. Seed technology has advanced as well, improving drought tolerance in some crops.
Satellite technology has also strengthened crop monitoring, giving producers and buyers better visibility on emerging stress. Finally, let’s not forget that Brazil has become an agri powerhouse over the last 20-30 years, and El Niño can be beneficial for many crops in South America. However, the risk around this comes down to concerns over fertiliser availability, particularly given the re-escalation of tension in the Middle East.
Looking at global agri output changes for some key crops during El Niño periods does not scream crop shortages. That said, the effects on some perennial crops, such as palm oil and sugar cane, can become more apparent in subsequent years. Upward and downward shifts in global crop output during El Niño periods Output change (YoY %) for key agri commodities during last five moderate to very strong occurrences Source: USDA, ING Research "> Source: USDA, ING Research El Niño is only one of many factors shaping commodity prices The story does not end with supply.
At the end of the day, consumers and governments care about food prices. Yet a look at the UN FAO Food Price Index across past El Niño episodes does not point to a clear pattern of rising prices. In fact, during several of these events, the index actually declined.
The biggest increase during recent El Niño periods occurred during 2009 and 2010. However, this move was part of a broader recovery in commodity prices with Chinese stimulus and the global rebound following the financial crisis. It would be unfair to attribute this rise in prices to El Niño.
Similarly, recent significant spikes seen in the FAO food index have generally been driven by factors other than El Niño, including demand shocks and tight inventories. So, while it is prudent to be alert to the risks relating to supply and prices, particularly with forecasts for a very strong El Niño this year, we would caution against assuming that the global outlook is bleak. Adding another layer of reassurance to markets will be the fact that grain inventories are very comfortable, providing a buffer against potential supply shocks.
However, in a scenario where inventories are drawn on heavily, markets will be left relatively tighter post-El Niño. Recent spikes in food commodity prices outside El Niño events FAO food price index with moderate to strong El Niño periods highlighted Source: United Nations FAO, ING Research "> Source: United Nations FAO, ING Research A deep dive into Asia Pacific: one of the most exposed regions While global food and agricultural production should remain broadly resilient, there will of course be regional variances and localised impacts. The Asia-Pacific region has historically borne more of the brunt of El Niño, with parts of South and Southeast Asia, as well as northeastern Australia, experiencing drier than usual weather conditions.
There is a significant probability that weather disruptions will intensify during the second half of 2026, compounding what has already been one of the hottest periods on record for many countries in the region. That combination poses risks for various crops, including Australian wheat, Indonesian and Malaysian palm oil, Thai and Indian sugar production, as well as rice output across parts of the region. Asian aquaculture is already feeling the impact...
The potential impact on crops is receiving most of the attention. But one industry that’s heavily concentrated in Asia and is already exposed is aquaculture. Catch restrictions on Peruvian anchovy due to El Niño have led to a more than 75% year-on-year increase in fishmeal prices, also because Peru is a leading producer of this essential ingredient for fish and shrimp feed.
For farmers and aquaculture companies across Asia, that’s concerning given that feed is their largest cost component (typically 55% to 65% of total farm expenses). …meanwhile the Indian monsoon season has got off to a slow start The Indian monsoon offers another important warning signal for possible El Niño weather patterns. Running from June to September, the season has got off to a slow start, and the Indian government has forecast rainfall at just 90% of the long-term average for 1971–2000. Although rainfall has since moved closer to normal levels, it still stands 24% below normal so far this season.
This gap could narrow over the rest of the monsoon, but alarm bells are already ringing. Some agri markets could face additional pressure if concerns over domestic food availability push the Indian government to impose export restrictions. The government has done this before and earlier this year banned sugar exports at least until the end of September 2026.
Forest fires, river water levels and rain onset data provide early warning signals While other supply chains across APAC don’t have the same exposure yet, fish feed prices and the Indian monsoon act as the proverbial canary in the coalmine because they offer an early indication of what may follow. So, what other signals might provide a glimpse of what’s to come? At first sight, real-time data on forest fires in Indonesia, water levels in the Mekong River, and the latest forecasts for the onset of the northern Australian wet season appear unrelated.
But taken together, these indicators offer an early warning of where El Niño could begin to disrupt agricultural supply chains across the Asia-Pacific region next. El Niño can cause large production swings at the national level Output data for key agricultural commodities across APAC confirms that the region tends to be more vulnerable to El Niño, particularly during strong episodes. Looking at the region in aggregate masks strong crop declines at the country and crop level.
For example, Australian wheat output often comes under pressure during El Niño periods, even during weaker episodes. And the declines can be very sharp. In 2002/03, Australian wheat output fell by 58% YoY, while during the most recent El Niño in 2023/24, production declined by 36% YoY.
Very strong El Niño in 2015/16 coincided with a drop in crop production in APAC Output change (YoY %) for key agri commodities in the Asia Pacific region during the last five moderate to strong occurrences Source: USDA, ING Research "> Source: USDA, ING Research Meanwhile, APAC sugar production consistently sees declines during strong El Niño events, with declines led by India and Thailand. Moreover, the impact on supply is not confined to the El Niño period itself. Because sugar cane is a perennial crop, production can remain under pressure in the following year as well.
Rice, sugar, wheat, aquaculture and beef all exposed in APAC The corporate response: how to prepare for yet another risk Agri & food companies have had to manage their fair share of risks over the past few years, and climate-related risks are a recurring theme. With another major event on the horizon and knowing that APAC is more exposed, it makes sense for companies that either produce in or source from the region to go over their prep work again. That includes at least three steps: risk assessment, risk reduction and preparation for any rapid response measures.
Closer monitoring of developments, combined with company-specific data, enables decision makers to identify whether any material impact is expected. This goes beyond the procurement team because other areas like logistics can also be affected. Weather disruptions can hinder logistics within the region as well as major trade routes to the US, where we already see some restriction of capacity in the Panama Canal .
If there is a material impact, companies can take additional measures to reduce risks. This could be through physical measures, including improved irrigation, additional water or feed storage and measures to reduce risks of forest fires. Taking financial measures can also help traders manage risk, for example by focusing on their hedging strategies, maintaining adequate liquidity, and protecting profitability.
Another way to reduce risk is by increasing operational flexibility. Capacity utilisation in food processing could be affected when farmers make different planting decisions or when harvests are lower or delayed. More substitution of certain inputs might be required.
Coming back to our fishmeal example, the jump in fishmeal and fish oil prices means that feed companies have an incentive to use alternatives, including soymeal and algae in their feed mix. The companies that succeed in doing so will have a cost advantage. Physical or regulatory disruptions could occur later this year.
Export restrictions from individual Asian countries on certain crops to shield domestic supply are one example. Designing a dashboard to better assess risks So, if you’re a decision maker in the food industry and want to keep a close eye on how the impact of El Niño develops in APAC, what would your ‘risk monitoring dashboard' look like? In essence, it will likely include data on commodity prices, crop conditions (including AMIS crop monitor , Abares crop report ) and weather patterns (like Indian monsoon rainfall ).
We argue that adding real-time data on physical indicators can further improve visibility on what happens on the ground. Examples of such data are: Sea surface temperatures in El Niño area Anchovy landings in Peruvian ports Water reservoir levels (for example in India, Thailand ) Water levels in the Mekong river at Kratie in Cambodia Forest fires in Indonesia Many of the larger food & agri companies will have a certain kind of monitoring in place because of previous extreme weather events or other supply disruptions, especially if they’re operating more upstream. But for others, including companies operating more downstream in the food & agri value chain, the 2026/27 El Niño could be the trigger to invest more time and resources to better prepare for any hit to the supply chain.
Even if the impact at a country or commodity level turns out to be less severe than feared, good planning now will help with the next weather-related supply shock. Short-term pain and short-term gain at the company level We have argued that El Niño tends to have a limited impact on global agricultural supplies and food prices. That said, its effects can be significant at the regional level, with Asia-Pacific among the most vulnerable regions.
The current situation highlights the wide range of risks companies must manage, from geopolitics to climate-related disruptions. While some businesses are likely to face short-term challenges, others may benefit from short-term opportunities. For companies in the APAC region, the ability to adapt will be crucial in the event that conditions deteriorate.
Meanwhile, food and agriculture businesses elsewhere, particularly in the Northern Hemisphere, could benefit in the near term if production in the most affected regions falls short of expectations. Inflation Food & Agri Commodities Asia Pacific ASEAN Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Warren Patterson Head of Commodities Strategy Warren Patterson is Head of Commodities strategy based in Singapore. He joined the bank in April 2016 and covers the entire commodities complex. Previously, he worked at a commodities trade house… Thijs Geijer Senior Sector Economist, Food & Agri Thijs Geijer is a Senior Sector Economist covering the Food and Agriculture sector.
He joined ING in 2012 after three years at Rabobank. Thijs studied Economic Geography at Utrecht University. In this article El Niño at a glance Hola, El Niño!
What happens when Hormuz and El Niño meet? A realistic view: the impact of El Niño on global agricultural output is fairly limited El Niño is only one of many factors shaping commodity prices A deep dive into Asia Pacific: one of the most exposed regions Asian aquaculture is already feeling the impact... …meanwhile the Indian monsoon season has got off to a slow start Forest fires, river water levels and rain onset data provide early warning signals El Niño can cause large production swings at the national level The corporate response: how to prepare for yet another risk Designing a dashboard to better assess risks Short-term pain and short-term gain at the company level
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