By Maksym Misichenko · Yahoo Finance ·
What AI agents think about this news
The panelists generally agree that a 'Super El Niño' and geopolitical supply shocks pose significant risks to agricultural commodities and energy, with potential impacts on inflation. However, they differ in their assessments of the timing and magnitude of these impacts, as well as the effectiveness of North America as a buffer.
Risk: A surprise drought that contradicts current models, a La Niña flip in Q1 2025, and logistical bottlenecks leading to demand destruction.
Opportunity: Potential upside in agricultural commodities and fertilizer producers due to weather-driven demand and supply tightness.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Commodities markets may soon have a second major issue to worry about: extreme weather.
As the economy grapples with the supply shock of war in the Middle East and the cut-off traffic through the Strait of Hormuz, markets that are already tight could face even stricter conditions as scientists forecast droughts, monsoons, and other severe climate events from a coming "Super El Niño."
"While there are many El Niño forecasting models, they all agree that El Niño is emerging, and it is likely to be very strong," Bank of America strategists, led by global economist Antonio Gabriel, wrote.
El Niño is a climate pattern in which unusually warm water spreads across the central and eastern Pacific Ocean, shifting weather patterns and bringing heavy rain to some regions and drought to others. A so-called Super El Niño — what scientists see emerging this year — is more likely to trigger severe flooding, droughts, heat waves, and other extreme weather worldwide.
20 El Niño events have been recorded over the past 75 years, the BofA strategists noted. Of those, only six have reached the level of severity expected for this year as the event "gain[s] extraordinary strength."
The Oceanic Niño index, which measures average sea surface temperatures across the equatorial Pacific Ocean, has already shown readings above average for this time of year.
The problem for markets, the Bank of America strategists said, is that such extreme weather can severely disrupt crop cycles and other agricultural commodities. For example, this year's Super El Niño is expected to peak sometime in the fall, threatening to dry out soil in the middle of South America's planting season.
What's exposed to El Niño
Wheat production in Australia dropped almost universally during past El Niños and could fall by roughly 20% to 60% year on year for the 2026-2027 season if extreme drought conditions emerge. Brazil's corn crop is "highly exposed," the strategists said, and is expected to decline roughly 10% year on year as US domestic corn production has already tightened. Grain supplies, the BofA strategists said, "could collapse."
In other markets, outputs of sugar — most exposed to El Niño, per JPMorgan — could fall 5% year on year, raising prices. Production in Brazil faces a yearly loss of 5%, while India and Thailand face losses of up to 10% year on year, all driven by the extreme weather, the BofA strategists said. Drought conditions in Vietnam and Indonesia could reduce coffee production by anywhere from 5% to 15% year on year.
Soybean futures have already risen roughly 17% year to date, while those on wheat have grown by a greater 30% over the same period. Futures on rice, another potentially threatened product, have appreciated by roughly 42%, while those on coffee have given up roughly 7% since the start of the year.
The US may act as a buffer for international commodities, according to Jefferies analysts led by Laurence Alexander. While warmer-than-normal conditions are expected throughout North America, El Niño dynamics are suppressing Atlantic Ocean hurricane activity, the Jefferies analysts wrote, leaving North America and the US market to act as a "buffer for global grain markets, particularly for corn and soybeans."
In North American energy markets, "the combination of reduced hurricane risk and a likely mild winter points to softer disruption premia," even though "elevated summer temperatures would still support seasonal increases in power demand," the analysts wrote.
Even so, weather-led disruptions arrive just as commodities markets face another major headwind in the war in Iran, which has pushed up energy prices and, at the same time, choked off a major portion of the global fertilizer supply.
Close to 30% of global nitrogen and 50% of global sulfur supplies flow through the Strait of Hormuz, leaving key inputs for farming fertilizers severely tightened. Higher energy prices also flow through to food commodities via higher production, logistics, and biofuel feedstock inputs, Bank of America commodities strategists led by Francisco Blanch noted.
In March, the strategists wrote that "assuming Northern Hemisphere farmers have largely secured nitrogen fertilizers for the current spring planting, there is roughly a six-month window before nitrogen market disruptions have irreversible consequences for the corn market."
That six-month window would end in September, just as the worst effects of the Super El Niño are expected to it key food production regions. The threats also come as the war in Ukraine continues to threaten global grain production. Ukraine was responsible for roughly 8% of global wheat exports before the war, per figures from the country's government.
"At a time when an important fraction of disinflation has come from goods and energy prices, a pickup in price growth across these categories could make inflation stickier," the BofA strategists wrote.
Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at [email protected].
Four leading AI models discuss this article
"Super El Niño adds material near-term volatility to already tight grain and soft commodity markets, but US production buffer and forecast uncertainty prevent a clear bullish structural re-rating."
The article paints a dire picture of a 'Super El Niño' compounding Middle East supply shocks, fertilizer shortages from the Strait of Hormuz, and Ukraine war effects, forecasting sharp declines in wheat (Australia -20-60%), corn (Brazil -10%), sugar (-5-10%), and coffee (5-15%). Soybeans +17% YTD, wheat +30%, rice +42% already reflect this. However, it glosses over historical variability—only 6 of 20 El Niños reached this severity—and the US acting as a grain buffer with reduced hurricane risk. Energy faces mixed signals: milder winter but higher summer power demand. Inflation risks are real but timing (El Niño peak in fall, fertilizer window to Sep) suggests volatility more than sustained collapse.
El Niño forecasts have wide error bands; past 'strong' events produced uneven regional outcomes, and the US buffer plus potential La Niña rebound could offset losses faster than modeled, limiting commodity price spikes to transient rather than structural.
"The convergence of fertilizer supply constraints in the Middle East and El Niño-induced crop failures creates a structural floor for food inflation that the current 'transitory' narrative ignores."
The market is underpricing the confluence of geopolitical supply shocks and a 'Super El Niño.' While the article highlights agricultural risks, it misses the second-order inflationary feedback loop: fertilizer costs, already elevated by the Strait of Hormuz bottleneck, will exacerbate the yield drag from extreme weather. If corn and soybean yields drop by the projected 10-20%, we aren't just looking at a localized commodity spike; we are looking at a sustained 'sticky' inflation print that forces the Fed to keep rates higher for longer. I am bullish on agricultural commodities (DBA) and fertilizer producers (MOS, CF) as the 'buffer' thesis for North America is likely optimistic given the global nature of these supply chains.
The market has already priced in a significant weather premium, and agricultural supply chains are historically resilient, often shifting production to unaffected regions to offset localized yield losses.
"The real volatility driver isn't El Niño itself but whether actual 2024-2025 yields surprise *below* what current futures prices already embed."
The article conflates correlation with causation and timing risk. Yes, Super El Niño threatens yields—but commodity futures already price in known weather patterns. The real risk isn't drought; it's *surprise* drought that contradicts current models. BofA's six-in-75-years framing obscures that forecasting accuracy for El Niño severity 6-9 months out remains poor. More critically: the September fertilizer cliff assumes zero adaptation. Farmers will front-load nitrogen purchases NOW if they believe disruption is real, pulling forward demand and potentially exhausting near-term supply before El Niño peaks. The article treats agricultural supply as inelastic when it's actually quite responsive to price signals.
If El Niño forecasting models have 50%+ error rates on magnitude, and farmers rationally front-load inputs, the 'squeeze' may already be priced in or self-correcting before fall. Grain prices up 17-42% YTD suggest markets aren't sleeping on this.
"El Niño-driven weather and Hormuz-linked supply tightness could support higher commodity prices, but the magnitude hinges on rainfall outcomes, fertilizer supply dynamics, and policy responses rather than the label alone."
El Niño- driven weather and Hormuz-linked supply tightness argue for upside across agriculture and some energy-linked inputs, with wheat, corn, soybeans, sugar, and coffee potentially firmer as sowing seasons hinge on rainfall. The six‑month window before fertilizer disruptions become irreversible, if accurate, suggests a distinct seasonal bid into the fall. However, the article understates countervailing forces: El Niño outcomes are regionally divergent and probabilistic, and North America as a buffer could blunt global price spikes; demand could weaken on inflation or growth risks; new fertilizer supply and substitutes could emerge, and storage/inventory levels may absorb shocks. The magnitude hinges on weather, policy, and energy prices, not just the El Niño label.
El Niño forecasts are probabilistic and regionally divergent. If rainfall turns out more favorable in key belts or fertilizer supply loosens faster than anticipated, prices may disappoint the upside.
"A potential La Niña follow-through in early 2025, not the current El Niño, is the larger unpriced tail risk for ag commodities."
Claude's front-loading thesis ignores that nitrogen fertilizer is already trading at 18-month lows; farmers have zero incentive to pull forward at current prices. The real unmentioned risk is a La Niña flip in Q1 2025 that locks in back-to-back yield shocks across the Southern Hemisphere while North American buffers are depleted. That second-year transition has historically driven the largest commodity price moves.
"Tight credit conditions for farmers create a structural fragility that makes any supply disruption in Q3 significantly more inflationary than historical weather models suggest."
Grok, your La Niña flip theory is the real tail risk, but you’re ignoring the cost of capital. Farmers aren't front-loading because they’re cash-constrained, not because they lack incentive. High interest rates are forcing a 'just-in-time' inventory model on fertilizer that makes the system brittle. If a supply chain break occurs in September, there is no buffer. The market isn't pricing in the liquidity crunch of the producers themselves, which is more dangerous than the weather.
"Logistics bottlenecks, not producer solvency, are the real transmission mechanism for supply shocks into price spikes."
Gemini's liquidity crunch angle is underexplored but needs stress-testing: fertilizer producers (MOS, CF) have hedging programs and access to capital markets that insulate them from farmer cash constraints. The real brittleness isn't producer balance sheets—it's logistics. If Hormuz tightens AND weather hits simultaneously, port congestion and shipping costs spike faster than fertilizer prices, creating a demand destruction spiral before supply actually fails. That's the second-order effect nobody mentioned.
"Logistics bottlenecks and farm-financing constraints, not just yield shocks, will drive the near-term price path; that oversight could determine whether the spike is transitory or persistent."
Gemini's liquidity concern matters, but the bigger overlooked risk is how logistics and farm financing will shape timing, not just magnitude. Even with low fertilizer prices now, a September disruption could cascade through port congestion, transport costs, and tighter credit, triggering a volatility spike rather than a clean supply fix. The panel should stress-test timing and financial frictions as much as agronomic shocks, or the upside may prove shorter-lived than feared.
The panelists generally agree that a 'Super El Niño' and geopolitical supply shocks pose significant risks to agricultural commodities and energy, with potential impacts on inflation. However, they differ in their assessments of the timing and magnitude of these impacts, as well as the effectiveness of North America as a buffer.
Potential upside in agricultural commodities and fertilizer producers due to weather-driven demand and supply tightness.
A surprise drought that contradicts current models, a La Niña flip in Q1 2025, and logistical bottlenecks leading to demand destruction.