Key Takeaways
- NOAA projects a 75% chance this El Niño becomes the strongest since 1950, landing on already strained global supply chains.
- Commodity price effects tend to arrive with a lag, building over 12-24 months rather than immediately.
- Agricultural markets face the sharpest risk, with cocoa and sugar prices surging over 200% last cycle.
- Export restrictions from major producers like India could further tighten global food supply and prices.
Unlike most weather risks, which arrive without warning, El Niño is highly traceable months in advance. The US National Oceanic and Atmospheric Administration (NOAA) tracks global temperatures continuously and has instrumental and observational data regarding El Niño going back to the late 1800s. On September 10, 2026, the NOAA issued an advisory stating that this El Niño episode is strengthening and will persist at least into the spring of 2027, with the odds at 75% that this episode would exceed the strength of previous ones dating back to 19501. What sets this El Niño apart from prior episodes, beyond just the severity of the NOAA's projected effects on the climate, is today's aggrieved commodity supply chains that have been grappling with multiple disruptions such as the wars in Ukraine and Iran and severe heatwaves across parts of Europe. Given these overlapping pressures, El Niño shouldn't be read in isolation. More often than not it amplifies or dampens trends already in motion.
In general, episodes appear once every two to seven years and last about 10 months. The strongest climate effects often occur with a lag, several months after ocean temperatures peak and begin to normalize. As it develops and fades, its influence across commodities happens unevenly. We expect El Niño 's incremental impact on inflation to peak in late 2027 as the market absorbs news of freight disruptions, lower harvests, commodity inventory drawdowns, and potential export restrictions.
2026 Oceanic Nino Index (ONI) Anomaly vs. Past El Niños
Source: NOAA Climate Prediction Center (CPC), Oceanic Niño Index. Bloomberg. Data as of September 30, 2026. For illustrative purposes only. Not a projection of future results.
Supply Chains
The damage is already surfacing. The Atlantic may finish its first hurricane-free season since 19142, a sign of how thoroughly this El Niño episode has rewired global weather. India's monsoon, the lifeline for roughly half its farmland, is entering its final weeks early3 with rainfall still roughly 15% short and almost no time left to fill the gap. Meanwhile, water levels in key trade arteries in Europe and Latin America have fallen to critical levels, and freight costs are climbing with them.
The squeeze is most visible in the Panama Canal. Its locks run on freshwater from Gatun Lake, where water levels are sitting below the long-term average. Only rain refills the lake, and every passing ship through the canal flushes millions of gallons of it into the sea.
2026 Gatun Lake Levels Outpace Past Droughts
Source: Panama Canal Authority (ACP), Gatun Lake Water Level Data. Bloomberg. Data as of September 30, 2026. For illustrative purposes only. Not a projection of future results.
When the lake level drops, the Panama Canal Authority has no choice but to cap how deep a vessel may sit in the water. It has announced five cuts this year4, from 50 feet to 48, so ships must sail lighter and carry less. Capacity is now scarce enough that shippers are paying heavily to pass through. Canal officials confirmed that a liquified petroleum gas tanker bid $5.3M for an auctioned transit on September 1, 2026, the highest reported price ever for the waterway5. The average auction price before the war in Iran ranged between $135K and $140K6.
How Draft Restrictions Cut Panama Canal Capacity
Source: Panama Canal Authority. For illustrative purposes only.
El Niño Impact on Energy
Strong El Niño episodes have historically led to mild winters across the Northern Hemisphere, cutting heating demand and pulling gas prices down with it. This effect has tended to be more pronounced in Europe, where residential and commercial heating makes up a large share of winter consumption. Indeed, European liquid natural gas (LNG) inventories have tended to run above average during these periods.
A warmer than expected winter means reduced heating demand and slower gas storage withdrawals, resulting in higher end-of-winter inventories and potentially lower summer LNG refill volumes. To be sure, geopolitics, supply disruptions, and shifting global trade flows have had a more pronounced impact on commodity prices than El Niño events alone, but this 2026 - 2027 winter points toward a looser European gas market, all else equal.
European LNG Inventories Running Above Average in 2026
Source: Gas Infrastructure Europe (GIE), Aggregated Gas Storage Inventory (AGSI), Bloomberg. Data as of September 30, 2026. For illustrative purposes only. Not a projection of future results.
Thermal coal prices tend to rally the year after a major El Niño, driven primarily by China and India. In China, heatwaves across Guangdong, Jiangsu, Zhejiang, and Fujian send cooling demand, and coal burn, sharply higher. India gets hit twice as heatwaves lift summer power demand while a weak monsoon drains reservoirs, cutting hydropower and pushing coal to fill the gap.
During the 2023 - 2024 El Niño, for example, Indian hydropower output fell by 4.9TWh, or -7.8%, in the first half of 2024 relative to 20237, while coal powered generation rose 10%8. Both countries mine most of their own coal, but restocking can still pull cargoes from the seaborne market and tighten global supply.
China Thermal Coal: Post- El Niño Price Path
Source: China Coal Resource (sxcoal.com), Bloomberg. China Thermal Coal Price represented by China Qinhuangdao Port thermal coal spot price. Data as of September 30, 2026. For illustrative purposes only. Not a projection of future results.
El Niño Impact on Metals
Curtailing hydropower generation due to low water levels is a common theme that impacts several commodities. Aluminum smelting runs on cheap power, and a growing share of global production now sits in China's Yunnan province, home to over 6.0Mt of capacity9 and a grid that draws roughly 70% of its electricity from hydropower10. An El Niño drought tends to drain reservoirs in this province, causing power to run short and smelters to curtail, tightening global supply.
China's smelters in Yunnan began 2023 with nearly 2.0Mt of capacity idled by drought-driven power rationing. Smelters slowly resumed operations over the summer but then faced another 1.2Mt cut order in late October. Aluminum output in Yunnan reached 3.1Mt during the first three quarters of the year, down 3.1% year-on-year11. During the 2015 - 2016 El Niño, China saw capacity curtailments totaling 5Mt by the end of 2015, or roughly 13% of the country's total smelting capacity12.
Prices tend to stay soft while El Niño is under way, then firm over the following one to two years as power shortages and curtailments make their mark on supply.
For copper, the El Niño risk is not drought but deluge, and it falls along parts of South America's west coast where many important mines are located. Chile produces slightly more than 5.0M tons of copper per year, which represents roughly one-fifth of global production13. Most of the country's output comes from its northern regions of Atacama, Antofagasta, and Tarapacá, where heavy rains have disrupted mining and logistics before. During the 2015 - 2016 El Niño, extreme flooding in Atacama caused considerable damage and downtime to several mines, including Escondida, a mine that comprised 20% of the country's entire copper output at the time14.
The Lag Effect: Aluminum and Copper
Source: Bloomberg. Data as of September 30, 2026. Aluminum Price is represented by LME Primary Aluminum; Copper Price is represented by COMEX Copper. For illustrative purposes only. Not a projection of future results. Past performance is no guarantee of future results.
Nickel and tin are in El Niño 's path, too. Indonesia and the Philippines produce most of the world's nickel, and both sit in regions El Niño dries out. Indonesia's smelters, however, run mainly on coal-fired power rather than hydro, which spares them the drought curtailments that hit Yunnan's aluminum, but leaves producer margins exposed when coal prices climb.
Tin's exposure is more diffuse, with supply spread across China, Indonesia, Myanmar, Peru, and Brazil. Asian producers face drought and South American producers face floods. Even so, tin prices have tended to rise 18 to 24 months after El Niño 's onset, the same lag seen in coal.
El Niño Impact on Agriculture
El Niño hits vegetable oil production particularly hard. Coconut oil comes overwhelmingly from the Philippines and Indonesia. In its annual Oilseeds and Products report, the USDA estimated that the 2023 - 2024 El Niño would affect coconut production materially during the 2024 - 2025 marketing year. Coconut crushing declined by roughly 15%, which also resulted in a 15% reduction in coconut oil supply15. Palm oil is just as exposed, with Malaysia and Indonesia supplying almost 90% of the world's production. The Malaysian Palm Oil Council estimates that an average El Niño leads to a 10% to 14% decline in yields during the first year, with a further 3% to 4% drop in subsequent years if the drought persists16. As tropical oil supply shrinks, buyers turn to the most readily available substitute, which is soybean oil.
The catch is that soybeans themselves usually benefit during an El Niño spell. El Niño tends to bring favorable weather to the key growing regions of Brazil, Argentina, and parts of the U.S., historically lifting global yields by roughly 2.0%17. Soybean prices often dip at the onset and recover afterwards. Soybean oil competes head-on with coconut and palm oil, so as these supplies tighten, soybean oil prices rise and follow the other tropical oils higher with a lag.
Oilseed Prices Diverge Post- El Niño
Source: Bloomberg. Data as of September 30, 2026. Coconut Oil Price represented by CIF Rotterdam Coconut Oil; Palm Oil Price represented by Bursa Malaysia Crude Palm Oil; Soybean Oil Price represented by CBOT Soybean Oil; Soybean Price represented by CBOT Soybeans. For illustrative purposes only. Not a projection of future results. Past performance is no guarantee of future results.
El Niño reaches into nearly every agricultural market. Rice, sugar, cocoa, and coffee all face elevated supply risk, and the 2023 - 2024 El Niño showed how quickly that can reach prices. During that episode, cocoa surged over 350%, sugar more than 200%, and several rice exporters closed their borders18.
Sugar is squeezed from two directions. El Niño typically starves India and Thailand of rain, cutting sugarcane yields and export supply. Brazil, on the other hand, gets wetter conditions that can lift yields but at the same time disrupt harvesting and crushing. The net price response is less consistent than for other crops, but the backdrop favors select Brazilian producers.
Cocoa prices have rallied after several El Niño episodes, often within the first year, though the magnitude and persistence vary wildly from episode to episode.
Robusta is the more exposed of the two coffees, where production is concentrated in Vietnam and Indonesia, and price gains with this commodity can be enormous. The 2023 - 2024 drought in Vietnam's Central Highlands helped push prices to record highs.
Grains tend to respond with a delay. Corn, in particular, typically falls in the first months after El Niño begins, then rises with the rest of the crop commodity complex. Wheat lags the longest. Its wide geographic spread makes it one of the least El Niño-sensitive crops, and on average it trades flat to lower for a full year before grinding higher.
Agriculture Commodity Price Impact Varies Significantly by Crop
Source: Bloomberg. Data as of September 30, 2026. Rice Price represented by CBOT Rough Rice; Sugar Price represented by ICE Sugar No. 11; Cocoa Price represented by ICE U.S. Cocoa; Coffee Price represented by ICE U.S. Arabica Coffee “C”/ ICE Europe (London) Robusta Coffee; Corn Price represented by CBOT Corn futures; Wheat Price represented by CBOT Wheat (Chicago SRW). For illustrative purposes only. Not a projection of future results. Past performance is no guarantee of future results.
Conclusion
This El Niño arrives at the worst possible moment. Supply chains already strained by the wars in Ukraine and Iran and by Europe's heatwaves now face what may be the strongest episode on record, and like the 2015 - 2016 and 2023 - 2024 events, it is likely to push global temperatures to new highs. Heat compounds every other pressure: it cuts labor productivity, raises absenteeism, and drives up electricity demand, with emerging markets hit the hardest. Commodity prices may rise unevenly and with a lag.
Policy response may add fuel to the fire. India has repeatedly restricted rice, wheat, and sugar exports when domestic food prices spike, and this year's weak monsoon makes a repeat likely, which would tighten global markets further. Ultimately, El Niño will not act alone and may not be the sole driver of commodity price movements, but in this environment, it is more likely to amplify existing pressures than to dampen them.
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1https://cpc.ncep.noaa.gov/products/analysis_monitoring/enso_disc_sep2026/ensodisc.shtml
2 https://www.aoml.noaa.gov/hrd/hurdat/easyread-2009.html
3 https://mausam.imd.gov.in/responsive/all_india_forcast_bulletin_archive.php
4 https://pancanal.com/en/panama-canal-announces-new-draft-adjustments-for-neopanamax-locks/
5 https://www.freightwaves.com/news/5-3-million-a-new-record-for-panama-canal-transit
6 https://pancanal.com/en/panama-canal-meets-rising-demand/
7 https://ember-energy.org/latest-insights/global-electricity-mid-year-insights-2025/
8 https://www.iea.org/reports/coal-mid-year-update-july-2024/demand
10 https://www.mining.com/web/chinas-yunnan-region-ramps-up-aluminum-production-as-power-curbs-eased/
13 https://pubs.usgs.gov/periodicals/mcs2026/mcs2026-copper.pdf
16 https://www.mpoc.org.my/el-nino-onset-to-drive-cpo-price-trajectory/
17 https://www.sciencedirect.com/science/article/abs/pii/S0308521X22002001
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