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Why tropical goods are exposed by a super El Nino

Forecasters have said that El Nino is intensifying and could become a "very strong" event, which would increase temperatures, disrupt rainfall patterns and pose risks to crops around the world.

Why are soft commodities (commodities grown in tropical areas) called "especially vulnerable" and what is El Nino?

EL NINO

El Nino occurs when trade winds weaken, causing a periodic increase in sea surface temperature. El Nino occurs in nature every two to seven year and lasts between nine and twelve months.

Weather patterns typically result in warmer temperatures around the world, droughts in some regions, such as Australia, South and Southeast Asia and Southern Africa, but heavy rain in others, including southern South America and United States.

The U.S. Climate Prediction Center updated its El Nino prediction last week. It said there was a greater 90% chance of an extremely strong event occurring during the fall and winter in northern hemisphere 2026-2027.

El Nino's dryness, heat and excess rains will be a major blow to farmers who are already struggling with price increases for diesel and fertilisers due to the U.S./Israeli war against Iran.

Soft commodities?have consistently experienced strong price increases during previous El Nino episodes.

According to WisdomTree, every strong El Nino over the past 55 has led to a reduction in cocoa production.

The last El Nino was moderate to strong and lasted from mid-2023 until mid-2024. West Africa, the top cocoa-growing region, was initially flooded with double its usual rainfall. This left cocoa trees vulnerable to a fungus disease.

In 2024 the weather pattern changed and West Africa experienced intense heat, and Harmattan wind?that was unseasonably strong and dry, causing disease-weakened trees drop their flowers.

Everyone thinks El Nino only causes droughts in West Africa. It is not always true. Climate change can sometimes lead to too much initial rain. Jim Roemer, of Best Weather consultancy, said that this was his biggest concern at the moment.

Ivory Coast, which is the second largest bean producer in the world, and Ghana are responsible for about half of the global cocoa production. Ecuador, the third largest bean producer in the world, is prone to excess rain during El Nino episodes.

Cocoa prices almost tripled by 2024, after the West African harvest was a failure. By late 2024 they had reached record prices of over $12,000 per metric ton, making chocolate more expensive than most industrial metals.

COFFEE

El Nino can be particularly problematic for robusta as it brings increased temperatures and decreased rainfall to the top coffee-growing country Vietnam, and No. From the middle of the season onwards, Indonesia is the No. 3 coffee producer.

The two countries, which together account for about 50% of world's robusta production, are hit by adverse weather during the crop development stage. The effects are felt in the fourth quarter during harvest.

Analysts at Citi said that the dryness in Vietnam and Indonesia may reduce robusta coffee yields.

El Nino has a more subtle impact on arabica coffee. Nearly half of this type is grown in Brazil.

Carlos Santana of EISA's trader ECOM subsidiary said that El Nino may initially prove beneficial for the crops that Brazil is currently harvesting as higher temperatures could prevent damaging winter frosts.

El Nino, on the other hand, is more likely to affect output in the long term. It will bring heat and dryness to Brazil's coffee growing regions during the fourth quarter, when the new crop is being developed.

El Nino is a phenomenon that brings excessive rain to Brazil, a country with arguably the largest sugar harvest.

The No. In contrast, the weather pattern in India, which is ranked No. 2 among sugar exporters and no. 2 among sugar producers, tends to reduce rainfall during the summer monsoon. Thailand is the No.

India is expecting the monsoon of 2026 to bring the lowest rainfall for 11 years. Showers will be 90% below average during the period from June to September when crops are being developed.

Carlos de Mello of Hedgepoint, the head of sugar at Hedgepoint, estimates that a moderate El Nino would cut India's production by around 1 million metric tonnes.

The above-average rainfall that El Nino brings to Brazil's sugar region could benefit the crop next year.

Hedgepoint's de Mello stated that it was "hard to imagine a bull-market scenario for El Nino", because of the potential benefits El Nino could have on Brazil's sugar crop in 2027.

Brazil exports about half the world's total sugar.

(source: Reuters)