Super El Niño 2026: Why the agricultural risk is underestimated by the markets
23 JUN, 2026
By Benoît Harger from J. Safra Sarasin
By Elise Beaufils from Lombard Odier
By David Rees from Schroders
The agricultural commodity markets are facing a convergence of pressures rarely observed. On one hand, the Super El Niño 2026 is shaping up as the most intense episode ever recorded, with arrival expected between June and August and a 90% probability of persistence until November, according to the World Meteorological Organization. On the other hand, the structural shock on fertilizer supplies, geopolitical tensions in the Strait of Hormuz area, and the growing demand for biofuels are already putting pressure on global agricultural prices before El Niño unfolds its effects.
The thesis is direct: current prices do not reflect the cumulative risks for food supply chains, and investors who overlook these signals risk being surprised by an inflationary wave with transmission mechanisms already in motion.
Why is El Niño 2026 different from previous cycles?
Not all El Niño episodes produce the same impact on agricultural prices. What makes the 2026 scenario exceptional is the overlap with pre-existing shocks. David Rees, Head of Global Economics at Schroders, warns that "the threat of a powerful El Niño adds to other factors that already suggest that food prices are set to rise in the coming months": by the end of May, over 50% of the United States was hit by drought, with about 250 million acres of crops affected, while Europe was experiencing an unprecedented heatwave in May.
Rees' research shows that, historically, a very strong El Niño would imply a doubling of global food prices compared to current levels over the course of a year. If the FAO index rose by 50% by the end of the year, food inflation in the G7 would likely hit double digits in 2027, adding over one percentage point to overall inflation.
Fertilizers and Strait of Hormuz: the bottleneck that amplifies the risk
Geopolitical instability in the Persian Gulf has turned the Strait of Hormuz into an agricultural risk multiplier. Benoît Harger, Portfolio Manager of the JSS Commodity Transition Enhanced Fund by J. Safra Sarasin, emphasizes that a third of global fertilizer trade passes through this route. Urea prices have doubled since the start of the conflict, with production plants in India and Bangladesh already halted due to natural gas shortages and China limiting export quotas to protect domestic production.
This squeeze on nutrients is structurally severe: the United States imports 90% of their potassium, so much so that the Trump administration included the mineral in the list of critical ones in November 2025. The production of a single food calorie in the USA requires about 7.3 calories from fossil fuels (ScienceDirect, 2003): any disruption in energy markets directly translates into agricultural costs.
Which crops are most exposed to El Niño in 2026?
The exposure is not uniform. Rees (Schroders) identifies rice, wheat, sugar, and cocoa as the crops most at risk of convergence between climatic effects and fertilizer shortages. For wheat, it is predicted that the cultivated area in Australia will suffer a sharp drop, with production potentially decreasing by about 9 million tons in 2026/27. For sugar, previous episodes of El Niño have seen production in India and Thailand plummet by 20-30%.
The impact on sugar appears particularly acute because, as Harger (J. Safra Sarasin) recalls, a growing share of stocks is diverted towards ethanol production, an effect amplified by the oil shock in the Middle East. Cocoa, already jumped from 2,500 to 12,000 US dollars per ton in 2024 after two consecutive years of El Niño, provides a difficult precedent to ignore.
How value chains change: livestock, biofuels and stagflation
The cascade effects go beyond the spot prices of raw materials. In the livestock sector, feed costs often represent over 60% of production costs: a surge in corn or soy is quickly transmitted to meat and derivatives. Harger (J. Safra Sarasin) recalls the precedent of 2007-2008, when the sharp increase in corn forced US farmers to liquidate herds, with turkey prices rising sharply the following year.
At the macroeconomic level, Rees (Schroders) frames the risk in a stagflationary context: "successive waves of inflation, rather than an immediate and isolated shock, increase the risk of negative outcomes", including second-round effects on wages. Elise Beaufils, Deputy Head of Sustainability Research at Lombard Odier Investment Managers, integrates this reading from a structural perspective: thermal stress, water scarcity, and volatility of energy networks "are increasingly highlighting the fragility of global supply chains", with implications that extend well beyond the 2026 agricultural cycle.
Capital reallocation: the opportunity for investors
The point of convergence between the three analyses is the discrepancy between real risk and market pricing. Harger (J. Safra Sarasin) is direct: "financial markets are currently discounting a rapid return to normality in the agricultural sector, overlooking the persistent structural constraints". For investors, a selective exposure to agricultural commodities can represent an element of uncorrelated diversification in a multi-asset portfolio.
Beaufils (LOIM) adds a long-term perspective: "resilience is quickly moving from a defensive element to a central factor of competitiveness and value creation". Three capabilities become priorities: strengthening the resilience of physical assets, ensuring the value chains linked to water and agriculture, and developing predictive tools to anticipate risks. LOIM predicts that this dynamic will represent one of the most relevant investment priorities of the next decade, with a structural reallocation of capital towards adaptation solutions.
Conclusion
The Super El Niño 2026 is not the main risk: it is the catalyst that transforms existing structural vulnerabilities into concrete market events. The shortage of fertilizers, the energy dependence of modern agriculture and the growing demand for biofuels were present before weather forecasts confirmed an exceptional episode. The markets are discounting a return to normality that is not reflected in the fundamentals. For investors, the window to position themselves on agricultural commodities as an uncorrelated diversification element is narrowing.
Disclaimer: This article is for informational purposes only and does not constitute financial, tax or legal advice, nor an offer to buy or sell financial instruments. The opinions expressed reflect the assessments of Schroders, Lombard Odier Investment Managers (LOIM) and J. Safra Sarasin at the date of publication and are subject to change without notice. Past performance is not a guarantee of future results.
