You don’t have to be a meteorologist to keep a close eye on developments surrounding El Niño in the coming months. The natural weather phenomenon will also be receiving considerable attention across the commodity trading industry. According to the National Oceanic and Atmospheric Administration (NOAA, which conducts weather research and issues weather warnings), El Niño is clearly strengthening. For autumn and the subsequent winter of 2026/27, the probability of a very strong impact is estimated to be above 90%. There is even a 69% chance of a historically strong event, which NOAA says could rank among the strongest since 1950. Plenty of reason, therefore, to keep a close eye on developments.
Now, the current outlook does not automatically mean that we will end up with major crop failures all over the globe. The potential consequences are highly diverse, and El Niño affects different regions in different ways. But it is precisely this diversity of potential effects and consequences that makes the situation highly relevant for commodity traders, particularly those active in agri and soft commodities. It can have (potential) implications not only for crops, raw materials and their availability, but also for everything from origin and quality to timing, logistics and, of course, price. El Niño alters precipitation and temperature patterns around the world. NOAA reports reduced rainfall over Indonesia. In Latin America, more rainfall is expected in the south, while parts of Brazil may instead face drought and heat. Moreover, the actual effects on soft commodities – such as crop development, yields and quality – often only become visible in the physical market months later.
It makes El Niño more than just a weather story: it is a risk for the entire supply chain.
Coffee and cocoa
Cocoa is one of the commodities currently being monitored most closely. West Africa accounts for the majority of global cocoa production and is therefore particularly important to the balance between supply and demand. A strong El Niño, as currently forecast, could bring warmer and drier conditions to the region. This could affect the development of the new crop and put availability under pressure later in the season. At the same time, cocoa markets are already emerging from a period of exceptionally high volatility.
As a result, a relatively small change in expected production can have major consequences for futures, differentials and physical premiums.
Coffee also remains vulnerable. Brazil could benefit from favourable conditions in parts of the south, but drought and heat in other regions could affect flowering and the next crop. Vietnam and Indonesia are important for Robusta, and drought presents a risk there as well.
Grains and palm oil
Southeast Asia is another key region to watch. Drought in Indonesia and Malaysia could affect palm oil production with a delay. The same applies to other tropical commodities such as rubber and Robusta coffee. For grains, the picture is less clear-cut. Southern South America could actually benefit from increased rainfall, while parts of Brazil may experience drought. A strong El Niño could therefore change not only total global production, but also, and perhaps more importantly, the geographical distribution of available supply. This can alter trade flows: a shortage in one origin can lead to increased demand for alternative producers, higher differentials and additional logistics costs.
Transport and logistics
The impact of El Niño does not stop at production. Unusual weather patterns, whether is drought or heavy rainfall, can affect transport as well. Low water levels in the Panama Canal can lead to restrictions, longer routes and higher freight costs. Major rivers like the Amazon can become less navigable during prolonged periods of drought. For commodity traders, this means that production risk and logistics risk are becoming increasingly interconnected. A commodity that is physically available but cannot reach the right place on time due to limited transport capacity can be just as commercially problematic as a lower crop yield.
An important characteristic of commodity markets is that prices look ahead. When traders expect a crop six months from now to be smaller, physical damage does not yet have to be visible before futures and physical premiums react. Historical research shows that strong El Niño events can have a clear impact on global commodity prices. The largest price effects can also occur with a delay of several months.
That is why the current situation is particularly relevant for planning and risk management. Companies dependent on cocoa, coffee, palm oil or other agricultural commodities should not only look at today’s price, but also at their physical coverage over the next six to twelve months. The answer does not automatically have to be: buy more inventory. Much more important is to create optionality. Companies that have mapped out alternative suppliers, origins and logistics routes in advance can respond more quickly when the market moves.
No single forecast, but multiple scenarios
For commodity trading, it makes more sense to work with scenarios. How much physical inventory and contractual coverage do we have? How dependent are we on a single origin or supplier? How flexible are our product specifications? What happens to lead times if supply becomes tighter? How vulnerable are our logistics routes? In a regional supply shock, certain crops underperform and additional demand emerges for alternative origins.
The most challenging scenario is a combined supply-chain shock, in which lower crop yields coincide with high energy and fertiliser prices, logistics problems and geopolitical disruptions. It is this combination that could significantly amplify the impact of El Niño.
Don’t get caught off guard
The key message from the current El Niño outlook is not that a global commodity crisis is definitely on the way. Rather, it means that uncertainty is clearly increasing. El Niño makes knowledge valuable. In commodity trading, that knowledge only becomes truly valuable when it is converted into room to manoeuvre before disruption occurs.
Agiblocks empowers traders to make better, more informed decisions – turning market volatility into opportunity rather than risk. It turns market intelligence from a report that looks backwards into an input for making better decisions today. In commodity trading, preparation ultimately means knowing exactly where you stand – before the market moves.
Agiblocks is more than just a CTRM software – it’s a comprehensive solution for managing commodity trading risks effectively and efficiently. With its integrated Value at Risk (VaR) engine, real-time position management and automated mark-to-market assessments, Agiblocks provides everything a commodity trader needs to succeed. The platform simplifies complex calculations, reduces human error and helps traders make quick, data-driven decisions. In a trading environment defined by constant change, accurate position management is the foundation of effective commodity trading. It simplifies this process by providing real-time, granular insights into trading positions, ensuring traders are ready to navigate the ups and downs of volatile markets. Whether it’s tracking specific commodity qualities, monitoring hedging effectiveness, or connecting positions with financial outcomes.
