Super El Niño this summer? Save this trading manual.

This summer, the market may be trading not just “hotter weather,” but a reallocation of global rainfall, compression of agricultural supplies, disruption of mining production, and rising costs for electricity and fertilizers caused by an El Niño event. The most important scenarios to watch are not average temperatures, but tail events: if the intensity approaches that of 2015-16, shocks could cascade from farmland to food ingredients, copper mines, Yunnan electrolytic aluminum, Asian coal power, and Indian inflation.

According to WindTrader, in Barclays’ cross-asset research on May 15, Craig Rye and others provided the core judgment: “Climate forecasts increasingly point toward a significant El Niño around mid-summer 2026; the baseline scenario remains a moderate to strong event, roughly comparable to 2023-24, but the tail scenarios are quite prominent, with some pathways suggesting a ‘super’ event comparable to 2015-16.”

Within this framework, the most direct pressure points include cocoa, palm oil, sugar, fish meal and fish oil, copper, aluminum, and Asian electricity. The volatility driven by Middle Eastern conflicts—energy and fertilizer swings—is another amplifier: weather itself already impacts crops and hydroelectric power, but if urea, ammonia, LNG, and shipping are also unstable, farmer margins, operational capital for food companies, and mining costs will be re-priced.

Path assumptions are also critical: El Niño conditions may emerge in late spring 2026, strengthen through summer, and peak around year-end; global average temperatures typically hit their high about four months after El Niño peaks. This means winter 2026-27 could be warmer than usual, with a risk of breaking global temperature records in 2027. What truly moves prices are regions that fail to rain when they should, regions that flood when they shouldn’t, and whether supply chains have inventory buffers.

“Super” is not an adjective, but a watershed for supply shocks

El Niño is defined by anomalies in sea surface temperatures in the tropical Pacific. An anomaly above normal by more than 0.5°C indicates El Niño conditions; +1.0°C to +2.0°C usually corresponds to moderate to strong events; above +2.2°C is often called a “super” El Niño.

Past strong events provide market benchmarks: 2023-24 peaked around +2.0°C to +2.1°C, 2015-16 approached +2.8°C, 1997-98 about +2.4°C, and 1982-83 around +2.2°C. Current forecast distributions are broad; the baseline is not “inevitably super,” but tail outcomes are sufficiently extreme, with some models exceeding the intensity observed in at least the past 80 years.

2015-16 was the closest stress test. That event occurred against a warming climate background, with impacts spreading from food security to commodities and industrial supply chains. IMF analysis estimates that the extreme El Niño of 2015-16 dragged down global economic output by about $3.9 trillion in the following five years. The UN FAO described it as one of the strongest and most widespread events in a century, damaging the agriculture, food security, and nutrition of roughly 60 million people.

On commodities, disruptions occurred in cocoa, palm oil, sugar, and fish meal. Flooding in northern Chile temporarily halted several copper mines, affecting about 90k tons of copper supply, roughly 0.5% of global supply. If a similar intensity repeats in 2026-27, the issue is that many markets are already tight.

Agricultural products are not just about simple reductions; rainfall redistribution reshuffles

El Niño’s impact on agriculture does not mean a synchronized global crop failure. Historical studies show that El Niño tends to reduce yields in about 22%-24% of harvested areas, while improving yields in another 30%-36%. Globally, soybean yields often improve by 2.1%-5.4%; results for corn, rice, and wheat are more dispersed, roughly in the range of -4.3% to +0.8%, depending on planting regions and crop calendars.

In Latin America, the key is not just “dry” or “wet,” but where it is dry and where it is wet. Argentina and southern Brazil typically experience more rainfall, which can benefit corn and soybeans; northern and central Brazil face drier risks, with planting windows, soil moisture, and heat stress being more sensitive.

The floods in southern Rio Grande do Sul in 2024 already showed another side: El Niño not only causes drought but also amplifies excessive rainfall. Attribution studies indicate that such events are twice to five times more likely under neutral climate conditions, with intensity increasing by 3% to 10%.

Sugar is also not just about yield. In central-southern Brazil, cane in El Niño years tends to face higher rainfall and temperatures, with TRS (total reducing sugars) remaining persistently weak; the impact on tonnage varies by region and harvest timing, but sugar quality alone can influence corporate profits.

Cocoa is most sensitive: prices just retreated from highs, weather risks re-emerge

Cocoa is one of the most classic El Niño-sensitive agricultural commodities. West Africa accounts for about 60%-75% of global cocoa supply. In 2023-24, weather disruptions altered rainfall patterns—initially excessive, then drought—damaging production in Côte d’Ivoire and Ghana, increasing disease, and rapidly tightening global cocoa supplies.

Price reactions have been intense: in 2024, cocoa prices briefly soared above $10k per ton. Subsequently, demand was squeezed by high prices, leading to volume reductions, recipe adjustments, and “shrinkflation”; after supply improved in 2025, prices fell back to around $3,000 per ton by March 2026.

Now the risk reappears. Recently, cocoa prices have started rising again, and if 2026 crops are damaged, the larger price reaction could occur in 2027. For Barry Callebaut and Goldman Sachs, cocoa accounts for about 50% of raw material costs; the cost transmission mechanism can protect structural profit margins, but the price elasticity of sales at high prices has been validated. The company’s FY26 sales guidance was revised upward in Q2 to -1% to -3%, implying a recovery of about 1%-5% in H2; if cocoa prices rise again, this recovery path narrows.

AAK’s risk is more indirect. Its chocolate and confectionery business makes up about 30% of C&CF sales. In 2025, this segment already experienced volume declines due to weak end demand. If chocolate consumption continues to be suppressed by high cocoa prices, recovery will be delayed.

Palm oil, sugar, fish oil: the second wave of inflation in the food ingredient chain

The logic for palm oil has two parts. First is weather: in El Niño years, Asian palm oil-producing regions are more prone to high temperatures, droughts, forest fires, and haze, with reduced rainfall lowering fresh fruit bunch yields. Second is energy: rising crude oil prices improve biodiesel economics, with Indonesia planning to increase biodiesel blending ratios from July; Malaysia, Thailand, and the US are also expanding, diverting more palm oil to fuel use, squeezing export supplies.

AAK is more exposed here, with about 50% of its input cost basket in palm oil. The company estimates that a 10% fluctuation in raw material costs corresponds to about 150B SEK in working capital changes. Weather disruptions combined with rising prices could reverse previous working capital benefits and also impact less price-sensitive businesses, such as China’s infant formula fats.

Sugar’s key variable is India. El Niño may bring drought-like conditions, reducing yields and triggering export restrictions when crops underperform. Governments can cut back on sugar used for ethanol, but this only partially buffers supply impacts. On the corporate level, higher sugar prices generally benefit Südzucker and support Tate & Lyle’s alternative sweeteners; Corbion, on the other hand, has about 25% of its raw material basket in sugar, mainly for lactic acid and algal oil fermentation, but its sugar exposure has been hedged for about two years.

Fish meal and fish oil are more direct transmission channels. During 2023 El Niño, Pacific warm currents near Peru disrupted anchovy resources, canceling the first fishing season. Peru is the world’s largest exporter of fish meal and fish oil, resulting in rapid price increases for fish oil and significant rises in aquaculture feed costs.

The starting point in 2026 is not loose. Peru’s first anchovy quota is 1.91 million tons, down 36% year-over-year, a reduction of over 1 million tons. Wild fish meal and fish oil account for about 30% of salmon feed costs, which in turn make up 40%-45% of aquaculture costs. This will directly pressure profit margins for companies like Mowi, SalMar, and Lerøy. On the other side, algae-based Omega-3 substitutes from DSM-Firmenich and Corbion will become more competitive when fish oil prices are high.

Copper risks are concentrated in northern Chile: same 90k tons, but more sensitive than in 2015

The most critical copper market focus is northern Chile. In March 2015, extreme flooding in the Atacama temporarily halted mines like Centinela, Antucoya, Michilla, Candelaria, and Salvador, affecting an estimated 90k tons of copper supply. That impact accounted for about 0.5% of global supply.

Risks are higher in Chile than in Peru because mines are concentrated in the Atacama, Antofagasta, and Tarapacá regions—areas affected by the 2015 floods. These three regions are estimated to produce about 4.2 million tons of copper in 2027, representing 17% of global supply; a one-week shutdown would impact roughly 80k tons. The Peruvian copper belt is mainly in the southern Andes, not overlapping with the more severely affected northern coast during the 2017 El Niño floods, so disruption risk is relatively lower.

If a super El Niño peaks around October-November 2026, the high-risk rainfall window in Atacama shifts to February-April 2027. The damage in 2015 was not huge, but at that time, the copper market was oversupplied; this time, both 2026 and 2027, the global copper market could face shortages of about 300k to 400k tons annually. Small supply shocks will have greater price elasticity.

Company exposure is also clearer: Antofagasta’s northern Chile copper production is about 323k tons, with an EBITDA of roughly 41%; BHP’s exposure via Escondida is about 8B tons, with an EBITDA contribution of about 34%; Rio Tinto’s Escondida exposure accounts for roughly 9% of group EBITDA. But higher copper prices could partly offset the negative impact of production disruptions.

Yunnan aluminum’s core variable is hydroelectric power, not the aluminum smelters themselves

Yunnan’s current primary aluminum capacity is about 6.6 million tons/year, roughly 9% of global output; local electricity is highly dependent on hydropower, which accounts for 60%-70% of the province’s power generation. El Niño will weaken the summer monsoon over the Bay of Bengal; if water inflows in Yunnan’s wet season are insufficient, low reservoir levels will carry into the dry season.

Historical examples exist. In 2015-16, drought caused about 300k tons of capacity reductions, roughly 20% of capacity at the time; in 2023-24, drought led to a cut of 1.15 million tons, also about 20%. In the 2024 dry season, by February, operating capacity was about 400k tons below normal, and Yunnan announced the most severe drought in 60 years.

In a super El Niño scenario in 2026-27, the wet season from May to October 2026 could underperform, leaving reservoirs with low water levels entering the dry season, with the highest risk window from late 2026 through Q1 2027. If a 20% production cut repeats, about 1.3 million tons of aluminum could be at risk, roughly 1.7% of global supply.

The Middle East conflicts have already tightened the aluminum market. Disruptions in alumina, natural gas, or damaged facilities have cut about 2.5 million tons of global primary aluminum supply, roughly 3.2%. If shipments of alumina through the Strait of Hormuz are restricted, further cuts could occur; about 5.5 million tons/year of aluminum capacity depend on maritime transport through Hormuz, about 7.2% of global output. Smelters voluntarily reducing output may take 6-12 months to ramp back up, and damaged facilities could take two years.

Price elasticity is concentrated among aluminum producers. Norsk Hydro is most sensitive: a $10 increase in LME aluminum prices in 2026 could boost EBITDA by about 17%; the realized premium increase of $10 could add about 3%. South32’s sensitivity is about 15%, Rio Tinto about 4%.

Asian coal on the short-term benefit, winter logic will change

If El Niño develops during the Northern Hemisphere summer, it will boost cooling demand in Asia and may also reduce hydroelectric output, benefiting thermal coal demand. But by winter 2026-27, warmer weather could weaken heating demand, so the overall impact is not unidirectional for the year.

India is the most direct example. During 2023-24 El Niño, India’s hydroelectric generation in the first half of 2024 declined 8% year-over-year, while coal-fired power increased by 10%. This time, if the monsoon is weak, reservoir levels will be lower, and coal-fired power will be more likely to substitute.

Middle Eastern conflicts have already shifted relative fuel prices in Asia. On May 13, the Asian LNG price in terms of coal equivalent was about $258/ton, while Newcastle coal was about $140/ton—more price-sensitive markets are more prone to “gas-to-coal” switching. South Korea has delayed about 1.5 GW of coal capacity retirements scheduled for 2026; Japan has temporarily relaxed restrictions on inefficient coal plants until March 2027; the Philippines and Bangladesh are also increasing coal-fired generation.

Among covered companies, Glencore is most sensitive: a $10 increase in thermal coal prices would raise EBITDA by about 3.2%, EPS by about 8%.

India’s macro constraints: monsoon, food inflation, fertilizer

India’s El Niño risk is not abstract. The monsoon rainy season from June to September accounts for about 75% of annual rainfall, directly impacting agriculture and food inflation. During 2023-24’s strong El Niño, monsoon rainfall was 5.5% below normal; during the “super” El Niño of 2015-16, the deficit reached 13.8%.

Historical patterns show the link to output and inflation. In 2015-16, kharif grain production fell 2.3% year-over-year, and food inflation excluding vegetables averaged 6.2% from September to March. In 2023-24, kharif sowing was up only 0.2%, grain output up 0.1%, with food inflation averaging 5.9%.

This time, fertilizer variables add complexity. India’s dependence on Middle Eastern fertilizer imports is high, and conflict exposes this vulnerability. The government tends to offset price shocks with higher fertilizer subsidies, with overspending estimated at about 39k rupees, against a budget of 1.7 trillion rupees, with upside risks.

As of mid-May 2026, total fertilizer stocks in India are up 12% YoY; current stocks can cover about 51% of kharif season demand, compared to a typical 33%. So the main issue for kharif sowing may not be “availability,” but higher prices and government costs. If conflict persists into the rabi planting season, supply concerns from December to March/April could re-emerge.

Latin America is not a weather trade but a distribution map of wet and dry

Latin America’s El Niño effect resembles risk redistribution more than outright drought. The Southern Cone—Argentina, Uruguay, southern Brazil—and the Pacific coast of Peru and Ecuador tend to be wetter; central and northern Brazil, Colombia, Central America, and parts of Mexico are more prone to heat and dryness.

Wetter regions are not necessarily bad for crops. Improved rainfall in Argentina and southern Brazil generally benefits crops and exports, but excess water can affect quality, delay harvests, and disrupt port operations. Rising water levels in the Paraná basin and surrounding reservoirs help ease power constraints; however, in extreme events, floods, grid stress, and port disruptions become tail risks.

Dry regions face more direct issues. Drought during planting or pollination in central-west Brazil’s soy and second-crop maize will raise costs for grains and ethanol; Brazilian protein processors will also face feed cost pass-through. Northern and Cerrado regions’ pulp plantations risk fires and yield losses. Utilities will see reservoir inflows decline, reducing hydroelectric output and forcing reliance on more expensive thermal power.

Tourism and transportation are not immune assets. If adverse weather hits Mexican beach destinations, passenger flows will remain under pressure amid airlines’ capacity cuts due to fuel costs. Cancún is especially important for ASUR; GAP also has exposure in Puerto Vallarta and Los Cabos.

All content above is from WindTrader.

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