Cocoa

A potentially very strong El Niño is emerging as a major risk for global agricultural markets, threatening to disrupt rainfall, raise temperatures and expose some of the world’s most important tropical crops to severe weather stress.

The U.S. Climate Prediction Center now sees a greater than 90% chance of a very strong El Niño during the northern hemisphere autumn and winter of 2026 to 2027. For commodity markets, the concern is not simply that El Niño causes drought. Its effects vary sharply by region, meaning excessive rainfall in one major producing country can occur alongside extreme dryness in another.

That makes the phenomenon particularly important for soft commodities such as cocoa, coffee and sugar, whose production is concentrated in climate sensitive tropical regions.

Why El Niño matters for commodity markets

El Niño occurs when sea surface temperatures in the eastern Pacific become unusually warm as trade winds weaken. The pattern generally lasts between nine and 12 months and can alter global temperature and rainfall patterns.

For farmers, the problem is timing. Crops can be damaged not only by drought but also by excessive rainfall, heat, fungal disease and disrupted flowering or harvesting cycles.

This year’s potential El Niño also arrives at an unusually difficult moment for agricultural producers. Farmers are already dealing with higher fertiliser and diesel costs linked to the U.S. Israeli war on Iran. Another major weather shock could therefore amplify existing production pressures.

Historically, strong El Niño episodes have been associated with substantial increases in soft commodity prices. But the effects differ considerably between crops.

Cocoa faces one of the clearest risks

Cocoa appears particularly vulnerable because production is heavily concentrated in a relatively small number of countries.

Ivory Coast and Ghana together account for roughly half of global cocoa production, while Ecuador is the third largest producer. All three can experience significant El Niño related weather disruptions.

Every strong El Niño over the past 55 years has reduced cocoa output, according to WisdomTree.

The previous El Niño illustrates why the relationship is more complicated than simply associating the phenomenon with drought. During the initial phase of the 2023 to 2024 event, West Africa experienced unusually heavy rainfall. Excess moisture contributed to fungal disease affecting cocoa trees.

Conditions subsequently shifted toward intense heat and unusually dry Harmattan winds. Trees weakened by disease struggled to flower, further damaging production.

That sequence demonstrates the real danger for cocoa: El Niño can produce multiple weather shocks during the same crop cycle.

The consequences can quickly reach global consumers. Cocoa prices nearly tripled in 2024 after the West African harvest failed, eventually exceeding $12,000 per metric ton.

A very strong El Niño could therefore revive fears of another supply deficit if weather conditions deteriorate across major growing regions.

Coffee faces a divided outlook

Coffee presents a more complicated picture because the world’s two major varieties are concentrated in different regions.

Robusta coffee is particularly exposed to El Niño because Vietnam and Indonesia, which together account for about half of global robusta production, typically experience higher temperatures and reduced rainfall under the weather pattern.

The timing is especially important. Dry conditions can hit these countries during crop development, with the consequences becoming visible during harvesting later in the year.

Citi analysts warned that dryness in Vietnam and Indonesia could significantly reduce robusta yields.

Arabica coffee presents a different picture.

Brazil, responsible for nearly half of global arabica production, can initially benefit from warmer conditions because they reduce the risk of damaging winter frosts.

But that advantage could prove temporary. El Niño typically brings hotter and drier conditions to Brazilian coffee growing regions later in the year, when the next crop is developing.

That creates the possibility of a delayed supply shock in 2027.

Sugar could be the exception

Sugar demonstrates why El Niño does not automatically translate into a bullish commodity market.

Brazil, the world’s largest sugar exporter, can experience heavier rainfall during the second half of the year. Excessive rain can disrupt harvesting and affect sugar quality.

India and Thailand face the opposite problem. El Niño generally reduces rainfall during the summer monsoon, creating additional pressure on production.

India is already expecting its lowest monsoon rainfall in 11 years, at around 90% of the long-term average. Hedgepoint estimates that even a moderate El Niño could reduce Indian sugar production by around 1 million metric tons.

Yet there is an important counterweight.

El Niño’s wetter conditions in Brazil could ultimately support the country’s following sugar crop. Since Brazil accounts for roughly half of global sugar exports, stronger Brazilian production could offset losses elsewhere.

That means sugar may not experience the same sustained price pressure as cocoa or robusta coffee.

The bigger problem is climate uncertainty

The most important market implication is not simply whether El Niño becomes “very strong.” It is where its effects materialise and when.

Agricultural markets operate on highly specific growing cycles. Rain arriving at the wrong stage can be just as damaging as drought. Excessive rainfall can create disease, while heat can interfere with flowering and crop development.

Climate change further complicates the picture.

The relationship between El Niño and agricultural weather is becoming harder to interpret because rising global temperatures can intensify the consequences of existing climate patterns. A weather event that might previously have produced manageable stress can now occur against a much hotter baseline.

This means commodity traders increasingly have to price not just the probability of El Niño, but the interaction between El Niño, climate change and already strained agricultural supply chains.

What could happen to prices?

The clearest risk is concentrated in cocoa and robusta coffee, where production is particularly exposed to adverse conditions in major growing countries.

Cocoa has perhaps the greatest vulnerability because West Africa dominates global supply and has already experienced serious weather related production problems. Another major disruption could quickly tighten inventories and push prices higher.

Robusta coffee faces a similar risk if drought develops across Vietnam and Indonesia.

Sugar is more balanced. Production losses in India and Thailand could be partly or potentially substantially offset by improved Brazilian conditions for the following crop.

The broader lesson is that El Niño is not a uniform commodity shock. It redistributes weather risks across producing regions, creating winners and losers within the same market.

Why consumers should care

The effects will ultimately extend beyond commodity exchanges.

Higher cocoa prices can increase chocolate production costs. Coffee shortages can raise prices for roasters and consumers, while sugar disruptions can affect everything from beverages to processed foods.

And because agricultural markets are interconnected, a weather shock in one producing region can encourage buyers to compete more aggressively for supplies elsewhere.

The potential super El Niño therefore arrives at a particularly sensitive moment for global food markets.

If forecasts prove correct, the next several months could test whether commodity markets have adequately priced the risks of increasingly volatile weather.

The real threat is not El Niño alone. It is El Niño hitting an agricultural system already under pressure from rising costs, concentrated production and a changing climate.

With information from Reuters.