A 'Super El Niño' is expected to squeeze commodities even further this year

Commodities markets may soon have a second major issue to worry about: extreme weather.

As the economy grapples with the supply shock of war in the Middle East and the cut-off traffic through the Strait of Hormuz, markets that are already tight could face even stricter conditions as scientists forecast droughts, monsoons, and other severe climate events from a coming "Super El Niño."

"While there are many El Niño forecasting models, they all agree that El Niño is emerging, and it is likely to be very strong," Bank of America strategists, led by global economist Antonio Gabriel, wrote.

El Niño is a climate pattern in which unusually warm water spreads across the central and eastern Pacific Ocean, shifting weather patterns and bringing heavy rain to some regions and drought to others. A so-called Super El Niño — what scientists see emerging this year — is more likely to trigger severe flooding, droughts, heat waves, and other extreme weather worldwide.

20 El Niño events have been recorded over the past 75 years, the BofA strategists noted. Of those, only six have reached the level of severity expected for this year as the event "gain[s] extraordinary strength."

The Oceanic Niño index, which measures average sea surface temperatures across the equatorial Pacific Ocean, has already shown readings above average for this time of year.

The problem for markets, the Bank of America strategists said, is that such extreme weather can severely disrupt crop cycles and other agricultural commodities. For example, this year's Super El Niño is expected to peak sometime in the fall, threatening to dry out soil in the middle of South America's planting season.

What's exposed to El Niño

Wheat production in Australia dropped almost universally during past El Niños and could fall by roughly 20% to 60% year on year for the 2026-2027 season if extreme drought conditions emerge. Brazil's corn crop is "highly exposed," the strategists said, and is expected to decline roughly 10% year on year as US domestic corn production has already tightened. Grain supplies, the BofA strategists said, "could collapse."

In other markets, outputs of sugar — most exposed to El Niño, per JPMorgan — could fall 5% year on year, raising prices. Production in Brazil faces a yearly loss of 5%, while India and Thailand face losses of up to 10% year on year, all driven by the extreme weather, the BofA strategists said. Drought conditions in Vietnam and Indonesia could reduce coffee production by anywhere from 5% to 15% year on year.