The U.S. National Oceanic and Atmospheric Administration (NOAA) forecasts an 81% chance of this year's El Niño becoming a very strong event, according to Morgan Stanley Research. As reported by Morgan Stanley, this weather phenomenon has caused as much as $84 trillion in global economic damage since 2000 and is shaping up for a potentially devastating season. NOAA's models indicate that El Niño conditions are expected to peak from December through February, coinciding with the main planting and crop-development period in South America. El Niño typically brings milder winters to northern U.S. states while South America experiences heavier rainfall, with Indonesia, Australia and southern Asia facing droughts.
According to Morgan Stanley Research, sugar is the agricultural commodity most likely to receive a price boost as weather conditions threaten production both in Asia and Brazil. As reported by Julia Rizzo, Morgan Stanley Research Equity Analyst, weaker monsoon rainfall could cut sugar-cane production in India, Thailand and Southeast Asia, while heavier rainfall in Brazil could reduce yields there. West Africa, which grows most of the world's cocoa, could also suffer from wet-season disease between June and October, followed by dry, dusty Harmattan winds. However, Rizzo notes that "a super-bullish grain price scenario appears less likely, especially considering that El Niño events have historically coincided with weaker grain prices." Recent market developments show Vietnamese 5% broken rice prices rising to $435-455 per ton this week, higher than the previous week's $430-450 per ton, while Indian export rice prices reached their highest level in nearly a year, with parboiled rice quoted at $362-368 per ton.
The global coffee market is experiencing mixed trends as El Niño weather risks continue to threaten supply. According to recent trading data, Robusta coffee prices fell by $45/ton to $3,621/ton for September 2026 delivery on the London exchange, while Arabica prices increased by 5 US cents/lb to 338.10 US cents/lb on the New York exchange. In Vietnam's Central Highlands, coffee prices in Lam Dong province dropped to 94,200-94,900 VND/kg, while Dak Lak and Gia Lai provinces both fell to 94,700 VND/kg. A trader reports limited supply from farmers, with some predicting decreased yields due to drought in some areas making irrigation difficult and heavy rains increasing pest infestations. The market divergence reflects supply concerns for Arabica, which continues to face weather-related risks in Brazil, the world's leading producing country, while Robusta prices face pressure from increased selling.
Copper output faces significant disruption risks across key producing regions. As reported by Morgan Stanley, in Chile, the world's largest copper producer, wetter weather and flooding could pose risks to mining infrastructure. Additionally, drought in Zambia, which accounts for 4% of global copper production, could cause hydropower shortages, affecting output. These disruptions could lead to higher copper prices and create structural exposure for emerging-market sovereign credits. Morgan Stanley Research Cross-Asset Strategist Erika Singh-Cundy notes that "we expect copper and emerging-market sovereign credits to be the most structurally exposed to a 'super' event."
El Niño could pose significant risks to sovereign credit in parts of Latin America and Africa, with impacts varying widely by country. According to Morgan Stanley Research Cross-Asset Strategist Erika Singh-Cundy, Ecuador, Mozambique, Zambia, Colombia, Costa Rica, and Peru are likely to be the most exposed, while Chile, Uruguay and Argentina could benefit. Food inflation driven by El Niño could weaken growth and public finances in some Latin American and African economies, putting pressure on their sovereign credit. Higher food prices add lagged inflationary risk, with sovereigns having more fiscal capacity and external buffers expected to be better insulated.
