British research firm TS Lombard states that a strong El Niño could increase the risk of crop yield reductions and food price increases, but historical experience does not support the notion that a strong El Niño inevitably leads to a comprehensive agricultural commodity bull market: In past El Niño events, wheat, rice, corn, and palm oil did not experience sustained synchronized price surges; the most typical example of a widespread spike in food prices was in 1972-1973. At that time, in addition to El Niño, low inventory levels and a global energy shock also played a role.
Compared to the 1970s, current rice, wheat, corn, soybean, and palm oil inventories are more abundant, providing a stronger buffer against the impact of reduced production. While the US Department of Agriculture projects a certain supply-demand gap for wheat, rice, and corn in 2026, the magnitude is expected to be moderate, and in August, it even raised its production forecasts for some agricultural products.
However, two upside risks need to be considered: 1. Rising fertilizer prices will increase agricultural costs and affect planted area and yield; 2. Expanded use of biofuels in emerging markets will also deplete some of the agricultural commodity inventories available for food consumption. (The above views are from TS Lombard's September 2nd report)
