Commodity strategists warned that climate volatility impacts on asset classes are being underestimated as meteorologists raised the possibility of a record-breaking El Niño this year. The World Meteorological Organization (WMO) analyzed that a strong El Niño phenomenon will occur in the tropical Pacific between July and September, while US weather forecasting firm Metdesk observed that a so-called 'super El Niño' could surpass the major El Niño events of 1982, 1997, and 2015. Investment strategists predicted that extreme weather phenomena such as high temperatures, droughts, and heavy rains caused by El Niño will shake up investment outlooks for commodity assets. Albert Chu, portfolio manager at Man Group, pointed out that "treating the current El Niño as a one-time event and persistently underestimating climate volatility impacts in commodity markets poses a real risk to investors."
Agricultural Commodities Face Price Surge From Crop Yield Declines
The agricultural sector is expected to experience the greatest disruption. According to Société Générale, agricultural commodity prices rose 7% during the month of July, and prices for cocoa, coffee, and wheat jumped 8% within one week. Man Group stated in a report that if the El Niño phenomenon intensifies further, food inflation rates could reach double digits by 2027.
Bank of America (BofA) identified coffee, cocoa, corn, and wheat as the crops most vulnerable to rising temperatures. BofA stated that "corn prices remain significantly undervalued" and predicted that corn prices, currently around $4.70 per bushel, will rise by approximately $1 to reach $5.50-6.00. The bank added that "El Niño impacts could cause sugar production in Brazil and Thailand to plummet 10% in 2026-2027."
Metal Production Confronts Water and Power Supply Constraints
Extreme weather phenomena are analyzed to have considerable impacts on metal markets as well. Man Group's Chu stated that "copper production uses very large amounts of water, so if heat waves or droughts occur, supply conditions can become sharply tight."
Regarding aluminum, he noted that "electricity costs account for 30-40% of production costs, and smelters rely on hydroelectric power," predicting that "air conditioning, food production, and artificial intelligence (AI) growth will engage in increasingly fierce competition over scarce power and water resources."
FAQ
What did the World Meteorological Organization predict about El Niño this year?
The World Meteorological Organization (WMO) analyzed that a strong El Niño phenomenon will occur in the tropical Pacific between July and September, with US weather forecasting firm Metdesk observing that this 'super El Niño' could surpass the major El Niño events of 1982, 1997, and 2015.
How much did agricultural commodity prices increase in July according to Société Générale?
According to Société Générale, agricultural commodity prices rose 7% during the month of July, while prices for cocoa, coffee, and wheat jumped 8% within one week.
What is Bank of America's price forecast for corn?
Bank of America predicted that corn prices, currently around $4.70 per bushel, will rise by approximately $1 to reach $5.50-6.00, stating that corn prices remain significantly undervalued.
