Goldman Sachs analysts have warned that the strengthening El Nino weather pattern could trigger a 15.8% surge in global food commodity prices, with the effects of what promises to be one of the most powerful El Nino events since the 1950s expected to ripple through markets for years.
The warning comes as the World Meteorological Organization confirmed in its August-October outlook that a “super El Nino” is developing, with sea surface temperatures in the central Pacific already exceeding 2 degrees Celsius above normal. The probability of the current episode becoming powerful now stands at 63%, according to NOAA, with effects expected to persist into early 2027.
Goldman Sachs projects that the full impact on food commodity prices may not be realized until the second half of 2028, as El Nino’s effects on crop yields feed through global supply chains. The bank estimates eurozone food prices could rise by 1.3% as a knock-on effect, adding to already elevated inflation pressures in the region.
Europe is already feeling the strain. The EU’s Global Wildfire Information System reported this week that France’s cumulative burnt area through late July is running 4.1 times its 2012-2025 median, with Spain at 3.5 times and Germany at 3 times. The Mediterranean basin sits in a below-normal rainfall probability band, raising fire risk independent of individual heatwaves.
Agricultural commodities are showing early signs of stress. Vietnam’s rice export price for 5% broken rice rose to $412 per tonne in May on El Nino-linked drought fears across India, Thailand, Indonesia and Australia. The UN FAO Rice Price Index climbed 2.7% on the month. Malaysia, which supplies roughly 60% of the world’s palm oil, has issued a sovereign warning over crop damage risk to its plantations.
Swiss bank UBS warned in mid-July that a strong El Nino threatens to reignite inflation and delay interest rate cuts across Latin America, singling out Colombia as most exposed given its high inflation and weak fiscal position, with Brazil and Peru also flagged. Venezuela’s hydropower-dependent grid was flagged as vulnerable to drought.
The OECD-FAO projects that average global agricultural commodity prices could rise by 4.5% in 2026 and 8.3% in 2027 under an oil shock scenario, with wheat, one of the most fertilizer-intensive crops, expected to experience the strongest price increases. The compounding effects of the Middle East conflict’s impact on energy and fertilizer costs are set to amplify El Nino’s agricultural damage.
Central banks face a policy dilemma: the combination of rising commodity-driven inflation with slowing growth echoes classic stagflation, denying monetary authorities a clean policy response. Markets are already repricing rate-cut expectations upward across emerging and developed economies alike.
Sources: Financial Times – El Nino Threatens to Disrupt World’s Most-Traded Commodities, Newsbase – Europe Wildfires Flag Global El Nino Moving Markets
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