Weather Anomalies Threaten Agricultural Supplies
International agricultural markets face a new phase of significant price volatility as a strengthening El Niño weather phenomenon combines with ongoing disruptions to energy and fertilizer supplies caused by the war in the Middle East. According to Aneeka Gupta, Equity Strategist at asset manager Wisdom Tree, the effects could become visible in 2027. While geopolitical risks are already affecting prices today, extreme weather conditions are not likely to affect harvests until later, due to a time lag.
Weather services warn of an exceptionally strong El Niño event. According to the analysis, the U.S. weather agency NOAA expects, with a probability of more than 90 percent, a very strong El Niño event in autumn and winter 2026/27. The World Meteorological Organization is also forecasting a persistent and intense weather anomaly. Monitoring data from the Australian Bureau of Meteorology agree, reporting a temperature anomaly of plus 2.51 degrees Celsius in mid-September for the relevant Niño3.4 index, against an El Niño threshold of plus 0.80 degrees. Several forecasting models even expect readings above 3 degrees.
For agriculture, the mechanics here focus on the delayed impact rather than the meteorological peak alone. According to Wisdom Tree, there can be a lag of six to twelve months between the peak in the Pacific and the effects on harvests. Australia, India, West Africa, and important growing regions for palm oil and coffee in Southeast Asia could be particularly affected by these weather shifts.
Fertilizer Production Crippled by Gulf Conflict
The catch is that while weather shocks loom ahead, the war in the Middle East is worsening the supply situation for key agricultural inputs right now. Unlike earlier conflicts, Wisdom Tree says the issue is not just disrupted transport routes, but increasingly damaged or shut-down production facilities. An estimated 31 ammonia plants in the Middle East are directly affected or completely shut down due to the Iran war.
Another 49 facilities in South Asia are operating only at limited capacity, or are also at a standstill, due to shortages of raw materials. In addition, at least 20 plants in Russia have been damaged by drone attacks. The scale is considerable, given that the Gulf states account for around 43 percent of the world’s seaborne urea exports and 44 percent of the corresponding sulfur trade.
On closer reading of the data, restoring this production capacity is likely to take several years, according to Wisdom Tree. This means fertilizer costs would remain elevated even if the geopolitical situation were to calm down again. The Gulf conflict has lasted seven months now and, instead of stabilizing, it has escalated after hostilities resumed in July following a brief June memorandum of understanding.
Wheat Prices Climb Despite High Forecasts
The impact of geopolitical risks is particularly evident in wheat markets. Although the U.S. Department of Agriculture raised its forecast for global production in 2026/27 by 3.1 million tons to 822.4 million tons, the wheat price has risen by 42 percent since the start of the year. Expected global ending stocks were also revised upward by 3 million tons to 276.3 million tons, making the price surge difficult to explain through basic supply deficits alone.
Follow the money on agricultural commodities and the inputs driving them, and the baseline cost structure has fundamentally shifted. When 31 ammonia plants in the region are forced offline and global shipping arteries face severe security constraints, downstream agricultural production absorbs the cost regardless of headline inventory forecasts. Markets are pricing in the structural damage to fertilizer supply chains that will govern crop yields well into the coming harvest cycles.
Sources
- El Niño War Transform Agricultural Commodities 2027
- El Niño and Iran war: agricultural commodities threaten to become the next price driver
- US ETFs hit $1.56 Trillion annual inflow record
Photo: o_andras (CC BY-SA 4.0)
