International agricultural markets may be facing a new phase of significant price volatility. Two developments are coming together: a strengthening El Niño weather phenomenon and 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, the extreme weather conditions are not likely to affect harvests until later, with a time lag.

Weather services warn of an exceptionally strong El Niño

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.

The Australian weather service reported a temperature anomaly of plus 2.51 degrees Celsius in mid-September for the relevant Niño3.4 index. The threshold for El Niño is plus 0.80 degrees. Several forecasting models even expect readings above 3 degrees.

For agriculture, the timing of the meteorological peak is less important than its delayed impact. 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.

Iran war hits fertilizer production

In addition, the war in the Middle East is worsening the supply situation for key agricultural inputs. Unlike earlier conflicts, Wisdom Tree says the issue is not just disrupted transport routes, but increasingly damaged or shut-down production facilities.

According to the analysis, an estimated 31 ammonia plants in the Middle East are directly affected or completely shut down. 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.

Middle East and Russia

The scale is considerable: the Gulf states account for around 43 percent of the world's seaborne urea exports and 44 percent of the corresponding sulfur trade.

According to Wisdom Tree, restoring production capacity is likely to take several years. This means fertilizer costs would remain elevated even if the geopolitical situation were to calm down again.

Wheat becomes more expensive despite high harvest forecasts

The impact of geopolitical risks is particularly evident in wheat. 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. That makes it difficult to explain the price increase as the result of a general shortage. The decisive factor is rather the ongoing attacks on port facilities and transport infrastructure in the Black Sea region. Nearly a quarter of global wheat exports is usually handled through this region.

At the same time, speculative net positioning in wheat increased by 130 percent within a month. This points to a significantly changed assessment among market participants.

Corn suffers from rising production costs

For corn, Wisdom Tree already sees concrete signs of tightening supply. The forecast for U.S. corn production in 2026/27 was cut by 5.4 million tons to 401.3 million tons. Globally, production is expected to come in 7.9 million tons below previous estimates and reach 1.291 billion tons.

Global ending stocks were reduced by 2.6 million tons to 272.1 million tons. Added to this is corn production's heavy dependence on nitrogen fertilizer. Wisdom Tree expects fertilizer prices could remain above pre-Middle East-conflict levels through 2028.

In regions where farmers have already used less phosphate and potash for several years, application rates have fallen by 10 to 15 percent. The effects on crop yields may not become apparent until several years later.

Sugar benefits from two price drivers at once

Among agricultural commodities, Wisdom Tree sees sugar as particularly vulnerable to the combination of weather risks and high energy prices. Since the start of the year, sugar has become about 20 percent more expensive, according to the analysis. In early September, raw sugar traded at 18.44 U.S. cents per pound, close to a 16-month high.

In Brazil, one of the most important producing countries, sugar production in the central and southern regions fell by 7.9 percent in the first half of August. High energy prices are also giving Brazilian sugar mills an incentive to use more cane for ethanol production and less for sugar production.

India is also under pressure. The government approved duty-free imports of 1 million tons of raw sugar, while key growing regions recorded below-average monsoon rainfall.

Cocoa and coffee: different starting points

The situation is less clear for cocoa. A lack of rainfall in West Africa could threaten the harvest. At the same time, inventories have recovered significantly after the price shock of recent years. European cocoa processing volumes fell by 4.6 percent year over year in the first quarter, reaching their lowest level in 17 years.

Despite the weather risks, the market therefore has a larger buffer of stocks than during the price crisis of 2023/24. Since the start of the year, cocoa has become 9 percent cheaper, according to WisdomTree.

Damage during the flowering phase?

For coffee, the analysis distinguishes between Arabica and Robusta. While Arabica supply from Brazil is improving, dry periods in Vietnam and Indonesia could hurt future Robusta production. The timing is especially important: damage during the flowering phase would only affect the 2027/28 harvest for perennial coffee plants.

According to WisdomTree, Robusta prices are nevertheless close to their recent lows. In the asset manager's view, this creates a possible mismatch between current market prices and longer-term supply risks.

Not all agricultural commodities are developing in the same way

Recent price performance shows significant differences between individual commodities. While wheat has gained 42 percent since the start of the year, cotton 25 percent and sugar 20 percent, coffee has become 22 percent cheaper and orange juice 28 percent cheaper. Cocoa has lost 9 percent.

Soybeans are following a different dynamic as well. Here, weather risks are less important than demand from China and the link to the biofuels market.

According to WisdomTree, China has already bought almost 13 million tons of U.S. soybeans in the current season. At the same time, soybean and soybean oil inventories are 7.9 percent and 8.5 percent above their seasonal five-year averages, respectively.

What this means for investors

For commodity investors, this points to a complex environment. Rising production costs, geopolitical uncertainty and possible crop failures could push up individual agricultural commodities. At the same time, high inventories and partly weaker demand argue against a broad-based price increase.

Wisdom Tree sees potential opportunities especially where future weather risks are not yet sufficiently reflected in prices. The asset manager points above all to Robusta coffee.

The key uncertainty, however, remains the actual development of El Niño. If demand weakens, prices could also evolve very differently. From Wisdom Tree's perspective, one thing is clear: the combination of weather extremes and disrupted fertilizer markets could influence agricultural commodity prices well beyond the current year.