How have weather expectations changed?

  • A super El Niño is already the central scenario for the second half of 2026 through early 2027, but intensity forecasts continue to be revised upward. Sea surface temperatures in some areas are already more than 3.0°C above average; the World Meteorological Organization expects the anomaly could reach 3.8°C between November 2026 and January 2027.
  • The U.S. National Oceanic and Atmospheric Administration estimates that the probability of an extremely strong event during the 2026–2027 winter is close to 100%, with a 98% probability that it will persist until April 2027. JPMorgan expects the impact on agricultural production and markets to peak in the first quarter of 2027.
  • The bank believes inflation and agricultural models have incorporated some of the weather shock, but emerging-market equities still insufficiently price in indirect effects and regional differences.

Why could agricultural commodity prices remain under pressure?

  • If weather conditions reach the extremely strong level projected by current models, crops including rice, sugarcane, palm oil, soybeans and robusta coffee face a high risk of reduced output. Drought or monsoon disruption would tighten supply and push up food costs; the bank’s research shows that the impact on agricultural commodity prices typically peaks 3–5 quarters after the initial shock.
  • Prices are already high: the report says rice has risen 78% and sugar 27% since the start of 2026. These gains have also been affected by geopolitical conflicts in the Middle East and between Russia and Ukraine; during the 2015 El Niño, rice prices initially surged before giving back most of their gains.
  • Inventories provide some buffer: global grain stocks are generally ample, and rice stocks in many parts of Asia remain relatively plentiful despite being below recent peaks. Fresh food and cooking oil, however, remain vulnerable to weather shocks.

Why is the inflation shock greater in emerging markets?

  • Food inflation responds more strongly in emerging Asia, Latin America and South Africa: food carries a greater weight in consumer baskets, agriculture is more sensitive to weather, and exchange-rate fluctuations can amplify the effects on growth and inflation.
  • Historical analysis by JPMorgan economists shows that a super El Niño alone raises global food inflation by about 0.7 percentage points at its peak; the bank believes that, with the additional energy price shock this time, the impact could rise to about 1.5 percentage points.
  • Countries have differing capacity to absorb shocks. India’s reservoirs were about 71.8% full in early October, below 90.3% a year earlier, potentially limiting irrigation for winter crops; however, government rice and wheat stocks are expected to total about 50 million tonnes, above 44.9 million tonnes a year earlier, reducing the likelihood of an immediate grain shortage.
  • Policies such as subsidies and adjustments to import tariffs can soften the shock, but rising energy prices are also squeezing fiscal space. JPMorgan expects the decline in global inflation through early 2027 to be slower and uneven.

Which companies are more vulnerable?

  • Suppliers of agricultural inputs and companies that benefit from higher agricultural commodity prices may gain; but for growers facing severe production losses, higher prices may not be enough to offset lost sales volumes. Companies with inventories and processing and trading capabilities are better positioned to take advantage of supply-demand mismatches.
  • Consumer goods companies may face both rising raw material prices and weak rural demand. In India, for example, rural demand accounts for about 40% of fast-moving consumer goods sales; falling farm incomes affect sales volumes, while rising agricultural procurement costs squeeze margins.
  • High temperatures could raise electricity demand, while drought would weaken hydropower supply; power companies’ ultimate earnings depend on their generation mix, fuel costs and the pass-through to electricity prices. The overall effect on share prices in the energy, utilities and industrial sectors is therefore unclear.
  • The bank believes the transmission of weather effects to rural incomes and consumption is clearer than the impact on broad equity indices; equity indices are also driven by factors including global liquidity, interest rates and risk appetite.