UN FAO warns El Niño threatens agriculture across 6 high-risk regions

The UN Food and Agriculture Organization on Monday identified six global regions facing elevated drought risk from a new El Niño expected to form in the coming weeks, threatening agricultural commodity supplies from West African cocoa to Southeast Asian palm oil.

"Current global temperatures are higher than in previous comparable periods, and conflict and food insecurity are already widespread, meaning this El Niño will hit vulnerable regions harder," the FAO said in its Global Agricultural Risk Map, which is based on 41 years of satellite imagery data.

The Sahel, Southern Africa, South Asia, Southeast Asia, the Central American Dry Corridor and the Caribbean were classified as highest-risk zones, with farmland and pastures in those areas facing a greater than 50% probability of drought over the next several months. The warning comes as the US Climate Prediction Center estimates a 63% chance the current El Niño could strengthen into a "Super El Niño" by November 2026, with Pacific sea surface temperatures rising 2.0°C or more above the historical average.

Crop Supply Risks Across Commodities

The drought threat spans multiple agricultural commodities. In Indonesia and Malaysia, which account for more than 80% of global palm oil output, hotter and drier conditions typically reduce yields, clouding supply expectations. India, the world's second-largest sugar producer, has already banned exports through the end of September. West African cocoa production, already constrained by structural challenges, faces additional weather risk. Southern Africa's corn harvest and the Sahel region's grain output are also exposed, according to the FAO's risk assessment.

The last comparable El Niño event, in 2015 and 2016, resulted in more than $7.8 trillion in lost global productivity, according to a Dartmouth College study. The current event arrives with global food commodity prices already elevated after the Iran conflict disrupted supply chains and fertilizer markets. Global wheat ending stocks are tightening, with the USDA forecasting a 3% drop in worldwide production for the 2026-27 season, the first decline in eight years.

Fertilizer Demand and Input Costs

Drought-driven crop shortfalls typically boost demand for agricultural inputs as farmers seek to offset yield losses. Nitrogen fertilizer producers including CF Industries Holdings Inc. and Nutrien Ltd. may benefit from increased application rates, according to Scotia Capital Inc. analyst Ben Isaacson. Conversely, potash-heavy producers such as Mosaic Co. could face headwinds if dryness slows potash demand, RBC Capital Markets analyst Andrew Wong said.

The FAO's warning adds a climate dimension to an already strained global food system. The World Food Programme estimated in March that an additional 45 million people could fall into acute food insecurity from the Middle East escalation alone, before accounting for El Niño impacts. The next key data point for traders will be the US Department of Agriculture's July World Agricultural Supply and Demand Estimates report, which will incorporate the first El Niño-adjusted crop forecasts for the Northern Hemisphere growing season.

This article is for informational purposes only and does not constitute investment advice.