UN Sounds Alarm on ‘Off-the-Charts’ El Niño: Rising Risk for Palm Oil and Global Agri-Trade

The United Nations and the World Meteorological Organization (WMO) have issued an urgent warning that the current El Niño event is intensifying rapidly and could reach unprecedented strength, with impacts extending well into 2027. Officials describe sea-surface temperatures in the tropical Pacific as exceptionally high and stress that extreme heat, drought and flood risks are already emerging in multiple regions. For agricultural commodity markets, the prospect of an "off-the-charts" El Niño raises the risk of significant supply disruptions, particularly for palm oil and other tropical crops, and could trigger renewed volatility in prices, freight and trade flows over the coming months.

Headline

UN Warns of Record-Strength El Niño, Elevating Supply Risks for Palm Oil and Global Agri Commodities

Introduction

The WMO confirmed on 3 September 2026 that El Niño is now firmly established in the tropical Pacific and is expected to strengthen into a very strong, exceptional event, with major shifts in rainfall and temperature patterns forecast through at least February 2027. Sea-surface temperature anomalies in key Pacific monitoring regions are already well above 2°C, a level associated with the strongest historical El Niño episodes.

UN and WMO officials cautioned that the world is entering a "danger zone" for extreme weather, with increased likelihood of severe droughts in parts of Southeast Asia, Australia and southern Africa, and heavier-than-normal rainfall and flooding in parts of the Americas and East Africa. These regions overlap with major production zones for palm oil, soy, sugar, coffee and other key food and feed commodities, giving the latest El Niño update immediate relevance for commodity traders and supply chain managers.

Immediate Market Impact

The WMO’s new assessment confirms an almost 100% probability that El Niño conditions will persist through the core Northern Hemisphere crop-marketing period (September–November 2026) and into early 2027. This extends weather-related risk into two marketing years and raises the likelihood of yield losses and quality issues in climate-sensitive crops.

For palm oil, the key concern is heightened drought risk and heat stress in Indonesia and Malaysia, where previous strong El Niño events have cut fresh fruit bunch yields with a time lag of several months. That pattern, if repeated, would tighten palm oil supplies into 2027, potentially reversing recent price softness and supporting rival soft oils such as soybean and sunflower oil. Exporters and refiners are already reassessing forward coverage and origin diversification.

Logistics and freight costs could also be affected as El Niño-linked floods disrupt road and river transport in parts of South America and East Africa, while drought constrains inland waterways and hydropower in other regions. In combination with high sea-surface temperatures globally, the risk profile for weather-related port and infrastructure disruption has clearly increased, which may translate into wider basis levels and risk premiums on nearby physical shipments.

Supply Chain Disruptions

The WMO notes that a very strong El Niño significantly alters rainfall and temperature distributions across the tropics and subtropics, raising the odds of simultaneous droughts and floods in different regions. In Southeast Asia, drier conditions would threaten palm oil yields, increase wildfire and haze risks, and disrupt harvesting and barge movements along shallow rivers.

In contrast, heavier rains and flood risk in parts of the Pacific coastal Americas may affect port operations, storage and internal logistics for coffee, sugar, soy and grains. Episodes of intense rainfall can interrupt loading at key export ports in Brazil, Colombia, Ecuador and Peru, leading to shipment delays and greater demurrage exposure. Meanwhile, regions facing drought may see restrictions on irrigation water, cuts to hydropower affecting milling and crushing operations, and lower draught levels on canal and river routes.

The WMO and UN have explicitly called on governments and climate-sensitive sectors, including agriculture, to step up preparedness and early-warning use in view of this “exceptional” El Niño. For commodity supply chains, this translates into a need for contingency routing, higher buffer stocks in destination markets and greater flexibility in origin sourcing.

Commodities Potentially Affected

• Palm oil: Elevated risk of drought and heat in Indonesia and Malaysia could reduce bunch formation and yields into 2027, tightening exportable supplies and supporting prices for palm and competing vegetable oils.
• Soybean and soybean oil: Shifts in rainfall in South America and the US could affect soy yields; tighter palm oil supplies would likely boost demand for soy oil as a substitute in food and biodiesel blends.
• Sugar: Wetter conditions in parts of Brazil and other cane regions may disrupt harvesting and crush logistics, while drought elsewhere can hit cane yields and sucrose content, adding volatility to world sugar balances.
• Coffee and cocoa: Both are highly sensitive to temperature and rainfall anomalies; excessive rain or drought can damage flowering and increase disease pressure, impacting output in Latin America, West Africa and Southeast Asia.
• Cereals and oilseeds (rice, maize, wheat, sunflower): El Niño-driven anomalies can cut yields in parts of Asia, Africa and the Americas, with rice particularly exposed to water stress in South and Southeast Asia.

Regional Trade Implications

Exporters in regions likely to remain relatively less affected by El Niño disruptions could gain market share and pricing power if key origins underperform. For example, palm oil buyers may seek to diversify away from the most drought-exposed estates in Indonesia toward more resilient regions or alternative soft oil origins such as South America and the Black Sea.

Conversely, import-dependent countries in the Middle East, North Africa and parts of Asia could face heightened procurement risk if multiple suppliers experience concurrent weather-related disruptions. Freight markets may also see shifts, with more rerouting, tighter vessel availability during disruption episodes and higher premiums for prompt laycans at less-affected ports.

Some producers may benefit from improved yields where El Niño historically brings more favourable rainfall, but the WMO stresses that the net effect of this very strong event is expected to be increased exposure to extremes and higher inter-annual variability. This uncertainty is likely to underpin risk premiums across several agri-complex futures curves.

Market Outlook

In the near term, futures markets for palm oil and other weather-sensitive commodities are likely to price in a higher probability of supply disruptions as traders digest the WMO’s latest language on an "exceptional" El Niño. Volatility could rise around key crop progress updates and as on-the-ground reports from major producing regions confirm or contradict model projections.

Physical market participants may respond by extending coverage horizons, diversifying origins and adding optionality into contracts to manage routing and timing risks. If confirmed production losses in palm oil and other tropical commodities materialise into early 2027, structure could shift further into backwardation, with nearby premiums reflecting tighter spot availability and elevated freight and insurance costs.

CMB Market Insight

The UN–WMO warning that the current El Niño is on track to become one of the strongest in decades marks a clear inflection point for agricultural commodity risk management. With near-certainty that anomalous conditions will persist through the coming marketing year, palm oil and other tropical supply chains face a materially higher probability of yield and logistics shocks.

For traders, importers, exporters and food manufacturers, the strategic response should focus on early hedging of key exposures, flexible sourcing strategies and close monitoring of regional El Niño impacts as they unfold. In a market environment shaped by climate extremes and structural tightness in some agri-complexes, proactive positioning will be critical to navigating the next 12–18 months.