Understanding ENSO and the Real Effect on Tropical Commodities

While poorly understood thirty years ago, El Niño has now become a household phrase and is infamous amongst commodities traders for wreaking havoc on production and causing prices to escalate and fluctuate wildly. As much as the media draws attention to weather anomalies, there are still common misconceptions about the true impact these events can have on agricultural production worldwide. El Niño years are typically associated with numerous extreme precipitation events, including both droughts and floods.

An El Niño watch has been issued for development starting in July or August and continuing through the remainder of the year. With this comes rampant speculation that it will have a profound influence on the world production of various crops; the relationship is, in fact, more complex than a simple increase or decrease. The effects can vary significantly from one commodity to another, even within the same country, at different times of the year, and depending on the intensity of changes in climatic conditions associated with an El Niño or La Niña event. Long-term changes in the tropics’ average precipitation can also skew data and make analysis of the impact of the changes in the eastern Pacific Ocean’s temperature and atmospheric conditions even more complex, but some powerful effects are still very apparent, even when it may be difficult to prove statistically with a high correlation.

As we progress into 2026, El Niño conditions will develop and intensify. Forecasters suggest that this year has a chance of becoming a rare super El Niño, where ocean temperatures in the eastern tropical Pacific, known as the El Niño Southern Oscillation Region (ENSO), warm rapidly by at least 2°C above average. This could have significant impacts on many of the world’s major producers of sugar, coffee, and cocoa, as well as reduce late-season hurricane activity, positively affecting Florida orange, sugarcane, and cotton production. For instance, based on past El Niño and La Niña events, I have noticed that:

• Global cocoa production drops by more than 5% during El Niño years, while it increases by about 4% during La Niña years.
• Chinese sugar output increases by 1.25% with a strong positive correlation of 0.433 during ‘moderate’ and ‘severe’ El Niño episodes.
• El Niño episodes increased Colombian Coffee output by 3.47%, while ‘severe’ La Niña events reduced it by 5.8%.

The effects of El Niño and La Niña vary worldwide, leading to different production outcomes by region. There are major exceptions to the common thinking that El Niño is simply bad for crops and La Niña is good. While precipitation and temperature data are primary considerations, other extraneous variables often influence production prospects, with price always a key factor. This, along with myriad other reasons, could validate or discredit the findings and should always be considered.

As a general observation, El Niño episodes often cause severe drought-like conditions in parts of Australia and South Asia, reducing agricultural production in these regions. In India, where farmers depend heavily on rainfall, a lack of rain during El Niño episodes can reduce sowing activity. On the eastern coast of the Pacific Ocean, El Niño episodes bring warm, dry conditions to northern Brazil, Colombia, and Venezuela, while bringing higher precipitation to parts of Uruguay, Paraguay, and southern Brazil.

Normally, trade winds blowing over the Pacific Ocean move from the higher-pressure areas along the western coast of South America toward the lower-pressure belt along the eastern coasts of Australia and Indonesia. These winds push the layer of warmer surface water west toward the coasts of Australia and Indonesia. These warm ocean temperatures create more favorable conditions for thunderstorm development. Therefore, the warm water pool causes increased precipitation across countries such as Australia, Indonesia, and India. At the same time, along the coast of South America, cooler waters from the depths of the Pacific Ocean rise to replace the displaced warmer surface waters, thereby reducing temperatures in the area and limiting precipitation. 

El Niño episodes are associated with negative SOI values. This means that the pressure at Tahiti is relatively low compared to that at Darwin. The pressure gradient from Darwin to Tahiti can weaken or even reverse the easterly trade winds, causing warmer waters to move back toward the eastern Pacific. This increases temperatures and precipitation over the western coast of South America.

El Niño conditions then become a positive feedback cycle. The decreased temperature difference between the eastern and western Pacific reduces the strength of the trade winds. This, in turn, causes the warmer waters to move toward the coasts of South America and warm temperatures further. This positive feedback strengthens the El Niño effect.  
El Niño and La Niña conditions affect precipitation cycles along the Pacific Ocean’s eastern and western coasts. A summary of the shifts in global temperature and precipitation during the warm episodes of El Niño is as follows:

Source: NOAA