A strengthening El Niño weather phenomenon is poised to complicate the Reserve Bank of Australia’s inflation battle, with forecasts indicating higher food prices. Global oceans recently recorded their highest temperatures, signalling a powerful, potentially “super” El Niño event expected to persist into 2027. While a concern for consumer costs, this weather pattern could concurrently offer a boon to Australia’s mining sector by disrupting production elsewhere.
Citi commodity strategists warn this “highest-conviction agricultural risk” targets global commodities like palm oil, coffee, rice, sugar, cocoa, and Australian wheat. Local farmers face elevated risks for wheat, barley, and canola due to historically drier conditions. India and Southeast Asian nations are also vulnerable to rainfall deficits impacting key crops. Beyond agriculture, Morgan Stanley highlights a risk to copper output in Chile, the world’s largest producer, and Zambia, due to potential flooding and hydropower shortages.
State Street Investment Management’s Krishna Bhimavarapu suggests rising food prices from El Niño could upend the RBA’s efforts to curb inflation, potentially slowing disinflation and adding uncertainty. This may necessitate further cash rate increases, with markets pricing a 50 per cent chance of another hike by Christmas. Meanwhile, Datt Capital notes lithium supply disruptions from South America’s “lithium triangle” – Argentina, Chile, and Bolivia – could materially benefit Australian hardrock lithium producers like PLS, Mineral Resources, and Liontown Resources.
New Zealand-based Meridian Energy, an energy company, could benefit from energy pricing arbitrage if El Niño brings contrasting weather patterns across New Zealand. Conversely, GrainCorp, Australia’s biggest grain handler on the east coast, faces headwinds from drier conditions, though its shares have already seen a significant decline. El Niño’s multifaceted impacts underscore its potential to create significant challenges and opportunities across various sectors.
