France issued its highest-level heat wave alert for Paris and more than a quarter of the country's mainland on Friday. Residents cool off at the Trocadero fountains near the Eiffel Tower in Paris. [Reuters]
France issued its highest-level heat wave alert for Paris and more than a quarter of the country's mainland on Friday. Residents cool off at the Trocadero fountains near the Eiffel Tower in Paris. [Reuters]

Global commodity markets are on high alert over climate risk as the World Meteorological Organization warns of a strong El Niño in the second half of this year, compounded by record heat waves sweeping Europe and much of the Northern Hemisphere. Prices of key agricultural commodities — corn, wheat, coffee and cocoa — are already showing signs of strain, raising concerns that the cost of bread, coffee and chocolate could climb again.

Commodity market strategists say markets are significantly underestimating the impact that climate change and extreme weather events could have on raw material prices, according to CNBC on Saturday. Markets have long focused on supply chain disruptions and geopolitical variables, and analysts say they have yet to fully price in climate shocks as a fresh driver of inflation.

The WMO has forecast that a strong El Niño will develop rapidly in the tropical Pacific between July and September, with intensity expected to increase further through the fall. El Niño — characterized by above-normal sea surface temperatures near the equatorial Pacific — is a well-known climate phenomenon that triggers extreme weather worldwide, including heat waves, droughts and heavy rainfall.

Dan Leonard, head of US forecasting at weather analytics firm MetDesk, said this El Niño could develop into a "super El Niño" surpassing the major events of 1982, 1997 and 2015. "Some commodities could see significant price increases, but if the Northern Hemisphere winter turns out warmer than normal, there will also be products like natural gas where prices actually fall," he said.

Farmland with soil cracked by heat and drought. Concerns are growing that extreme weather could lead to reduced output of key grains such as corn and wheat. [Getty Images]
Farmland with soil cracked by heat and drought. Concerns are growing that extreme weather could lead to reduced output of key grains such as corn and wheat. [Getty Images]

Agricultural commodities stand to be the hardest hit. Heat waves, droughts and shifting rainfall patterns could worsen harvests in major producing regions, tightening supply and amplifying price volatility.

Corn and wheat are among the crops most vulnerable to high temperatures and drought. Coffee is highly sensitive to abnormal heat and changes in rainfall in Brazil, the world's largest producer, while cocoa faces a significant risk of production disruptions from heat and drought in West Africa, its primary growing region. Rising prices for these raw materials could feed through directly to consumer food costs, pushing up the price of bread, coffee and chocolate.

A coffee farm in Brazil, the world's largest coffee producer. Abnormal heat and changes in rainfall can have a direct impact on global coffee supply and prices. [Getty Images]
A coffee farm in Brazil, the world's largest coffee producer. Abnormal heat and changes in rainfall can have a direct impact on global coffee supply and prices. [Getty Images]

Financial institutions have been sounding the alarm on higher prices. French investment bank Societe Generale said agricultural commodity prices rose about 7 percent in July, with cocoa, coffee and wheat prices climbing nearly 8 percent in the past week alone. Bank of America projected that sugar output in Brazil and Thailand could fall by about 10 percent in the 2026-2027 season, and that corn prices could rise from the current level of around $4.70 per bushel to between $5.50 and $6.00.

Markets are increasingly viewing this El Niño as more than a weather event — a potential new variable driving inflation. With fertilizer supply already under strain from instability in the Middle East, a simultaneous climate shock could significantly intensify upward pressure on food prices. Investment analysts note that past strong El Niño episodes have consistently triggered sharp price spikes in soft commodities such as cocoa, sugar and coffee, and expect agricultural markets to see heightened volatility this time as well.


sjy@heraldcorp.com