Analys
El Niño: the impact on agricultural commodities

El Niño refers to a climate cycle in the Pacific Ocean that has a global impact on weather patterns. The name, which loosely translates to ‘Christ child’, traces its origin back to Peruvian fisherman in the 1600s, who observed that fish yields would often decline around Christmas time as sea water temperatures rose. The effects of El Niño include specific wind patterns across the Pacific Ocean, heavy rain in South America, and droughts in Australia and parts of Asia including India and Indonesia.
With the National Oceanic and Atmospheric Administration (NOAA) forecasting a 96% probability of an El Niño weather event during the current Northern Hemisphere winter, there is a strong chance that we could see some weather abnormalities in the coming months.
Figure 1. The probability of El Niño occurring this year
Why El Niño matters for agricultural commodity prices
El Niño can have a significant impact on the fortunes of the agricultural industry, as the growing of agricultural products is highly sensitive to weather patterns. The right amount of sun and rain at the right time is important to produce the optimal yield. For example, droughts can ruin a crop because of insufficient water, while floods can wash away plants, or delay the process of harvesting a good crop from the ground, causing it to spoil.
While El Niño can have a considerable effect on agricultural commodity prices, the specific impact on the price of any individual commodity will depend on the El Niño’s amplitude and timing, as well as locational factors such as where the crop is grown and how prepared the farmers are for extreme conditions.
Figure 2. Weather impact of El Niño
Analysing the impact on agricultural commodity prices
When assessing likely El Niño effects, the first step is to consider the time of the year that El Niño is likely to begin. In this case, the NOAA believes that the event is likely to arrive in the Northern Hemisphere winter this year, but there is a good chance that it could linger into the Northern Hemisphere summer with a lower intensity. The next step is to assess which part of the crop cycle it will affect. According to research by Iizumi et al., a weather disturbance during the ‘reproductive’ growth period of the crop cycle tends to have the largest impact on crop yields.
Using insights from Iizumi et al. we have assessed the possible near-term impact from an El Niño on crops that are in the reproductive phase of growth. We summarise our key thoughts below:
Bullish on sugar, cocoa, and wheat
Agricultural commodities that we are bullish on in the event of an El Niño include sugar, cocoa, and wheat.
Sugar production is highly concentrated in India and certain regions of Brazil. If El Niño occurs, it’s likely that both countries could see below-average rainfall and drier conditions, and this could drive prices higher.
Indonesia, which produces 10% of global cocoa supply, could also be directly affected by an El Niño, and dry warm weather in Indonesia could potentially drive cocoa prices higher.
Australia, which produces 4% of global wheat supply, is another country that could face dry weather if El Niño emerges. This could have a positive impact on wheat prices, although much of the wheat harvest is expected to be completed by mid-January, which should limit the impact of an El Niño.
Bearish on soybean, corn and Arabica coffee
In contrast, we are bearish on soybean, corn, and Arabica coffee.
Brazil and Argentina, who together are responsible for almost half of the world’s soybean supply, are likely to experience favourable growing conditions in the event of an El Niño. As such, an El Niño could prove to be price negative for soybean prices.
Figure 3. The effect of El Niño on soybean growing during the December to March reproductive growth phase

Source: Adapted by WisdomTree from “Impacts of Southern Oscillation on the global yields of major crops” by Iizumi et al, May 2014
The effects of El Niño on corn are less significant, but could be mildly positive for growing conditions in South America and parts of Australia, and hence slightly price bearish.
Arabica coffee production is highly concentrated in Brazil, Mexico, Colombia and Central America. These countries could experience favourable growing conditions, and given that most of the coffee in these regions will be in a reproductive growth phase in the months ahead, we could see a positive supply shock to the commodity, which would be bearish for prices.
Other factors
We caution that the analysis above is based on the pure effect of an El Niño event and does not consider the many other factors that can impact crop yields. We’ll also point out that agricultural commodity prices can be affected by a number of other developments such as exchange-rate movements and trade policies. However, the analysis is useful as a rough guide as to how commodity prices could potentially be affected if we do experience an El Niño event in the near term.
Analys
Brent needs to fall to USD 58/b to make cheating unprofitable for Kazakhstan

Brent jumping 2.4% as OPEC+ lifts quota by ”only” 411 kb/d in July. Brent crude is jumping 2.4% this morning to USD 64.3/b following the decision by OPEC+ this weekend to lift the production cap of ”Voluntary 8” (V8) by 411 kb/d in July and not more as was feared going into the weekend. The motivation for the triple hikes of 411 kb/d in May and June and now also in July has been a bit unclear: 1) Cheating by Kazakhstan and Iraq, 2) Muhammed bin Salman listening to Donald Trump for more oil and a lower oil price in exchange for weapons deals and political alignments in the Middle East and lastly 3) Higher supply to meet higher demand for oil this summer. The argument that they are taking back market share was already decided in the original plan of unwinding the 2.2 mb/d of V8 voluntary cuts by the end of 2026. The surprise has been the unexpected speed with monthly increases of 3×137 kb/d/mth rather than just 137 kb/d monthly steps.

No surplus yet. Time-spreads tightened last week. US inventories fell the week before last. In support of point 3) above it is worth noting that the Brent crude oil front-end backwardation strengthened last week (sign of tightness) even when the market was fearing for a production hike of more than 411 kb/d for July. US crude, diesel and gasoline stocks fell the week before last with overall commercial stocks falling 0.7 mb versus a normal rise this time of year of 3-6 mb per week. So surplus is not here yet. And more oil from OPEC+ is welcomed by consumers.
Saudi Arabia calling the shots with Russia objecting. This weekend however we got to know a little bit more. Saudi Arabia was predominantly calling the shots and decided the outcome. Russia together with Oman and Algeria opposed the hike in July and instead argued for zero increase. What this alures to in our view is that it is probably the cheating by Kazakhstan and Iraq which is at the heart of the unexpectedly fast monthly increases. Saudi Arabia cannot allow it to be profitable for the individual members to cheat. And especially so when Kazakhstan explicitly and blatantly rejects its quota obligation stating that they have no plans of cutting production from 1.77 mb/d to 1.47 mb/d. And when not even Russia is able to whip Kazakhstan into line, then the whole V8 project is kind of over.
Is it simply a decision by Saudi Arabia to unwind faster altogether? What is still puzzling though is that despite the three monthly hikes of 411 kb/d, the revival of the 2.2 mb/d of voluntary production cuts is still kind of orderly. Saudi Arabia could have just abandoned the whole V8 project from one month to the next. But we have seen no explicit communication that the plan of reviving the cuts by the end of 2026 has been abandoned. It may be that it is simply a general change of mind by Saudi Arabia where the new view is that production cuts altogether needs to be unwinded sooner rather than later. For Saudi Arabia it means getting its production back up to 10 mb/d. That implies first unwinding the 2.2 mb/d and then the next 1.6 mb/d.
Brent would likely crash with a fast unwind of 2.2 + 1.6 mb/d by year end. If Saudi Arabia has decided on a fast unwind it would meant that the group would lift the quotas by 411 kb/d both in August and in September. It would then basically be done with the 2.2 mb/d revival. Thereafter directly embark on reviving the remaining 1.6 mb/d. That would imply a very sad end of the year for the oil price. It would then probably crash in Q4-25. But it is far from clear that this is where we are heading.
Brent needs to fall to USD 58/b or lower to make it unprofitable for Kazakhstan to cheat. To make it unprofitable for Kazakhstan to cheat. Kazakhstan is currently producing 1.77 mb/d versus its quota which before the hikes stood at 1.47 kb/d. If they had cut back to the quota level they might have gotten USD 70/b or USD 103/day. Instead they choose to keep production at 1.77 mb/d. For Saudi Arabia to make it a loss-making business for Kazakhstan to cheat the oil price needs to fall below USD 58/b ( 103/1.77).
Analys
All eyes on OPEC V8 and their July quota decision on Saturday

Tariffs or no tariffs played ping pong with Brent crude yesterday. Brent crude traded to a joyous high of USD 66.13/b yesterday as a US court rejected Trump’s tariffs. Though that ruling was later overturned again with Brent closing down 1.2% on the day to USD 64.15/b.

US commercial oil inventories fell 0.7 mb last week versus a seasonal normal rise of 3-6 mb. US commercial crude and product stocks fell 0.7 mb last week which is fairly bullish since the seasonal normal is for a rise of 4.3 mb. US crude stocks fell 2.8 mb, Distillates fell 0.7 mb and Gasoline stocks fell 2.4 mb.
All eyes are now on OPEC V8 (Saudi Arabia, Iraq, Kuwait, UAE, Algeria, Russia, Oman, Kazakhstan) which will make a decision tomorrow on what to do with production for July. Overall they are in a process of placing 2.2 mb/d of cuts back into the market over a period stretching out to December 2026. Following an expected hike of 137 kb/d in April they surprised the market by lifting production targets by 411 kb/d for May and then an additional 411 kb/d again for June. It is widely expected that the group will decide to lift production targets by another 411 kb/d also for July. That is probably mostly priced in the market. As such it will probably not have all that much of a bearish bearish price impact on Monday if they do.
It is still a bit unclear what is going on and why they are lifting production so rapidly rather than at a very gradual pace towards the end of 2026. One argument is that the oil is needed in the market as Middle East demand rises sharply in summertime. Another is that the group is partially listening to Donald Trump which has called for more oil and a lower price. The last is that Saudi Arabia is angry with Kazakhstan which has produced 300 kb/d more than its quota with no indications that they will adhere to their quota.
So far we have heard no explicit signal from the group that they have abandoned the plan of measured increases with monthly assessments so that the 2.2 mb/d is fully back in the market by the end of 2026. If the V8 group continues to lift quotas by 411 kb/d every month they will have revived the production by the full 2.2 mb/d already in September this year. There are clearly some expectations in the market that this is indeed what they actually will do. But this is far from given. Thus any verbal wrapping around the decision for July quotas on Saturday will be very important and can have a significant impact on the oil price. So far they have been tightlipped beyond what they will do beyond the month in question and have said nothing about abandoning the ”gradually towards the end of 2026” plan. It is thus a good chance that they will ease back on the hikes come August, maybe do no changes for a couple of months or even cut the quotas back a little if needed.
Significant OPEC+ spare capacity will be placed back into the market over the coming 1-2 years. What we do know though is that OPEC+ as a whole as well as the V8 subgroup specifically have significant spare capacity at hand which will be placed back into the market over the coming year or two or three. Probably an increase of around 3.0 – 3.5 mb/d. There is only two ways to get it back into the market. The oil price must be sufficiently low so that 1) Demand growth is stronger and 2) US shale oil backs off. In combo allowing the spare capacity back into the market.
Low global inventories stands ready to soak up 200-300 mb of oil. What will cushion the downside for the oil price for a while over the coming year is that current, global oil inventories are low and stand ready to soak up surplus production to the tune of 200-300 mb.
Analys
Brent steady at $65 ahead of OPEC+ and Iran outcomes

Following the rebound on Wednesday last week – when Brent reached an intra-week high of USD 66.6 per barrel – crude oil prices have since trended lower. Since opening at USD 65.4 per barrel on Monday this week, prices have softened slightly and are currently trading around USD 64.7 per barrel.

This morning, oil prices are trading sideways to slightly positive, supported by signs of easing trade tensions between the U.S. and the EU. European equities climbed while long-term government bond yields declined after President Trump announced a pause in new tariffs yesterday, encouraging hopes of a transatlantic trade agreement.
The optimisms were further supported by reports indicating that the EU has agreed to fast-track trade negotiations with the U.S.
More significantly, crude prices appear to be consolidating around the USD 65 level as markets await the upcoming OPEC+ meeting. We expect the group to finalize its July output plans – driven by the eight key producers known as the “Voluntary Eight” – on May 31st, one day ahead of the original schedule.
We assign a high probability to another sizeable output increase of 411,000 barrels per day. However, this potential hike seems largely priced in already. While a minor price dip may occur on opening next week (Monday morning), we expect market reactions to remain relatively muted.
Meanwhile, the U.S. president expressed optimism following the latest round of nuclear talks with Iran in Rome, describing them as “very good.” Although such statements should be taken with caution, a positive outcome now appears more plausible. A successful agreement could eventually lead to the return of more Iranian barrels to the global market.
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