'Super' El Niño risks driving up the price of your caffeine fix

By Myra P. Saefong

Customers should brace for a pricier cup of coffee

Coffee and sugar prices may rise in the months to come as a "super" El Niño impacts crops around the world.

Brace your wallet: "Super" El Niño is expected to lift the price of your morning brew.

Agricultural markets around the world are already dealing with record-high diesel prices and high fertilizer costs - yet unpredictable and chaotic weather over the next few months is set to make production even more difficult for farmers, and prices even higher for consumers.

That's especially true when it comes to coffee, sugar and cocoa, which are among the most weather-sensitive crops in the world.

The climate pattern known as super El Niño can lead to severe droughts, intense heatwaves, torrential rainfall and catastrophic flooding in different parts of the world. It creates a "supply-side risk that threatens to reduce crop yields," said Roukaya Ibrahim, chief commodity strategist at BCA Research.

This year's El Niño is expected to be particularly extreme, leading to its informal description by some weather forecasters as "super." Yet the "worst of the weather disruptions is likely still to come," Ibrahim told MarketWatch by email, as El Niño typically peaks between November and January.

The 'worst of the weather disruptions is likely still to come,' as El Niño typically peaks between November and January.Roukaya Ibrahim, BCA Research

Because crops take months to reach harvest, and growing seasons differ by region and by crop, El Niño's supply impact typically occurs with a lag of about 16 months, according to Ibrahim.

The cost of producing food globally has already been skyrocketing, with diesel fuel up almost 75% year over year and fertilizer prices up roughly 20%, said Darin Newsom, senior market analyst at Barchart, citing separate estimates from AAA and data provider DTN. That means "the increase in prices received by grain producers is not keeping up with input costs so far," he added.

Furthermore, the effects of a super El Niño could raise food prices, but "not prices received at the production level, making the overall situation worse" for producers, said Newsom, who is also president at Darin Newsom Analysis, an agricultural-market analysis and commentary provider.

Historically, when agricultural markets have seen disruptions leading to price climbs, the main reason has been weather conditions such as droughts, floods and freezes, said experts at S&P Global in a recent report issued by the S&P Global Institute.

Recently, however, disruptions have been caused by the conflict in the Middle East and the Russia-Ukraine war, noted the S&P Global experts led by Vice Chairman Daniel Yergin, whose research focuses on the intersection of energy, geopolitics and the global economy.

Now, El Niño is set to "compound the difficulties if it is as strong as predicted," Yergin's team said.

El Niño could lead to less rain and severe drought in parts of Asia. While parts of South America may see severe drought, the climate pattern could bring heavy rainfall and flooding to other parts of that region.

Crops on the line

That may potentially lead to production disruptions for coffee, cocoa and sugar crops, in particular.

Those commodities have seen some dramatic price changes even before the effects of El Niño have really taken shape. As of Tuesday, prices for coffee (KC00) (KCZ26) and cocoa (CC00) (CCZ26) have fallen by almost 11% and over 4%, respectively, so far this year, according to Dow Jones Market Data. Prices for sugar (SB00) (SBH27) have climbed by nearly 37% year to date.

El Niño could bring higher temperatures and reduced rainfall in some parts of Brazil, but excessive rainfall and flooding to other areas.

Persistent heat or inadequate rainfall during coffee's flowering period and its subsequent development might threaten production, said Jim Roemer, a commodity trading advisor who writes the Weather Wealth newsletter. But "timely rain could improve prospects [for production], so an El Niño forecast alone is insufficient reason to assume higher prices," he added.

At the retail level, Chad Seegers, who co-owns Low Country Coffee Roasters in Charleston, S.C., said prices for coffee beans haven't come down yet, though he does have options if El Niño effects the coffee harvest.

Some big coffee growers say they're still trying to recoup costs from the tariff debacle, so their prices have stayed high. But as a coffee roaster, Seegers said he can buy from smaller growers who are fine with cutting prices and taking market share away.

Still, more than half of 37 coffee roasters recently surveyed by Fresh Cup, a coffee-industry publication, said they planned to raise their prices next year.

Meanwhile, for those who like their coffee with sugar, excessive rainfall could hurt Brazil's sugarcane harvest season, while India's major sugarcane-growing states could experience drought, said Roemer.

Excessive rain in Brazil may delay sugarcane crushing, which would mean less near-term sugar supply. But it also might eventually benefit the next cane-growing season, Roemer noted. That's important for investors when it comes to assessing how long this year's rally in sugar prices could last.

Cocoa production also remains vulnerable, said Roemer, particularly if lower-than-usual rainfall in Côte d'Ivoire and Ghana in west Africa extend into the dry season.

Higher prices caused by weather extremes are getting "more frequent ... and extreme," said Barchart's Newsom. Inflation is a growing global problem in general, he noted, adding that it was "disheartening" to read of violent protests across Europe due to the high cost of living.

-Myra P. Saefong

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10-21-26 1524ET