Super El Niño + Russia-Ukraine/U.S.-Iran conflicts = agricultural product price increase cycle in the next half year
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Citi believes that the super El Niño combined with geopolitical conflict is causing multiple supply risks to resonate, sharply increasing food inflation pressure.
According to news from Chase Wind Trading Desk, on August 25, Citi's chief analyst Arkady Gevorkyan's team, in their latest report, maintains a bullish stance on grains and oilseeds and has comprehensively raised price targets for corn, wheat, and soybeans.
The report points out that the strengthening super El Niño, escalation of Black Sea shipping disruptions, expansion of biofuel demand, and high fertilizer and energy costs are collectively tightening the global agricultural supply and demand balance, with the time window pointing to the next 6 to 12 months.
The report also warns that the rise in grain and oilseed prices will eventually be transmitted to food inflation, with a particularly significant impact on economies reliant on imports, making the agricultural market increasingly important for broader inflation investors.
Super El Niño: The Highest Certainty Agricultural Risk
Super El Niño is currently Citi's highest certainty agricultural supply risk.
According to updated data from NOAA in August 2026, the probability of a strong El Niño event has exceeded 90%, with a 69% chance that its intensity will surpass all El Niño events since 1950 between October and December. If realized, this would be one of the strongest El Niño/Southern Oscillation (ENSO) events in modern climate history.
(NOAA’s El Niño probability: The strong El Niño phenomenon might peak between November and December)
To systematically quantify this risk, Citi launched the "Production-at-Risk" (PAR) agricultural risk tracking framework. This framework estimates potential production losses by comprehensively considering each country’s production share, yield sensitivity to ENSO, ENSO probability, and crop calendar severity.
Analysis indicates that current market pricing only reflects part of the potential downside risk.
Since the development of El Niño in March 2026, the commodities with the largest downward revisions in output are: Robusta coffee (-4.0%), palm oil (-2.5%), sugar (-2.0%), and rice (-1.5%).
However, there remains a significant gap between the actual revision for palm oil, sugar, and rice and the estimated risk exposure, meaning if El Niño continues to strengthen as expected, these commodities still face further downward risk.
Geographically, the most concentrated risk regions include: Australia (wheat, barley, and canola), India (rice, sugar, and cotton), Southeast Asia (palm oil, coffee, sugar, and rice), and parts of Brazil.
Argentina is the most obvious potential beneficiary—historically, El Niño helps improve soil moisture in Argentina's main production areas, supporting corn and soybean yields.
Black Sea Disruptions and Geopolitical Conflict: Direct Threats to Wheat and Corn Supply
The Black Sea situation is currently the most direct geopolitical risk faced by the grain market.
Both Russia and Ukraine have recently significantly escalated attacks on ports, grain terminals, and commercial vessels: Ukraine damaged Russia's main export hub in Novorossiysk, while Russia intensified attacks on Ukrainian port infrastructure around Odessa.
(Due to maximum disruption at ports, Russian wheat exports have been declining)
This has led many shipowners to reduce or suspend Black Sea operations, insurance costs have soared, and both countries’ grain export flows have seen substantial declines.In terms of scale, Russia is expected to export around 46 million tons of wheat to global markets, accounting for about 20% of global wheat trade.
Citi estimates that the current disruption may delay or replace 10 to 20 million tons of wheat exports, equivalent to 5% to 9% of global wheat trade. Ukraine is expected to export about 22 million tons of corn, around 11% of global corn trade, with disruptions possibly delaying 3 to 8 million tons, about 2% to 4% of global trade.
As for the conflict, Citi expects Turkey to once again play the role of intermediary, facilitating the achievement of similar agreements as before, so Black Sea trade flows can partially return to normal.
Meanwhile, the report points out that if the Strait of Hormuz is blocked, it would dramatically increase prices for crude oil, diesel, fuel oil, and fertilizers, comprehensively impacting global agricultural production and transport costs.
The Gulf region is a primary exporter of nitrogen fertilizer, ammonia, and urea. Related disruptions will directly raise fertilizer costs.
Fertilizer and Energy Costs: The Hidden Variable Compressing Output
High fertilizer and energy costs are another important driver of higher grain and oilseed prices. Citi points out that energy and fertilizer account for 60% of US farmers’ variable costs; the proportion is even higher in Brazil and Argentina.
There are already signs that tightening fertilizer supply is affecting agricultural decisions. Brazil’s soybean planting season will start in early September, but fertilizer imports are down 11% year-on-year this year; this may force farmers to use lower-quality fertilizers and suppress willingness to expand plantings, thereby lowering yield and total output.
Furthermore, since crop fungicides and insecticides are made from oil products, if high energy prices limit supply of these products, disease and pest control investment this season may be insufficient, further dragging down yields.
The overlapping effects of these cost pressures, combined with weather shocks from El Niño, mutually reinforce each other, forming dual upward support for grain prices.
Biofuel Demand Expansion: Structural Increment in Grain Consumption
The intensive rollout of global biofuel policies is providing sustained structural support for corn and soybean demand.
In the US, discussions about raising the E10 gasoline blend standard to E15 (implemented year-round) are increasingly active, and biomass diesel blending requirements were also raised earlier this year. Citi has correspondingly raised its soybean crushing demand forecast.
In Indonesia, the biodiesel mandate is accelerating. The palm oil blend ratio has been raised to 50%, shifting much of domestic palm oil output from export to energy use, further tightening global vegetable oil supply.
In Brazil, the gasoline ethanol blend ratio has been raised to E32, directly boosting domestic industrial corn consumption and reducing Brazil’s export surplus.
Citi also emphasizes palm oil’s transmission path to the soybean market:
El Niño causes reduced output in Indonesia and Malaysia (together accounting for about 85% of global palm oil exports), driving up edible oil prices and prompting consumers to shift toward substitutes like soybean oil and sunflower oil;Increased soybean oil demand improves crushing margins, thereby boosting soybean demand and prices, forming a complete upward transmission chain.
Taking all these factors into account, Citi believes that under the combined influence of El Niño supply threat, Black Sea uncertainty, tightening vegetable oil supply and demand, and expanding global biofuel demand, the risk balance for grain and oilseed prices remains clearly tilted upward over the next 6 to 12 months.
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