Where is the "El Niño trade" at?

El Niño is rapidly intensifying, and its impact is spreading across the supply chain. Given this divergence in timing, which sectors have already realized their gains, and which are still in the process?

A recent research report from China Merchants Securities points out that El Niño primarily affects industries through four pathways: agriculture and biological resources, water resources and energy-intensive production, shipping and mining, and high temperatures and electricity demand . The two most clearly defined pathways have already begun to change: Peruvian fishmeal is seeing increased aquatic feed costs due to reduced fishing, while the Panama Canal is further tightening navigation restrictions and reducing effective transport capacity due to water level pressure. In contrast, the main impacts on palm oil, natural rubber, and Southeast Asian backup power are more likely to occur in 2027; commodities such as copper are currently still mainly driven by their own industry cycles.

The report argues that El Niño is more of an "amplifier" of industry trends than an independent driver. Historical analysis shows that weather shocks are more likely to translate into sustained market trends when they resonate with industry logic such as supply contraction and improved economic conditions; currently, livestock farming and shipping have relatively stronger medium-term support.

In terms of climate intensity, this El Niño is still rapidly intensifying. The National Oceanic and Atmospheric Administration (NOAA) predicts that there is a greater than 90% probability of an extremely strong El Niño occurring in the Northern Hemisphere during the fall and winter of 2026; the probability of the Relative Oceanic Niño Index (RONI) reaching above 2.5°C in October-December, exceeding the previous peak since 1950, is approximately 69%.

The capital market has not yet formed a unified "El Niño trend." Since the current El Niño event was confirmed on June 11, related sectors such as agriculture, livestock farming, feed, aquaculture, planting, seed industry, tires, copper, and shipping have all outperformed the Wind All A Index, but the drivers of the rise are inconsistent. Among them, livestock farming is more supported by the hog cycle, while shipping is driven by both its own improved economic conditions and the Panama Canal restrictions . The market is still waiting for the weather impact to further transmit to prices and profits.

First stop: fishmeal, Panama Canal – the impact has already subsided.

The first effects of this El Niño event are two aspects directly related to water resources and the marine environment.

The contraction in Peruvian fishmeal supply has already impacted the Chinese market. The quota for the first fishing season in north-central Peru in 2026 is 1.914 million tons, and as of August 20th, the cumulative catch was approximately 471,000 tons, representing only 24.6% of the target. This slow catch has led to a decrease in Chinese fishmeal imports, a continued decline in port inventories, and a significant increase in the price of imported high-protein fishmeal, substantially impacting the procurement costs of aquatic feed companies.

Going forward, resource assessment and quota setting for the second fishing season will become key variables on the supply side. For feed companies, differences in previous inventory, procurement strategies, formula adjustments, and pricing power mean that the extent to which fishmeal price increases are ultimately passed on to profits will vary.

The Panama Canal is currently experiencing a new round of capacity constraints. On August 20, the Panama Canal Authority announced that it would gradually reduce the maximum permissible draft of large vessels to 47.5 feet in September and early October, and further reduce the number of daily bookings starting in September.

This means the impact has evolved from simply "restricted ship draft" to a question of "whether ships can pass, and how much can they pass?" China Merchants Securities predicts that ship waiting times and freight rates on some routes will increase in the fourth quarter of 2026 compared to the third quarter; if El Niño continues to suppress rainfall in the basin after the first quarter of 2027, further tightening of navigation restrictions cannot be ruled out.

During the last El Niño event, the daily passage capacity of the Panama Canal dropped to a minimum of approximately 22 vessels, and the passage of dry bulk carriers decreased from 164 to 87 vessels between October and November 2023, a reduction of 47%. Therefore, fishmeal and the Panama Canal can be seen as the "first phase" of this round of transactions that has already been realized.

The second stop: live pigs and shipping. The market has already anticipated these transactions; the next step is to look at profitability.

Compared to fishmeal and the Panama Canal, the logic of agriculture and shipping is more complex because weather factors are resonating with the industry's own cycles.

Let's look at live pigs first. At the end of the second quarter, the number of breeding sows dropped to 37.8 million, a year-on-year decrease of 6.5%, with the decline widening further than before; in July and August, the prices of live pigs and pork had already rebounded from the low point at the end of June, and the industry began to show the early characteristics of "capacity reduction first, followed by price recovery".

China Merchants Securities predicts that the recovery in pork prices in the fourth quarter of 2026 will remain the core variable for improving the profitability of livestock farming, and this support is expected to continue into the first half of 2027. However, the market has already priced in some of the expected improvement in the pork cycle : as of August 20, the livestock farming sector outperformed the Wind All A-Shares Index by approximately 14.2%, but Wind consensus forecasts show that the expected net profit for 2026 has been revised downwards by 34.8% over the past 13 weeks.

This means that the key to the next stage of the hog market is no longer "whether there is capacity reduction", but whether the rise in hog prices can be truly reflected in the profit statement.

Shipping faces a similar situation. This round of Panama Canal constraints occurred against a backdrop of significantly stronger shipping conditions than in 2023. As of August 20, the Baltic Panamax Index (BPI) was 2088 points, 35.5% higher than the same period in 2023; the Shanghai Containerized Freight Index (SCFI) was 3355 points, approximately 3.3 times that of the same period in 2023. Maersk's Q2 2026 loadings increased by 4.1% year-on-year, with average freight rates rising by 22%, indicating a significant improvement in industry profitability.

However, stock prices are also outpacing earnings. Since the confirmation of this El Niño event, the shipping sector has outperformed the Wind All A-Shares Index by approximately 21.9%, while FY1 earnings forecasts have only been revised upwards by about 2.6% in the past 13 weeks. The previous market movement has already priced in both the improvement in the shipping industry's own conditions and the expectation of low water levels in Panama. Going forward, we need to see the further conversion of rising freight rates into earnings growth.

Among them, integrated shipping companies with a high proportion of dry bulk cargo business and greater freight rate elasticity are more worthy of attention. During the last period of low water levels, the number of dry bulk carriers decreased by about 52% year-on-year, making them most sensitive to the Panama Canal restrictions; although gas transportation is physically sensitive, most A-share listed companies adopt long-term charter contracts and project-based operations, resulting in relatively limited profit elasticity; container transportation is more driven by its own economic conditions, with the Panama Canal constraints mainly serving as a marginal catalyst.

Therefore, hogs and shipping belong to the "second phase" of this round of transactions: expectations have already been priced in by the market, and the next step is to see if industry profitability can take over.

The third stop: palm oil, natural rubber, and backup power; the real trading window is yet to come.

Not all sectors that benefit from El Niño have reached the point where their performance is realized.

Southeast Asia's backup power supply is a prime example. In the first half of 2026, China's exports of diesel generator sets to Indonesia, Malaysia, the Philippines, Thailand, and Vietnam reached approximately 6.51 billion yuan, a year-on-year increase of 61.6%. However, the current export growth is not entirely due to weather; demand from data centers and other sectors also provides significant support. Therefore, the pressure on the power system from this El Niño event is currently lower than in 2023.

China Merchants Securities believes that March to May 2027 may be a more noteworthy window: the combination of low water inflow in the Mekong River basin and rising cooling loads may further increase the pressure on the local power system, and there is room for continued growth in the export of backup power equipment.

The effects of palm oil and natural rubber also have a lag. Global natural rubber production is expected to continue to grow in 2026, providing a short-term supply buffer; while palm oil inventories have declined somewhat, the impact of previous weather conditions on yield may become more apparent in 2027.

Therefore, these directions are currently closer to the trading stage where "expectations are forming and the impact of supply has not yet been fully realized."

Copper and white goods: Not everything can be attributed to El Niño.

There is another easily overlooked issue with El Niño trading: not all industries affected by the weather deserve to be included in this trading theme.

Taking copper as an example, Chilean copper mine production fell by 8.8% year-on-year from January to May 2026. However, the current reductions at some major mines are mainly due to maintenance, declining ore grades, and existing operational issues, rather than regional production cuts caused by the current El Niño phenomenon. Therefore, copper prices are currently still primarily driven by global supply and demand and changes within the mines themselves.

The same applies to white goods. In the first half of 2026, China's exports of household air conditioners to the five Southeast Asian countries amounted to approximately RMB 5.43 billion, a year-on-year increase of 21.5%. However, high-temperature demand has not yet driven a significant upward revision of the sector's profit forecast, and domestic demand and other overseas markets remain the main sources of medium-term profits.

This is also the most important lesson learned from historical analysis: El Niño itself rarely creates a sustained market trend; what truly determines the height of the market trend is the supply and demand cycle of the industry itself.

In 2015 and 2019, the pig industry was in a phase of supply contraction and extreme supply gap caused by African swine fever, respectively. El Niño further amplified the elasticity of pig prices and profits. Although El Niño was stronger in 2023, the domestic pig supply was still ample, and the agricultural market lacked sustainability.

The same applies to shipping. In 2023, the low water level in the Panama Canal significantly reduced effective shipping capacity, but at that time the shipping market was in a post-pandemic high-growth phase, and the weakening of the industry's own cycle offset some of the weather impact.

The El Niño trade isn't over yet, but the main theme is already shifting.

Therefore, this round of "El Niño trading" is not a simple "list of beneficiary sectors", but an industry chain with a clear time sequence.

Fishmeal and the Panama Canal have entered the impact realization phase; hogs and shipping are shifting from anticipated transactions to profit verification; palm oil, natural rubber, and Southeast Asian backup power are more geared towards subsequent transactions in 2027.

Historical experience also suggests that weather alone is unlikely to be a sufficient condition for sustained price increases. What truly deserves attention is whether the supply, cost, and transportation capacity shocks caused by El Niño can resonate with the industry's own capacity reduction and upward trend.

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