Super El Niño risk puts crop, energy and insurance stocks in focus
A possible very strong El Niño into 2027 could affect food, power and insurance markets, analysts told Bloomberg.
By Sofia Marchetti · World Affairs Correspondent
4 min read
Investors are weighing climate risk as forecasters point to a possible very strong El Niño heading into 2027, Bloomberg reported. The weather pattern could affect crop output, power demand, mining operations and insurance claims at a time when global equities are trading near record levels, according to Bloomberg.
The U.S. Climate Prediction Center puts the chance of El Niño developing into a very strong event at 63%, Bloomberg reported. El Niño is marked by persistent warming in Pacific Ocean surface temperatures, which can shift pressure systems and bring heavy rain to some regions and drought to others.
Ole Hansen, head of commodity strategy at Saxo Bank, told Bloomberg the weather risk is arriving while the global economy is still absorbing inflation effects from the Iran conflict and supply chains remain exposed after months of disruption. A Dartmouth College study cited by Bloomberg estimated that the 2015-16 very strong El Niño caused more than $7.8 trillion in lost productivity.
Agriculture pressure, with some exceptions
Bloomberg reported that agriculture is one of the clearest areas of investor concern. In Indonesia, the world’s largest palm oil producer, hotter and drier conditions have historically reduced yields, adding another headwind for plantation companies already under pressure from market-classification concerns and a plan to centralize key commodity shipments.
UBS Group AG analysts said global corn and wheat production could suffer, while Asian sugar output may also come under pressure, according to Bloomberg. India, the world’s second-largest sugar producer, has banned sugar exports through the end of September, a move Bloomberg said has weighed on shares of Shree Renuka Sugars Ltd. and Bajaj Hindusthan Sugar Ltd.
Some companies could benefit. Morgan Stanley said better rainfall in Argentina and higher sugar prices may help Latin American firms including São Martinho and Adecoagro SA, Bloomberg reported. UBS analysts also said El Niño has tended to support soybean output globally, especially for producers in the United States and southern Brazil.
Bloomberg reported that irrigation and water-management firms may draw investor interest if farmers face drier conditions. Indian companies named in that category include VA Tech Wabag Ltd., Jain Irrigation Systems Ltd., Astral Ltd. and Shakti Pumps India Ltd. Berenberg analyst Sebastian Bray also pointed to fish oil alternatives, saying high Peruvian fish oil prices favor makers of omega-3-rich algal oils such as Corbion NV.
Fertilizer and crop inputs
Fertilizer companies may gain if reduced crop supplies lift demand for nutrients, Bloomberg reported. Scotia Capital analyst Ben Isaacson wrote that investors seeking exposure to a Super El Niño scenario would favor short-cycle nitrogen names, with CF Industries Holdings Inc. and Nutrien Ltd. among stocks Bloomberg identified.
RBC Capital Markets analyst Andrew Wong said dryness has started to curb potash demand, which could hurt potash-heavy companies such as The Mosaic Co., according to Bloomberg. RBC analyst Arun Viswanathan said weaker yields could push farmers to spend more on seeds and crop protection, potentially helping companies such as Corteva Inc.
Energy, mining and finance
Truist Securities analyst Gabe Daoud said a rare El Niño could bring cooler U.S. summers and warmer winters, creating a weaker demand backdrop for natural gas, Bloomberg reported. Stocks named in that context include APA Corp., EQT Corp., Range Resources Corp. and EOG Resources Inc.
In Asia, higher temperatures could lift air-conditioning use and strain power grids, according to Bloomberg. Jefferies analysts said Indian companies including JSW Energy Ltd. and Adani Energy Solutions Ltd. may benefit from stronger energy demand, while Bloomberg reported gains this year for Chinese power firms including Guangdong Electric Power Development Co. and Jinneng Holding Shanxi Electric Power Co.
Saxo Bank’s Hansen said heavier rain in parts of South America could interfere with transport and mining, including copper output in Chile and Peru, Bloomberg reported. Freeport-McMoRan Inc. and Anglo American Plc are among miners with operations in those countries that may attract attention.
Insurance effects may differ from other sectors. Bloomberg Intelligence analyst Matthew Palazola said El Niño’s tendency to weaken hurricanes could help insurers in hurricane-prone areas such as Florida, while Piper Sandler’s Paul Newsome said U.S. insurers including Allstate Corp., Progressive Corp. and Travelers Cos. may see lower claims costs, Bloomberg reported.
Banks with exposure to weather-sensitive industries face a less favorable outlook, according to Bloomberg. JPMorgan Chase analysts including Yuri Fernandes cited risks for Peruvian lenders tied to fishing and agriculture loans, while Bloomberg reported that Indian microlenders such as Bandhan Bank Ltd. may be hurt if a weak monsoon reduces crop output and farm income.
This story draws on original reporting from Fortune.