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Agricultural commodity prices are rising rapidly, and the situation is now becoming even more acute as the El Niño weather phenomenon continues to intensify. “Virtually all models predict further strengthening, with a peak in autumn 2026,” says Thorsten Fischer, Managing Director and Head of Portfolio Management at Moventum AM. Adding to the pressure are higher energy and fertiliser prices, as well as the war in Ukraine. Only part of these price increases has reached supermarket shelves so far, with another surge expected in the coming months. This could keep inflation elevated, or at least prevent it from falling further. That is bad news for consumers. “For investors, however, this trend presents opportunities,” says Fischer.

Food is a highly political issue – one that can determine the outcome of elections. After all, Donald Trump achieved success in 2024 with the slogan “Make eggs cheap again”. At present, however, it is above all high inflation that is sending his approval ratings plummeting. Consumers in the US and around the world are likely to face further financial pressure as agricultural commodity prices continue to rise. A key driver is El Niño, which officially began in June, according to the US National Oceanic and Atmospheric Administration (NOAA). The agency puts the probability of a very strong El Niño event at 63 per cent.

According to Fischer, the impact of El Niño has historically been most consistent for rice and sugar cane from South-East Asia, coffee from Vietnam, palm oil from Indonesia, cocoa from West Africa, and pulses and oilseeds from India. Harvests of maize, rice and wheat are likely to suffer from drought, particularly in Asia and Australia. The World Bank warns that rice production in Malaysia could fall by 20 to 50 per cent, while prolonged drought is forecast for Thailand. Markets are already responding: the Food and Agriculture Organization's (FAO) Food Price Index reached 136 points in September, its highest level in four years.

According to data from Trading Economics, rice is now more than 55 per cent more expensive than a year ago. Maize and wheat prices have reached their highest levels in three years, while the vegetable oil price index stands at its highest level since June 2022. Expectations of tighter supply have driven sugar prices up by almost 25 per cent over the past year.

Several factors are currently driving prices higher. First, El Niño is restricting supplies of key staple foods and tropical commodities. Second, fertiliser and energy are becoming more expensive. Urea prices exceeded US$850 per tonne in April, an increase of 80 per cent since February, as around a quarter of global exports come from the Middle East. High oil prices are also pushing up transport costs. Finally, the war in Ukraine is disrupting wheat supplies: exports from Ukraine, a major producer, have halved year on year.

The problem for farmers is that food prices are not rising as quickly as their costs. “Farmers are experiencing a form of affordability crisis,” says Fischer. Some are therefore cutting back on fertiliser, but using less fertiliser also means lower yields. “The impact of this shock is therefore delayed.” The full extent of the price increases has yet to reach supermarket shelves. For example, the effects of El Niño on palm oil production are not yet being felt. The impact of drought stress on yields only becomes apparent six to twelve months later. While fresh fruit and vegetable prices respond immediately to supply shortages, rice and wheat prices typically follow after three to six months. Packaged foods and cooking oils take even longer, with increases appearing after six to twelve months as existing contracts expire. Research and analytics firm Risilience considers price shocks of 10 to 50 per cent possible for key agricultural commodities, and even 50 to 100 per cent for rice, palm oil, sugar and coffee.

What does this mean for financial markets? The wave of food price increases could push inflation higher than expected. “This argues against rapid interest rate cuts by central banks,” says Fischer. Equities and bonds would therefore receive little support from monetary policy. At the same time, however, investment opportunities are emerging – not only in agricultural commodities themselves, but also in agricultural technology, irrigation and fertiliser producers outside the Gulf region. “Import-dependent emerging markets, on the other hand, face particular challenges,” Fischer explains. “These include Egypt, the world's largest wheat importer, as well as the Philippines and Pakistan. These countries face the risk of currency pressure and social unrest.”