The Heat is on El Nino

A perfect storm is building. El Niño has arrived early, global warming is amplifying its reach, and two active wars are straining food and energy supply chains simultaneously. For millions of people, the next eighteen months could be brutal.
El Niño takes its name from the Spanish for the Christ child — Peruvian fishermen first noticed the warm Pacific current arriving around Christmas in the 1600s. For centuries the cyclical pattern of El Niño and its cool counterpart La Niña caused manageable disruption. That is no longer the case.
The current El Niño officially began in May 2026 and is expected to last until mid-2027, with peak impact around the turn of the year. The U.S. Climate Prediction Center reported in early July that sea surface temperatures are already running about 1.0°C above normal — and climbing. Most forecast models expect this event to be at least strong, and possibly record-breaking.
The reason this one is different is climate change. A warmer atmosphere holds more moisture and more heat, amplifying El Niño's effects beyond historical norms. The 2023 event caused significant agricultural disruption — cocoa and coffee prices surged 100 to 300 percent in its aftermath. This event is predicted to be far worse, potentially producing disruptions beyond anything in the historical record.
The geographic impacts are lopsided and severe. Drought threatens crop production across India, Southeast Asia, Australia, and West Africa. Durum wheat prices are forecast to rise sharply; rice and maize will also be affected. Meanwhile the west coast of North America faces the opposite problem — devastating deluges of precipitation. The one bright note: El Niño tends to suppress Atlantic hurricane activity, and forecasters expect a calmer hurricane season in late 2026.
The compounding effect is what makes this moment genuinely alarming. El Niño is arriving on top of a world already stressed by four years of war in Ukraine and an escalating conflict with Iran. The closure of the Strait of Hormuz has already pushed fuel and fertilizer costs higher — both critical inputs for global food production. These pressures don't add up linearly. They multiply.
For investors and consumers in wealthier countries, the bottom line is straightforward: inflation is not going away. Central banks that were expecting to cut interest rates may find themselves wrong-footed. The prudent bet is that prices and rates stay higher for longer — at least until this El Niño runs its course in mid-2027.

Hilliard MacBeth

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