A specialized agricultural and agribusiness bank predicts that customers will likely see a massive price increase for raw commodities affected by El Niño in 2023. Thus far this year, soft commodities have seen enormous gains.

Extreme weather and El Niño-related supply concerns have contributed to the sharp increase in futures contracts for sugar, coffee, cocoa, and orange juice.

(Photo : by EZEQUIEL BECERRA/AFP via Getty Images)
A specialized agricultural and agribusiness bank predicts that customers will likely see a massive price increase for raw commodities affected by El Niño in 2023. Thus far this year, soft commodities have seen enormous gains.

A naturally occurring climatic trend known as El Niño occurs when water temperatures in the eastern Pacific increase by 0.5 degrees Celsius over the long-term normal. This phenomenon was seen earlier this year and is still going strong. It may open the door to additional droughts and storms.

El Niño usually peaks in December, although it usually takes some time for the impacts to be felt all around the world. Forecasters think that 2024 may be the first year when mankind crosses a crucial warming barrier because of this delayed effect.

According to Rabobank's yearly prediction for 2024, the price surge for soft commodities like sugar, coffee, and cocoa this year has been bolstered by El Niño-related dryness in most of Southeast Asia, India, Australia, and portions of Africa.

After years of skyrocketing costs, the Dutch bank generally anticipates a dramatic decline in the inflation of food prices worldwide.

While conceding that certain crops may benefit, it also issued a warning that many might be negatively impacted by El Niño early in the next year. It specifically mentioned crops in the United States, southern Brazil, and Argentina.

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Prices Surge Due to Extreme Weather and El Niño

Futures for orange juice surged by an astounding 80% in 2023, reaching an unprecedented peak in late November following the devastation of Florida's citrus harvests by storms and illness.

As an essential component of chocolate, cocoa prices surged 64% this year to 46-year highs as West African supply was severely impacted by excessive rains and other problems, including fungal disease. 

While sugar prices have increased 13% in 2023 even after slowing rises since reaching a 12-year record in September, the robusta coffee varietal reached its highest pricing in 15 years on December 15.

El Niño and rising sugar prices are linked, according to Rabobank's Mera, since the weather pattern tends to make conditions drier than usual in key sugar-exporting nations like Thailand, India, and Australia.

There have been volatile food costs in the past. The world had enough food supplies it could draw from and was able to replace them in succeeding years, despite the fact that prices for basics like wheat and rice more than quadrupled in 2007 and 2008.

However, in the last two years, that buffer has narrowed, and as a result of climate change, food supply may very rapidly run out of demand, driving up prices, according to Glauber, a former top economist at the U.S. Agriculture Department.

Experts predict that three variables will interact to decide global food prices: the extent and duration of El Nino, crop damage caused by inclement weather and subsequent export limitations, and the outcome of Russia's conflict in Ukraine.

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