A powerful El Niño is strengthening in the Pacific, and its economic effects are already starting to show. The World Meteorological Organization expects it to strengthen further and peak near the end of the year, with an almost 100% chance that it will persist through February.
The reason markets care is that El Niño does not stay in the Pacific. It is a shift in the atmosphere system that spreads warm water eastward across the more tropical sections of the Pacific, weakening the trade winds that normally push warm surface water toward Asia.
That changes where heat and moisture accumulate, disrupting the jet stream and shifting rainfall, drought, heat and storms across different regions. For a global economy already dealing with climate change, wars and political upheaval, El Niño is mostly another headache. But not everywhere, and not for everyone.
The weather premium is here
Markets are already reacting. Since late June, corn prices have gone up about a third, while sugar has risen almost a quarter since late July, according to The Wall Street Journal. War-related disruptions in the Black Sea are also pushing corn prices higher, but traders are watching whether El Niño cuts production even more.
India is an especially important pressure point. Rainfall was 35% below normal in June and remained weak in August, leaving cotton, soybeans, corn, and rice vulnerable during important growing stages. Another dry month could also leave too little soil moisture for next season’s crops, which include winter wheat, rapeseed and chickpeas.
The disruption extends beyond fields. Peru has ended its anchovy season early as unusually warm water pushes the fish deeper, squeezing an important global source of fish oil and animal feed. Other species are shifting too, and prices for jack mackerel and corvina have reportedly doubled in some Peruvian markets.
And this all happens in an already expensive year. Global food prices rose in August to their highest level since 2022, according to the United Nations' Food and Agriculture Organization. Grain prices hit a three-year high and sugar reached its highest level in more than a year.
Some markets catch a break
Elsewhere, the pattern can have the opposite effect, and Argentina may be one of the clearest beneficiaries. El Niño often favors wetter conditions across one of the world's major exporters of soybeans, corn and wheat, and experts expect that to help its 2026-27 growing season. During the intense 2015-16 El Niño, Argentina produced its second-largest soybean crop on record and corn yields came in 7% above the previous decade's average.
More rain could also help energy markets in parts of South America. Southern Brazil and northeastern Argentina are expected to see wetter conditions that could increase hydroelectric generation. Southern Brazil's hydro basins got more than two and a half times their usual July rainfall, lifting reservoir levels ahead of the wetter conditions El Niño is expected to bring.
North American insurers could get some relief too. El Niño increases wind shear over the Atlantic, which can make hurricanes harder to form and strengthen. U.S. forecasters expect a below-average Atlantic season, which could mean a lighter year for catastrophe claims along American coastlines.
The upside is real, but it is uneven. Historically, the gains have not been enough to offset the broader economic damage. A 2023 paper in Science found that the economic damage from major El Niños can persist for years rather than disappearing once the weather pattern ends. The researchers estimated $5.7 trillion in worldwide losses from the 1997-98 event over the following five years, compared with contemporary estimates of about $36 billion in direct damage.
A separate estimate from one of the researchers puts the potential cost of this current El Niño at roughly $10 trillion over five years. That is not a consensus forecast, and an event this extreme is especially difficult to model.
The potential bill is larger in part because the global economy itself is much larger now, putting more economic activity and infrastructure in El Niño's path.
There will be winners, as there always are. For much of the economy, though, El Niño is more likely to add costs than reduce them.
