Dual Crisis: Fertilizer Squeeze and Strong El Niño Threaten Brazilian Coffee, Rice, and Wheat Prices

Brazilian agricultural markets are on high alert as the confluence of a global fertilizer supply crisis and a high probability of a very strong El Niño event threatens significant domestic and global price inflation for key commodities, including coffee, rice, and wheat. The dual threat could trigger sharp supply shocks and price volatility that is not yet fully reflected in futures markets, with some analysts warning of significant price pressure for highly exposed staples like coffee (CCF/BRL) and rice.

The input cost pressure stems from Brazil’s extreme dependence on foreign nutrients, importing 92% of its total fertilizer consumption. Disruptions to global logistics, notably through the Strait of Hormuz, have caused price spikes, with local urea prices in Brazil jumping by approximately 35%. This surge in costs has severely eroded farm margins at a critical time: only 40% to 45% of the fertilizer required for the upcoming 2026/27 crop season has been secured by Brazilian producers, a pace significantly slower than typical mid-year coverage. Faced with tighter economics, producers of lower-margin crops, such as rice and some wheat varieties, are likely to reduce application rates, which risks lower yields and a reduction in market availability, effectively compounding a supply-side squeeze.

This input crisis is set to collide with adverse weather as the U.S. National Oceanic and Atmospheric Administration (NOAA) confirms an 81% probability of a very strong El Niño developing between October and December 2026. While El Niño's impact varies regionally, the effect on Brazil's agricultural calendar is expected to be disruptive. For the South, the phenomenon typically brings excessive rainfall, which poses a risk to the quality of the winter trigo (wheat) harvest and can delay field work. Simultaneously, the critical Center-West and Southeast regions face irregular rainfall and delayed starts to the rainy season, which could compress the planting window for soybeans and the subsequent safrinha corn crop. Current weather data supports the dry threat, with key regions like Sorriso (MT), Rio Verde (GO), and Luís Eduardo Magalhães (BA) all recording near-zero rainfall over the past seven days and up to seven consecutive dry days. Coffee production in the Southeast is also considered to be specifically at risk from these altered weather patterns.

The convergence of costly, scarce fertilizer and extreme weather elevates the risk of significant production losses, especially for crops with existing structural deficits. Historically, strong El Niño events have been linked to massive commodity price volatility, with the last major event coinciding with a significant price rally in cocoa. This historical context highlights the potential for sharp market movements in sensitive soft commodities under similar conditions. The uncertainty is leading to a cautious stance among farmers regarding forward sales and planting decisions. Speculative positioning in futures markets for soybeans, corn, and coffee already shows a net long bias, indicating a market bracing for potential supply constraints.

Investors monitoring the Brazil agribusiness sector should watch two key indicators for the rest of the year: the rate of fertilizer delivery to the ports of Paranaguá and Santos, which will signal whether the supply bottleneck is easing, and the timing of the onset of regular rains in the Center-West, which determines the planting success for the 2026/27 cycle. The market will be pricing the dual-threat risk with increasing urgency as the October planting window approaches.