Fertilizer and El Niño Shock Combines to Threaten 2027 Food Prices

The confluence of a major geopolitical supply shock to the global fertilizer market and a strong El Niño weather event is setting up a high-pressure scenario for the 2027 harvest, which is expected to spike commodity prices for essential crops like rice, wheat, and coffee. The crisis is twofold: ongoing geopolitical conflicts have severely disrupted the Strait of Hormuz—a crucial maritime corridor for approximately one-third of the global fertilizer trade, including 30-36% of global urea exports—and this disruption has caused input costs to surge just as Brazilian farmers begin their main planting window. This input scarcity, coupled with the projected El Niño weather pattern, translates directly into a high risk of lower crop productivity for the upcoming season, with price pressure working its way through supply chains into 2027.

The crisis is acutely felt in Brazil, which imports over 85% of its fertilizer needs. The disruption to the Strait of Hormuz has functionally closed the region as a reliable supplier of sulfur, an essential raw material for producing phosphated fertilizers. This sulfur scarcity and high prices led to domestic production cuts by major players and a steep slowdown in international procurement. Fertilizer arrivals at a key import hub, the Port of Paranaguá, fell by nearly 45% year-over-year between January and April. Consequently, farmers have only secured an estimated 40% to 45% of the nutrients required for the 2026/27 crop, a purchase pace significantly below historical norms for this time of year, as high relative costs deter advanced buying. The resulting lower application rates are expected to immediately compress yields.

Compounding the input crisis is the strengthening El Niño, which is expected to peak between late 2026 and early 2027. While Brazil's Arabica coffee regions are sometimes favored by El Niño-related moisture, the weather phenomenon poses a major threat to the 2027/28 coffee crop through irregular rainfall and higher temperatures that can damage development, a risk that has already introduced a weather premium to futures markets. The speculative market reflects this concern, with the net long position in COT coffee futures sitting at 52,395 contracts against 25,140 short contracts as of today. Furthermore, the dry conditions in key Brazilian farming states this week, such as Luís Eduardo Magalhães-BA, Rio Verde-GO, and Sorriso-MT, all reporting seven consecutive dry days, underscore the fragility of the current situation.

The price impact will extend beyond Brazil’s local commodity markets. Global wheat prices are anticipated to rise as El Niño typically brings drought to Australia, a major exporter, and excessive rainfall that threatens crops in Argentina. For global food security and processors, the most direct shock will be to rice, as the weather pattern drives drought across Asian growing regions, which account for the vast majority of the world's traded rice. The combination of reduced fertilizer application, which directly impacts yield, and the climatic stress of El Niño on major global producers, sets the stage for tighter supply and higher food processor costs through late 2027. Investors should monitor the progress of fertilizer coverage for the next harvest, as a failure to secure the remaining 55% to 60% of required nutrients will embed lower-yield forecasts into the B3’s agribusiness-exposed stocks and the broader Ibovespa (IBOV) performance.