El Nino's unpredictable impact on crops

MARIA: Welcome to Current Intelligence, a podcast from Signal Ocean AXS. Every day, millions of tonnes of cargo move across the world's oceans. At Signal Ocean AXS, we combine advanced shipping analytics, machine learning, and decades of market expertise to understand what those movements really mean. In each episode, we go beyond the numbers to explain what's happening, why it matters, and what we're watching next.

This is our episode 2, when agriculture meets energy. Last time, we followed a red rock from Guinea — bauxite — and showed how the energy crisis is quietly reshaping dry bulk through the metals of the electric age. If you missed that one, go back and listen — because today is the other side of the same coin. The energy crisis didn't stop at metals. It has now reached the most human commodity of all — our food.

We tend to treat agriculture as a weather story — rainfall, harvests, yields. But in 2026, it's become something bigger. It's sitting right at the crossroads of two global forces: geopolitics on one side, and weather on the other. The disruption in the Arabian Gulf has already reshaped fertilizer trade. And now, El Niño has officially developed in the tropical Pacific, with conditions expected to strengthen through the second half of 2026. Put those two together, and the effects reach well beyond the farm: into commodity flows, shipping demand and, ultimately, food prices.

I'm Maria Bertzeletou, Senior Market Analyst at Signal Ocean AXS. And to dig into the numbers with me, I'm joined by our Senior Commodity Analyst, Luke Nickels. Luke, welcome.

LUKE: Thanks, Maria — glad to be here.

MARIA: So — the second quarter gave us two very different stories. Soybean shipments rose almost 15% year-on-year, to 57.7 million tonnes, while corn was also up by around 15%, reaching 45.6 million tonnes. Fertilizer moved in the opposite direction, with shipments down nearly 12% year-on-year. Luke, let's start with the grains. What was behind that increase?

LUKE: Record supply, essentially. Brazil harvested another record soybean crop — around 180 million tonnes, up roughly 5% on the year, on a bigger planted area. That's what pushed global soybean shipments up almost 15%. Corn was a similar story, up about 15%, but more broadly sourced — stronger exports from the US, Argentina and Ukraine.

MARIA: And that's where the soybean story gets really interesting. More than 80% of seaborne soybean shipments originated from Brazil last quarter, and around two-thirds of those volumes were heading to China.

LUKE: It is. Brazil at 80% of origins, China around 66% of imports, with the US a distant second exporter. So soybeans right now are very much a Brazil-to-China axis.

MARIA: Corn looks quite different, though — much more diversified.

LUKE: Much more. The US was the biggest single origin, but only about 43%, with Argentina and Ukraine both up strongly. And the buy side was very diversified — the 'rest of world' bucket took the bulk, up more than 7 million tonnes. So corn is a broad, many-to-many trade; soy is concentrated.

MARIA: And then fertilizer went the other way — down 11.7%, to just under 49 million tonnes. What stands out is where that decline came from. Saudi exports roughly halved, falling by about 2 million tonnes over the quarter. And on the demand side, Brazil — the world's largest importer — took around 3 million tonnes less. So Luke, are we looking at weaker demand here, or is this really a supply story?

LUKE: Exactly. Farmers didn't suddenly need less. Saudi exports dropped sharply on the Gulf disruption, and Brazil pulled back after buying heavily earlier in the year. So you had a supply shock and a soft patch in the number-one buyer at the same time. Interestingly, Russia held its share — over 20% of origins — and India actually stepped up its buying.

MARIA: So one quarter, three very different stories: strong grain flows out of the Americas, a pullback in Brazilian fertilizer buying, and a sharp drop in Saudi fertilizer exports. And that last one takes us straight to the Gulf. The Gulf is a much bigger part of the fertilizer story than many people realise.

LUKE: It is. The Gulf is one of the world's key fertilizer-exporting regions. When Saudi exports fell, buyers had to source elsewhere. Trade patterns adjusted, voyages changed — some importers delayed, others leaned harder on Russia.

MARIA: The scale here is important. The Gulf accounts for roughly a third of the world's urea exports. When Hormuz closed, fertilizer flows out of the Gulf were hit hard — observed fertilizer shipments through the Strait fell close to zero. Oil has at least some ability to bypass Hormuz through pipelines. Fertilizer doesn't have that same escape route.

LUKE: Exactly. Those cargoes can't simply take another route. They're either delayed or buyers have to replace them from somewhere else. You can see that shift in our own data: Russia accounted for more than 20% of fertilizer origins in the quarter, while India kept buying even as Brazil pulled back.

MARIA: This is where the energy connection really matters. Fertilizer is, in many ways, energy in another form. Natural gas is the main feedstock for nitrogen fertilizer and can account for more than 70% of the cost of producing ammonia. Then there's diesel powering farm machinery and trucks, and shipping moving the product around the world. So when energy gets more expensive or harder to move, agriculture feels it too.

LUKE: Exactly. Agriculture is one of the most energy-intensive supply chains there is, which is why changes in energy markets can feed through so quickly.

MARIA: But there's an interesting twist in the price story. After surging earlier in the year, fertilizer prices pulled back sharply in June — the World Bank's fertilizer index fell more than 20% in that month alone. So Luke, does that mean the pressure is starting to ease?

LUKE: Not necessarily. Prices came off the earlier highs, but that doesn't mean the underlying risks disappeared. The market is still exposed to disruptions in supply, trade restrictions and what happens in the Gulf.

MARIA: So the bigger point is that the Gulf crisis doesn't stop at energy. It reaches into fertilizer, into transport costs, and ultimately into agriculture. But geopolitics is only half of this story. The other half is weather — and that's where El Niño comes in. El Niño is here, and NOAA expects it to strengthen considerably through the end of the year. There's a high chance this will develop into a very strong event — potentially placing it in the same historical category as the major El Niños of 1997–98 and 2015–16. Luke, we've seen what events like those can do. Where do you start looking for the impact on agriculture?

LUKE: The first thing you look at is rainfall, because El Niño can shift rainfall patterns across some of the world's major growing regions. It doesn't affect every crop or every country in the same way — some regions become drier, others wetter — but it changes the conditions farmers are planting and growing into. That's where you start to see risks around crops such as wheat, rice, corn, soybeans, sugar and palm oil.

MARIA: What makes this particularly interesting for trade is the geography. Take Australia: El Niño is often associated with drier conditions, which can put wheat production under pressure. Across parts of South and Southeast Asia, rainfall becomes a concern for crops such as rice and palm oil. Move across to South America, though, and you can get a very different picture. Southern Brazil and Argentina often see wetter conditions, which can actually be supportive for soybean and corn crops. So El Niño doesn't simply mean a smaller global harvest.

LUKE: Spot on. It fundamentally alters the map of agricultural production. While certain areas face losses, others stand to gain, shifting global sourcing patterns for these crops.

MARIA: Which is where it becomes particularly interesting for shipping. If production shifts from one exporting region to another, the trade doesn't necessarily disappear — it moves. You can end up with a different origin, a different route and, depending on where the replacement supply comes from, a very different voyage length.

LUKE: Precisely. Markets don't delay until final harvest volumes are locked in. The moment weather risks become apparent, expectations for trade and production begin shifting well before crops are actually harvested.

MARIA: So the question for the 2026–27 crop cycle isn't simply whether El Niño produces more or less food globally. It's about where production shifts, who steps in to fill the shortfall, and what that does to trade routes. So far we've looked at these as two separate forces: the Gulf on one side, El Niño on the other. But Luke, what happens when they start to overlap?

LUKE: That's when it becomes more complicated. The Gulf disruption affects the inputs farmers depend on — fertilizer, fuel and transport — while El Niño adds uncertainty on the production side. Neither one automatically means a bad harvest. But when input costs are under pressure at the same time as weather becomes less predictable, farmers have less room to absorb another shock.

MARIA: So it's not simply a case of higher costs and lower yields. It's about having several parts of the supply chain under pressure at the same time. A farmer can adjust to expensive fertilizer. A grain buyer can respond to a poor crop in one region by sourcing somewhere else. But once fertilizer, fuel, weather and trade routes all start moving together, those adjustments become harder.

LUKE: Exactly. You don't need a global crop failure to change the trade. If one major exporter has a weaker harvest, buyers start looking elsewhere — and another origin can step in.

MARIA: For shipping, that's where it gets interesting. It's not just how many tonnes move, but where they move from. A change in origin can alter voyage distances, the timing of cargoes and where ships need to position. So even if global grain trade holds up, the shipping demand behind those tonnes can look quite different. And perhaps that's the thread running through this whole episode: energy changes the cost and availability of the inputs; weather can change where the crop is produced; and shipping sits between the two, adjusting as the trade map moves. So Luke, when you put all of this together, where do you see the biggest impact for the freight market?

LUKE: For me, it's the shift between origins. If weather changes the export balance between South America, North America, Australia or the Black Sea, you're changing where the employment is coming from — and potentially the vessel requirement behind it.

MARIA: We've already had a taste of that this year. In the second quarter, East Coast South America-to-Far East shipments more than doubled from Q1, with China remaining the main buyer. As cargo demand built, prompt Panamax tonnage became more competitive around the key loading areas. So even before El Niño becomes part of the equation, we've seen how quickly a strong export programme can change the regional freight balance.

LUKE: And that's the part to watch. The current outlook still has more than 500 million tonnes of cereals moving globally in 2026–27 — but underneath that headline, the picture varies quite a bit by commodity and origin. So it's not only about how much trade there is. It's about which exporters capture it.

MARIA: Fertilizer gives us a different dynamic. Global dry-bulk fertilizer shipments were estimated to be down around 12% year-on-year in the second quarter, largely reflecting the disruption to Gulf supply. So grain and fertilizer are coming at the freight market from different directions: grain through a potential shift between exporting regions; fertilizer through a disruption to the physical supply chain.

LUKE: But both ultimately feed into the same freight question: where ships are needed, when they're needed, and what that does to regional tonnage availability.

MARIA: So let's finish with what we're watching from here. For me, there are four signals. First, fertilizer exports out of the Arabian Gulf and what happens to flows through Hormuz. Second, the weather across the major growing regions as El Niño develops. Third, fertilizer and energy costs. And fourth, whether the big grain importers start changing where they buy from. Luke, would those be your four as well?

LUKE: Yes, because you really need to watch them together. One tells you about the cost and availability of the inputs, another about the crop itself, and then the trade flows tell you how buyers and sellers are responding.

MARIA: The bigger uncertainty sits in 2027. If El Niño begins materially changing production across the major growing regions while fertilizer and energy costs remain elevated, the effect won't necessarily be fewer tonnes moving. What matters for shipping is where those tonnes come from. A shift between Brazil, the US, Australia or the Black Sea changes voyage distances, vessel positioning and ultimately tonne-mile demand. And over all of that sits the Gulf: what happens to fertilizer flows through Hormuz remains one of the key variables.

LUKE: Agreed — strong grain flows now, and rising uncertainty into 2027.

MARIA: So the takeaway isn't really about crops. It's about how energy, weather and trade have become one connected system. Last week it was bauxite and the metals of the electric age. This week it's fertilizer, grain and the weather. Same crisis — different cargo. The Arabian Gulf has already redrawn fertilizer flows; now the weather may decide what happens next. We'll be tracking all of it across the Signal Ocean platform. And if you're new to the show — go back and listen to Episode 1. It's where this whole thread begins. Luke, thank you for joining me.

LUKE: Thank you, Maria.