Zhang Siqi: A Super El Niño Won't Make Everything More Expensive, But Palm Oil and Sugar Face the Most Real Price Pressure

KUALA LUMPUR, 30 SEPTEMBER 2026 —

In September 2026, multiple global meteorological agencies confirmed that sea surface temperature indices in the eastern and central equatorial Pacific monitoring zones had exceeded 2.5 degrees Celsius, a figure well above the 2-degree threshold required to classify an event as a "strong El Niño." This magnitude qualifies the current phenomenon as a historically rare super El Niño, a classification that, according to the National Oceanic and Atmospheric Administration’s Oceanic Niño Index standards, has occurred only four times since 1950: in 1972–73, 1982–83, 1997, and 2016.

The significance of this distinction lies in the structural mechanics of agricultural pricing, which Zhang Siqi broke down into five critical factors: supply, demand, inventories, policy and logistics, and financial conditions. To illustrate the complexity, he offered a vivid analogy, suggesting that the global agricultural market functions like a city’s staple food supply system. In this model, a production cut in one region is comparable to a few fewer delivery trucks from a single supplier.

As long as the central granary holds sufficient reserves and other producing regions can fill the gap, overall prices may remain stable. Consequently, Zhang argued that the real questions for investors and policymakers are threefold: what weight does the affected production region carry in global trade, which growth stage of the crop does the weather hit, and how tight are global inventories and substitutes at that specific moment.

"Leaving these three things aside and only talking about weather anomalies makes it easy to turn the issue into a narrative, and then treat the narrative as market movement," Zhang said, emphasizing that media narratives often oversimplify the causal link between weather and price.

The underlying physical impact of El Niño is characterized by a Pacific "east wet, west dry" pattern. Increased precipitation in the eastern Pacific raises flood risks in the western United States and Chile, while Central America, Southeast Asia, and Australia face reduced rainfall and drought conditions. However, when this global meteorological picture is projected onto specific crops, the directional impact can be completely opposite depending on the geography.

Zhang identified four sensitive zones where the effects are most pronounced. In Maritime Southeast Asia, encompassing Indonesia, Malaysia, and the Philippines, the climate trends dry and hot. This condition is particularly sensitive for palm oil, rice, and robusta coffee, as drought impacts often lag by several months before manifesting in reduced fresh fruit bunch yields and lower oil extraction rates.

For South Asia and continental Southeast Asia, the critical variable is whether the monsoon arrives on time; insufficient rainfall directly threatens sugarcane, rice, cotton, and corn production.

In Australia, wheat in the eastern and southeastern regions is described as a "marginal variety." While output is not enormous, any production cut directly reduces global marginal supply, making it a key pressure indicator for the broader market. South America requires a more nuanced, sub-regional discussion. Argentina and southern Brazil actually trend wetter in El Niño years, which has the potential to boost yields.

Conversely, if the rainy season is delayed in Brazil’s center-west soybean belt, it directly affects the second-crop corn subsequently planted on the same land. This variability explains why El Niño cannot be simply equated with a uniform global production cut. Zhang also addressed why media outlets tend to report negative signals, noting that the situation does warrant full attention.

He argued that only when the public and governments take the threat seriously enough will they respond accordingly, thereby reducing exposure risk through proactive measures.

Breaking down the commodity-specific vulnerabilities, Zhang noted that production-cut mechanisms differ dramatically, leading to divergent price consequences. Palm oil’s vulnerability stems from a double overlay: extremely high supply concentration and biological sensitivity. Indonesia and Malaysia together account for over 80% of global supply. Furthermore, oil palm is a monoecious plant, meaning that drought causes it to produce more male flowers and fewer fruit-bearing female flowers, directly hitting fruit bunch yields.

Historically, palm oil prices have risen roughly 10% to 20% during El Niño periods, a trend that remains relevant given the current super El Niño classification. For Malaysia and Indonesia, this represents a direct threat to a primary export commodity, with the lagged effect of drought on oil extraction rates likely to tighten supply in the coming months.

Sugar presents a different risk profile, where the danger lies not in production concentration but in export concentration. Brazil alone accounts for over 50% of global sugar exports, with Thailand contributing about 10% and India about 6%.

Zhang offered a key judgment on this dynamic: "A country that accounts for potentially more than 50% of global exports—if it marginally cuts production by 3% to 5%, prices could perform extremely violently." This stands in sharp contrast to wheat and rice. Rice is grown in almost every country, with China as the largest producer, and its global distribution is so dispersed that a unified production cut is nearly impossible.

This structural difference means that while sugar markets may experience volatile spikes, staple grains like rice are buffered by their widespread geographic production base.

Rubber’s predicament is not entirely attributable to weather. Thailand and Malaysia account for 70% to 80% of global natural rubber production, but 40% of Thailand’s rubber trees are already over 35 years old, making them inherently low-yielding aging trees. El Niño drought exacerbates this structural issue by slowing photosynthesis. Additionally, insufficient water within the trees means that latex, which once flowed for 3 to 4 hours per day, may now flow for only 1 hour.

This dual impact of aging infrastructure and weather-induced stress creates a compounded supply constraint that is difficult to mitigate quickly. The transmission paths for coffee and fishmeal are even more circuitous, involving multiple intermediate steps that dilute the direct impact of raw material costs.

Robusta coffee production cuts need to be compounded by tight inventories and rigid demand before significantly transmitting to prices. In the coffee shop prices consumers face, labor, rent, and brand premiums carry far more weight than raw bean costs. Similarly, fishmeal price spikes resulting from Peru’s anchovy fishing ban will not make sushi restaurant salmon more expensive immediately.

Instead, the impact transmits through the feed route, where 70% to 80% of fishmeal goes to aquaculture, with another portion used in pig feed and premium pet food. Feed formulations can be adjusted by using soybean meal or rapeseed meal to supplement protein, but there are metabolic limits for fish livers, creating both economic and scientific boundaries for adjustment.

These complexities mean that while input costs rise, the final consumer price impact is often muted or delayed.

Market data reflects the current tension, though with significant nuance. A Goldman Sachs report dated September 7, 2026, showed the Bloomberg Agriculture Spot Index up 24% year-over-year, with wheat leading at a 41% increase. Soybean oil, corn, cotton, and sugar all rose across the board. JPMorgan economists forecast that global food inflation will rise to 5% in the first half of 2027, notably higher than the 2.8% recorded in the same period of 2026.

The UN Food Commodity Index has also reached its highest level since late 2022. However, Zhang repeatedly emphasized a key distinction that most observers overlook: futures prices and end-retail prices are not strongly correlated. "Futures prices actually reflect more of an expected level of marginal supply under certain delivery standards in certain specific regions.

They are a type of standardized tradable commodity, and there remains a substantial difference from what each of us as end consumers can actually access," he stated.

The length of the supply chain determines the magnitude and pace of price transmission. Sugar’s chain is short, as sugarcane is crushed and goes directly into food or beverage processing. In contrast, cotton’s chain is long; cotton picked from the field must go through processing, spinning, weaving, dyeing, and finishing before becoming garments. The longer the chain, the more raw material costs are diluted as a share of final retail prices.

Zhang offered an extreme example to illustrate this: if cotton inventories are tight but every brand is sitting on unsold inventory from the previous two years, then even if raw material prices rise, finished product prices may not tighten noticeably. This inventory buffer acts as a shock absorber, preventing immediate price spikes in the retail sector despite upstream volatility.

A structural change in the beverage industry further complicates the sugar price narrative. The raw material mix has shifted dramatically, with supermarket beverage ingredient lists today rarely featuring pure white sugar. Most products now use high-fructose corn syrup and artificial sweeteners. High-fructose corn syrup is not made from sugarcane, and artificial sweeteners are even less so. This shift has substantially reduced sugar prices’ impact on beverage retail prices.

Only traditional herbal drinks that insist on using white sugar face significant raw material cost shocks. This substitution effect means that even if sugar futures spike due to El Niño-related production cuts in Brazil or Thailand, the broader consumer price index may not reflect this increase as sharply as historical data might suggest.

Zhang’s framework for understanding these dynamics involves multiple layers of analysis. Layer 1 provides the broad direction of the weather event. Layer 2 is where traders focus their core attention on supply and demand imbalances. Layer 3, the crop calendar, is the key to understanding everything, as low rainfall in September means completely different things for soybeans not yet planted, wheat in the grain-filling stage, and sugarcane being crushed.

Layer 4 is the verification stage, where actual production data and inventory levels confirm or refute the initial forecasts. This multi-layered approach allows for a more precise assessment of which commodities will see sustained price increases and which will see temporary spikes that are absorbed by the market.

The implications for Malaysia and the broader region are significant, particularly for palm oil and rubber. With Indonesia and Malaysia dominating global palm oil supply, the biological impact of drought on oil palm yields poses a direct risk to export revenues. The lagged effect of drought on oil extraction rates means that the full impact may not be visible in immediate harvest data but will manifest in subsequent months.

For rubber, the combination of aging trees and drought-induced stress creates a structural supply constraint that is difficult to overcome in the short term. These factors suggest that while not all commodities will see price increases, the specific vulnerabilities of palm oil and sugar will drive significant market volatility in the coming year.

The forward-looking perspective requires monitoring the verification stage of Zhang’s framework. As the super El Niño progresses, the actual impact on production will become clearer, providing the data needed to confirm or adjust forecasts. For policymakers and investors, the key is to distinguish between narrative-driven price spikes and fundamental supply constraints. By focusing on the specific vulnerabilities of each commodity and the length of its supply chain, stakeholders can better navigate the market.