Iran War Unresolved, "Super El Niño" Looms: Is a Global Food Price Surge Imminent?

The global agricultural product market is simultaneously facing two unprecedented pressures: the impact on fertilizer and energy supplies from the Iran war has not yet subsided, and meteorologists have issued warnings that a potentially exceptionally strong "super El Niño" weather event is brewing. If these two risks materialize simultaneously, global grain prices may experience the largest upward shock in years.

The US-Iran ceasefire agreement showed clear cracks less than 48 hours after taking effect. Due to Israel's continued airstrikes on Lebanon, Iran believes these actions violate the ceasefire terms, leading to disagreements between the two sides. Joe Davis, Director of Futures International's commodity division, stated that this dispute is "an escalation of the war from any angle." Wheat futures subsequently rose, with the highest gains reaching 0.7%, recovering some of the losses made after the ceasefire news was announced on Wednesday.

Meanwhile, climate scientists warn that a "super El Niño" phenomenon is gradually taking shape—US meteorologists estimate a roughly one-third chance of a "strong" El Niño event occurring between October and December this year, with European climate models giving an even higher probability. Chris Jaccarini, a senior analyst at Energy and Climate Intelligence Unit, stated that El Niño typically puts upward price pressure on cocoa, edible oils, rice, and sugar, and poses a broader threat to tropical-related commodities such as bananas, tea, coffee, chocolate, and soybean meal for meat.

An analysis released by the UN World Food Programme (WFP) last month warned that if the Iran war continues beyond June and oil prices remain above $100 per barrel, the number of people facing acute hunger globally could surge by 45 million, reaching the highest scale of crisis since the outbreak of the Russia-Ukraine conflict. This figure would be in addition to the 318 million already food insecure people worldwide.

Ceasefire Agreement Faces New Variables, Wheat Futures Rebound Under Pressure

Wheat is particularly sensitive to the Iran war among major agricultural products, largely due to its high dependence on nitrogen fertilizer. The Strait of Hormuz is one of the world's most crucial fertilizer trade routes, with about one-third of global seaborne fertilizer trade passing through it. Since the US and Israel launched airstrikes on Iran on February 28, shipping in the strait has been nearly paralyzed.

Joe Davis also pointed out that the persistent drought in the Great Plains and the continuous deterioration of crop conditions—as reflected in the US Department of Agriculture's (USDA) report released on Monday—are also supporting wheat's stronger performance relative to corn and soybeans. "Wheat's outperformance against corn and soybeans in the 'risk sentiment' rebound since the ceasefire low is a result of these two factors acting together," he said. According to a Bloomberg survey of analysts, the latest "World Agricultural Supply and Demand Estimates" (WASDE) report, due from the USDA on Thursday, is expected to show a decrease in US wheat inventories, providing further support for wheat prices.

Fertilizer Crisis Weighs Heavily on US Planting Season

The impact of the Iran war on the fertilizer market is particularly unfavorable in terms of timing, as it coincides with the full launch of the US planting season. The sharp rise in energy prices and fertilizer costs has made US farmers deeply concerned about this year's crop yields and food prices.

In a research report published at the end of March, UBS Chief Economist Paul Donovan noted that every surge in energy prices inevitably sparks concerns about rising food prices, because fertilizer production is an energy-intensive industry, and natural gas is used to produce some chemicals.

Dawid Heyl, Co-Portfolio Manager of Global Natural Resources at Ninety One, also admitted in a CNBC video interview that he is more concerned about the threat of food inflation from this Iran war compared to the previous Russia-Ukraine conflict. "My level of concern about this Iran war is far greater than that of the Russia-Ukraine conflict, primarily because of its direct impact on nitrogen fertilizer production and supply accessibility," he said.

Increasing Probability of "Super El Niño" Formation

European climate models indicate a higher probability of extremely strong or even "super" El Niño events than US forecasts, but such predictions are inherently uncertain due to the "spring barrier" effect. El Niño refers to the natural warming of sea surface temperatures in the eastern tropical Pacific Ocean; it is officially confirmed when sea temperatures in this region are 0.5 degrees Celsius above the long-term average. While "super El Niño" has no official scientific classification, it typically refers to an exceptionally strong phase where sea temperatures are at least 2 degrees Celsius above average.

Chris Jaccarini characterized this climate risk as a significant amplifier of current inflationary pressures. "Food prices are being squeezed from two ends: one end is extreme climate events disrupting production in major producing regions, and the other is the food system's heavy reliance on fossil fuels, making it highly exposed to rising costs of oil and gas, fertilizers, transportation, and packaging." he told CNBC via email:

"This is precisely why the prospect of a strong El Niño event is so alarming—it further amplifies risks in a climate system already destabilized by human emissions, pushing up inflation alongside high fossil fuel prices."

Paul Donovan also wrote in his report, "If a super El Niño weather pattern indeed emerges by 2026, drought and limited water resources at that time could pose a greater threat than nitrogen fertilizer shortages."

Dual Risks Overlap, Global Food Security Alert Sounds

If both the war impact and the climate impact materialize simultaneously, their combined effect will far exceed the impact of a single factor. Dawid Heyl was blunt about this scenario: "If two negative factors occur at the same time, the situation could be very difficult." He also pointed out that India, Australia, Brazil, and Argentina are all countries highly affected by El Niño, although they face different specific risks. The European Union also warned earlier this month that if an El Niño event occurs later this year, it will pose a significant drought threat to the main agricultural seasons in northwestern Ethiopia, South Sudan, and Sudan, "posing a major risk to major agricultural seasons."

Facing escalating food security concerns, Chris Jaccarini believes the core of the response lies in strengthening international cooperation, jointly pursuing net-zero emission goals, and having wealthy nations provide climate finance to agricultural producing countries with weaker climate response capabilities, to help farmers adapt to climate shocks and ensure food production and livelihoods. "In a context where traditional geopolitical partnerships are under strain, international cooperation is more important than ever," he said, "Reducing food price volatility depends on countries working together to achieve net-zero targets."