By Scott Lehmann, GVP of Supply Chain Risk Management at Sphera
Before even reaching its peak, El Niño is already having visible impacts on supply chain operations. Crucially for businesses, the phenomenon develops in a relatively predictable sequence, meaning there are warning signs to act on before the disruption intensifies. The mechanism is straightforward: the trade winds that normally push warm Pacific surface water westward weaken, allowing sea surface temperatures to rise across the central and eastern Pacific. The result is shifting rainfall patterns and an increased risk of drought across Australia, Southeast Asia, and Central America.
The National Oceanic and Atmospheric Administration’s (NOAA) August diagnostic discussion now puts a greater than 90% chance on a very strong event during fall and winter 2026-27, with a 69% probability of a historic event that would exceed the strength of every El Niño on record since 1950. The event is strengthening faster than forecast. Businesses that were preparing for a significant El Niño are now facing the probability of an unprecedented one.
Why 2026 breaks the usual pattern
Across fifty years of recorded El Niño events, the 1997-98 event alone is estimated to have cost the global economy $5.7 trillion in lost GDP. Previous events give businesses some indication of where disruption could emerge, but the conditions surrounding this one are different. Fertilizer — a key tool farmers use to offset drought stress — is already under severe pressure before the event has reached its peak.
East Java shows precisely why access to fertilizer matters during an El Niño. In 2023, farmers faced a 91% farmland water deficit, but increased nitrogen application helped them maintain crop production despite the severe water stress. Fertilizer gave farmers an important defense against drought. The research is unambiguous: a field receiving 80% of normal nitrogen under drought conditions may produce only 50% of normal yield. Fertilizer and drought multiply each other.
That buffer is now becoming much harder to access. Commercial shipping through the Strait of Hormuz has been effectively shut since late February, with tanker traffic down to a handful of vessels per day against a pre-crisis baseline of around 130. The closure has blocked approximately 21 million metric tons of annual urea export capacity. World urea prices have approximately doubled since February, and industry analysts are explicit that near-record prices will linger into spring 2027. Farmers could therefore face the strongest El Niño on record with significantly less access to the tool they have previously relied on to protect yields.
The evidence on the ground
Early signs of these pressures are already emerging across agriculture and shipping, giving businesses an indication of where disruption could build as El Niño intensifies:
- Australia: Australia’s winter crop outlook is already weakening, with production forecast to fall 21% and wheat area planted falling to its smallest level since 2019-20. Historically, El Niño has cut Australian wheat yields by 28% on average, a level current conditions are already approaching.
- Southeast Asia: Non-subsidized fertilizer prices for cash crops have more than doubled, while Indonesia is already recording falling rice output and some West Java farmers are considering skipping harvests. Palm oil, used widely across food and packaging, is also facing rising costs, creating supply-chain pressures that are yet to reach many downstream businesses.
- Shipping and freight: The Panama Canal is no longer a forward risk. The Canal Authority announced this week that daily transits will fall from 36 to 34 vessels from September 3, dropping further to 32 from September 15, as rainfall in the canal watershed runs 34% below its historical average for May through August. The authority has explicitly stated further restrictions are possible. Honduras has placed 80% of the country on drought alert. Before the Iran war, the average auction price for priority canal passage was $135,000. In April, one shipping company paid $4 million to jump the queue. The canal handles 5% of global maritime trade and 40% of US container traffic. With Hormuz already contested, there is no clean alternative routing if both chokepoints tighten simultaneously and that scenario is now actively developing.
These pressures do not sit in isolation. Rising fertilizer costs feed into food prices, while shipping constraints add further cost and delays to many of the same supply chains. For businesses, the challenge is determining where those pressures could surface next across their own supplier networks, and whether they have enough visibility to act before they do.
How organizations can take action now
Organizations should first monitor the indicators revealing where pressure is building. The Australian Bureau of Agricultural and Resource Economics and Sciences publishes quarterly harvest forecasts — the September revision will confirm whether El Niño compounding is materializing ahead of commodity price moves. Panama Canal daily transit data is publicly available, and the trajectory from 36 toward the 22-transit floor seen in 2023-24 is the key signal to watch. Chinese fertilizer quota announcements and Russian quota extensions can move global urea prices by $100 per ton or more in either direction and are the most important near-term price signals in global food supply chains. The critical step is connecting these external warning signs to where a business is actually exposed.
With those signals in view, businesses can map where El Niño intersects their supply chains, identifying suppliers in exposed regions and critical materials reliant on single sources. That visibility needs to extend beyond direct suppliers. Exposure can sit at tier two or tier three, meaning disruption to a crop, material, or transport route may take time to reach a business even when the underlying risk is already developing. Food and beverage companies face the most direct exposure, while consumer goods and personal care businesses are also vulnerable given their reliance on palm oil.
Once those dependencies are understood, businesses can determine where intervention makes the greatest difference; engaging exposed suppliers earlier, assessing whether alternative sources are viable, or building flexibility around materials and transport routes where disruption is most likely. Not every risk can be removed, particularly where alternatives are limited. But earlier visibility gives organizations more time to understand their options before pressure reaches their own operations.
El Niño provides something businesses rarely get with supply chain disruption: advance warning. NOAA is now telling us this could be the strongest event since records began. The Panama Canal is already cutting capacity. The signs of where pressure is building are visible, and the full impact is still developing. The organizations best placed to navigate the coming months will be those using that lead time now, before the window closes.
