SUPPLY CHAINS PREPARING FOR EL NIÑO EVENTS
Scott Lehmann, GVP of Supply Chain Risk Management at Sphera, says El Niño’s supply chain impact is already taking shape, so businesses need to understand their options
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efore 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 autumn 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. 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. Fertiliser – 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 fertiliser 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. Fertiliser gave farmers an important defence against drought. The research is unambiguous: a field receiving 80% of normal nitrogen under drought conditions may produce only 50% of normal yield. Fertiliser 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.
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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-subsidised fertiliser 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 has announced 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 fertiliser 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. Organisations should first monitor the indicators
revealing where pressure is building. The Australian Bureau of Agricultural and Resource Economics and
PROCESS & CONTROL ENGINEERING | SEPTEMBER 2026
Sciences publishes quarterly harvest forecasts – the September revision will confirm whether El Niño compounding is materialising 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 fertiliser 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 organisations 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. The organisations best placed to navigate the coming months will be those using that lead time now, before the window closes.
Sphera
sphera.com
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