El Niño and Freight Costs Reshape Latin America's Commodity Trade
El Niño is firmly established with Oceanic Niño Index (ONI) levels above 2, and it is expected to last at least until February. This weather pattern typically reduces rainfall in eastern Australia, India, and northern Brazil, while increasing it in southern Brazil, northern Argentina, and Uruguay. In Brazil, El Niño years usually result in lower yields, particularly in Mato Grosso, which produces 29% of the country's soybeans. The closest recent analogue to this year’s strong event is 2015/16, when smaller producing states saw yield penalties of 40% to 60%.
The Panama Canal Authority has cut daily transits from 36 vessels to 32 due to lower-than-normal water levels in Lake Gatun. This restriction primarily affects grain ships, which carry low-value dry bulk cargo. The alternative route, avoiding the Panama Canal, takes 53 days compared to 35 days through Panama, potentially increasing costs for North American exports by up to 50%. South American exporters, unaffected by these constraints, benefit from shorter transit times.
China has committed to buying 25 million tonnes of US soybeans, but so far has only purchased just over 10 million tonnes. Kpler expects US ending stocks to be the lowest in 10 years, well below the US Department of Agriculture (USDA) forecast. Additionally, a second pledge to buy $17 billion of US agricultural products excluding soybeans was not reaffirmed in the latest meeting, raising questions about its fulfillment.
Latin American countries are taking the lead in corn and wheat exports. Argentina and Brazil are expected to export more corn to Asia than the US, with Argentina already surprising with record corn exports to South-East Asia this year. In wheat, Argentina harvested a record crop in December and has posted several record export months this year. Disruption in the Black Sea has increased demand for Argentine wheat in South-East Asia, a trend expected to continue into 2027.
Freight costs have become a central factor, taking over 40% of the delivered price of Brazilian iron ore in China. This rise is driven by a war-driven surge in bunker fuel costs and higher time charter rates. Kpler forecasts that bunker prices will stay well above pre-war levels in the medium term, with Capesize earnings for 2026 priced at just under $41,000 a day, down from about $24,800 in 2025.
War disruption has opened unusual trade routes. Colombian coal exports to Asia have risen despite high freight costs, while Russian Black Sea coal exports have collapsed. In copper, US stockpiling ahead of possible tariffs has reshaped flows, with copper cathode exports from Southern Africa to the US reaching about 300,000 tonnes from January to September.