El Niño and Trade Disruptions Reshape Latin American Commodities Market

El Niño is expected to significantly impact South American agriculture through at least February, altering rainfall patterns across the region. Brazil, particularly its northern states, faces substantial yield penalties, with historical data showing losses of up to 60% in severe events like 2015/16. Mato Grosso, Brazil's largest soybean producer, could see a 4% to 5% yield drop, affecting global supply. The effects extend to South-East Asia, where corn imports are projected to hit a record high due to domestic crop shortages.

The Panama Canal's reduced capacity is increasing costs for North American exporters, as water level constraints limit daily transits to 32 vessels. This forces longer, more expensive routes to Asia, potentially raising costs by up to 50%. Meanwhile, US-China trade commitments remain uncertain, with China falling short of its soybean purchase pledge and facing challenges in meeting other agricultural import targets.

Latin America is emerging as a leading exporter of corn and wheat, with Argentina and Brazil poised to surpass the US in corn exports to Asia. Argentina's record wheat harvest and strong export performance are benefiting from disruptions in the Black Sea region. Brazil's soybean exports are expected to remain steady, though freight costs, now over 40% of the delivered price for iron ore, are squeezing exporter margins.

War-related disruptions are reshaping trade routes, with Colombian coal exports to Asia rising despite high freight costs. Copper trade flows are also shifting, driven by US stockpiling and sulphur shortages. While dry freight earnings are forecast to ease in 2027, they are expected to remain high by historical standards, supported by strong demand from West Africa and El Niño-driven coal trade.