Strategists Warn Climate Volatility Is Being Underpriced Across Commodities

According to CNBC, commodity strategists say markets are underestimating the impact of climate volatility across asset classes as Europe endures extreme heat and meteorologists warn of a strong El Niño between July and September this year. The World Meteorological Organization expects the event in the tropical Pacific, and analysts say the resulting heat, drought and heavy rain could disrupt commodity bets unevenly, with some markets rising and natural gas potentially falling if the northern winter is warmer than usual. Societe Generale said agricultural commodity prices have climbed 7% this month, while softs including cocoa, coffee and wheat have gained 8% over the past week. U.S. Department of Agriculture data showed food prices were 3.1% higher year-on-year in May. Man Group said food inflation could reach double digits by 2027, and portfolio manager Albert Chu said crop yields could fall 5% to 12% in affected regions, while rice could decline 2% to 8%. Bank of America analysts said Europe is warming faster than any other continent and identified coffee, cocoa, corn and wheat as crops most exposed to higher temperatures. They said corn remains undervalued and expects the new-crop price to rise from about $4.70 now to $5.50 to $6.00. The bank also said sugar output in Brazil and Thailand is likely to plunge 10% in 2026-27 because of El Niño-related effects. Chu also said copper production can be squeezed by heat and drought, while aluminum smelters face tighter competition for power and water.