When the weather turns: what El Niño could mean for South Africans, food prices and markets
By Kim Zietsman, Laurium Capital
Markets rarely move for one reason alone.
In any given week, investors may be trying to make sense of the AI boom, conflict in the Middle East, oil price swings, interest-rate expectations, rand volatility and company earnings.
Add a changing weather pattern to the mix, and the noise can feel overwhelming.
Yet for South Africans, the risk of El Niño is not just a weather story.
It is an agricultural story, a food-price story, an inflation story and, ultimately, an investment story.
At Laurium Capital, we believe one of the key disciplines of investing is being able to look through short-term noise and identify the longer-term forces that matter.
Weather patterns may affect crop yields, input costs, consumer spending, inflation, interest rates and company profits, creating both risks and opportunities for active investors.
El Niño: more than a weather event
El Niño refers to the warming of sea surface temperatures in the central and eastern Pacific Ocean.
Last week the Japan Meteorological Agency (JMA) issued a warning that El Niño conditions had formed across the equatorial Pacific.
The JMA expects the phenomenon to continue through autumn.
It is the first El Niño since 2023 and could be one of the strongest on record, with a 63–67% chance it evolves into a very strong event later in the year.
Although it begins far away from South Africa, it may influence rainfall and temperature patterns across the world.
In Southern Africa, El Niño is typically associated with hotter and drier conditions during the summer rainfall season.
Current forecasts suggest that the region may be moving from the wetter La Niña conditions of recent seasons towards a possible El Niño phase in the 2026/27 summer crop season.
The Agricultural Business Chamber of South Africa has noted that South Africa has benefited from two consecutive seasons of favourable production conditions, with summer grains and oilseeds production estimated at 20.3 million tonnes in the 2025/26 season, only slightly below the prior year’s strong harvest.
A shift to El Niño could increase the risk of below-average rainfall and lower agricultural output in the season ahead.
However, the predictability and severity of any El Niño event is still uncertain.
Forecasts made around the Northern Hemisphere spring should be treated with caution, as El Nino Southern Oscillation (ENSO) models are often less reliable during the so-called “spring predictability barrier”.
Put simply, the Pacific climate system is usually in transition between March and May, which makes forecasts less dependable until more data becomes available later in the year, and the June data is yet to be released.
This does not mean the risk should be ignored, but it does mean investors should avoid drawing firm conclusions from a single weather forecast or headline.
The farming channel: where the first impact is felt
South Africa’s summer crop areas are particularly important because they produce staples such as maize, sunflower seed, soybeans, sorghum and dry beans.
Maize is especially significant: it is a staple food for millions of households, a key input into animal feed and an important driver of food-price expectations.
In a favourable rainfall season, strong harvests may help keep local grain prices contained.
In a drought cycle, however, lower yields may reduce exportable surpluses, tighten domestic supply and push local prices higher.
This can move through the value chain into maize meal, bread and cereals, poultry, beef, dairy and other protein products where feed costs are a major component.
Farmers also face input-cost pressure from fuel, fertiliser, electricity, labour and transport, all heightened by the ongoing war in the middle East which even were it to be resolved shortly is forecast to have effects well into 2027.
If elevated global oil or fertiliser costs coincide with poor rainfall, the squeeze becomes more severe.
This is why El Niño should not be viewed in isolation.
It arrives in a world already dealing with geopolitical risks, energy uncertainty and shifting global trade dynamics.
The weather may be local, but the cost pressures are global.
However, it is important to note that a strong El Niño also does not automatically mean a poor harvest.
The outcome will depend on several practical factors such as soil moisture at planting, and the timing of the rainfall.
What it means for food prices and households
For South Africans, the most visible impact of a poor agricultural season is often felt at the grocery till.
Food inflation affects all households, but lower-income consumers feel it most acutely because food makes up a larger share of their monthly spending.
A rise in basic staples such as maize meal, bread, cooking oil, meat, eggs and dairy can therefore have a meaningful effect on household budgets.
If El Niño results in a materially weaker crop, food-price inflation could become stickier than expected.
That would complicate the inflation outlook and may influence interest-rate expectations, adding pressure on consumers already dealing with high living costs.
The pass-through from farm prices to retail prices is not always immediate.
It can take months for higher grain prices, fuel costs and transport costs to filter through the supply chain.
There are also buffers: existing stock levels, imports, retailer pricing strategies and the rand exchange rate can all influence the final outcome.
South Africa currently has good grain inventories – if these are healthy at the start of the season, a weaker crop may not necessarily lead to immediate shortages or sharply higher food inflation.
From the farm to the JSE
In financial markets, the most direct effects are on agricultural commodities and companies exposed to farming, food production, food retail, logistics and consumer spending.
A poor harvest can affect grain prices, food producers’ margins, livestock feed costs and the disposable income of consumers.
There are also broader macroeconomic implications.
If food inflation rises, headline inflation may become more difficult to contain.
That can influence the South African Reserve Bank’s interest-rate decisions, the bond market and the rand.
A weaker currency can then increase the cost of imported food, fuel and inputs, creating a feedback loop.
At the same time, markets are never one-dimensional.
While El Niño may pressure certain sectors, other forces may drive opportunities elsewhere — from the AI investment cycle and geopolitical risk to commodity prices, interest rates and rand weakness.
Protecting capital through the cycle
Periods of volatility are uncomfortable, but they are also part of investing.
The role of a disciplined investment manager is to build portfolios that can withstand uncertainty while remaining positioned to capture opportunity.
That means diversification across sectors, geographies and sources of return.
It means avoiding excessive concentration in a single theme.
It means being valuation-conscious when markets become euphoric and being prepared to act when fear creates attractive entry points.
Protecting capital is not the same as avoiding all volatility.
In equity markets, volatility is often the price investors pay for long-term returns.
The objective is to ensure that clients are not permanently impaired by the inevitable ups and downs of markets.
At Laurium Capital, we believe this is where thoughtful, research-driven investing can add value: by protecting client capital through uncertain periods, staying alert to changing risks, and identifying quality investments that can compound value over time.
The bigger lesson
El Niño is a reminder that markets are connected to the real world.
Rainfall patterns affect farmers, food supply, inflation, interest rates, consumers, companies and asset prices.
The challenge, and the opportunity, is to separate signal from noise.
For information on Laurium’s fund offering, please contact [email protected] or visit www.lauriumcapital.com.
Laurium Capital is an authorised financial services provider (FSP 34142).
This article is published for information purposes and does not constitute financial advice. Past performance is not necessarily a guide to future performance. Investors should consider their individual circumstances and seek appropriate professional advice.
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