Latin America's commodity exporters face El Niño, costly freight and a shifting US trade picture

Key takeaways

• El Niño is firmly established, and Mato Grosso rainfall is the main swing factor for next year's soybean supply.
• US corn has lost its price advantage, and Argentina and Brazil are expected to export more corn to Asia.
• Freight took over 40% of the delivered price of Brazilian iron ore in China in September, against about 23% a year earlier.
• Dry bulk earnings are expected to ease in 2027 but remain high by historical standards.

El Niño shifts the balance for South American crops

El Niño is firmly established, with Oceanic Niño Index (ONI) levels above 2, and Kpler expects it to last at least until February. The weather pattern typically brings less rain to eastern Australia, India and northern Brazil, and better rainfall to southern Brazil, northern Argentina and Uruguay.

In Brazil, most states suffer yield penalties in El Niño years. Three northern states account for about 7% of national production but lose 15% to 17% of yield. 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 larger risk is Mato Grosso, which produces 29% of Brazil's soybeans. Its yield typically falls 4% to 5% in El Niño years, and it fell 14% in 2015. For soybeans, Mato Grosso rainfall is the key driver of next year's supply.

The effects reach beyond producers. South-East Asia is a large feed grain importer whose domestic crops do not appear in the global balance sheet, but corn imports in the region have jumped in each recent El Niño year. Kpler's 2026/27 import estimate for the region is a record, and it may still be too low.

Panama Canal restrictions raise costs for North American exporters

Lake Gatun water levels are lower than normal, though not as low as in 2023. The Panama Canal Authority has cut daily transits from 36 vessels to 32. Grain ships are among the first to be restricted because they carry low-value dry bulk cargo. On about one-third of days, no grain vessel crosses the canal at all.

A typical voyage from the US Gulf to China takes about 35 days through Panama. With Panama restricted and Suez closed, the alternative route takes 53 days. South American exporters are not affected by either constraint and take about 39 to 40 days. The difference could mean up to 50% higher costs for North American exports.

US-China trade commitments leave questions for the US balance sheet

China has bought just over 10 million tonnes of US soybeans against a commitment of 25 million tonnes. The market expects the pledge to be met, even though last week's meeting did not reaffirm it. But US soybeans are also competing for non-Chinese buyers at current prices. Kpler expects US ending stocks to be the lowest in 10 years and well below the US Department of Agriculture (USDA) forecast.

A second pledge, to buy $17 billion of US agricultural products excluding soybeans, was absent from last week's fact sheet. Even if China maximised purchases of cotton, meat and oil, it would need to buy at least 8 million tonnes of US corn to meet the target, and more than 10 million tonnes at current prices. The market rarely discusses this, but Kpler regards it as an outside risk.

Latin America takes the lead in corn and wheat

US corn was the cheapest in the world market for two years after the 2024 harvest, apart from brief competition from Argentina at harvest time. That has changed. Kpler expects Argentina and Brazil to export more corn to Asia than the US and is bearish on US corn exports. Argentina has already surprised with record corn exports to South-East Asia this year, and Brazil's October line-up shows shipments to Japan, which may be an early signal of higher Asian demand. Brazilian corn exports have been held back since 2023 by strong domestic ethanol demand and stock-building, but prices suggest that buying is slowing.

In wheat, Argentina harvested a record crop in December and posted several record export months this year. Kpler's production estimate for this season is the second highest on record. Disruption in the Black Sea, which supplies more than 30% of global wheat exports this season, has increased demand for Argentine wheat in South-East Asia, even though it is the off-season in Argentina. Kpler expects that support to continue into 2027. The impact on Latin American corn exporters is smaller, because Ukraine now sells mostly to neighbouring countries and Europe.

Brazil's soybean exports are expected to be similar next year, with a stronger peak season through the third quarter, provided that the crop is normal.

Freight is eating into exporter margins

Freight has moved from a background cost to a central factor. In September, freight took over 40% of the delivered price of Brazilian iron ore in China, or about $42/t, compared with about 23%, or $24.5/t, in September 2025. Two forces drove the rise: a war-driven surge in bunker fuel costs and higher time charter rates.

Very low sulphur fuel oil in Singapore was about $524/t on 27 February, before the Middle East war. It reached about $1,140/t on 10 March and was close to $880/t at the time of the webinar. Kpler's base case is that the Strait of Hormuz will not reopen on a large scale, and that bunker prices will stay well above pre-war levels in the medium term. Tight refining and higher fuel oil burn in power plants in Bangladesh and Egypt both reduce supply to shipping.

On the demand side, the Capesize 5TC average was $45,000 to $46,000 a day at the time of the webinar. About 200 laden Capesize vessels are in the Atlantic against a five-year average of 179. Much of that comes from West Africa, where bauxite exports were 43.5 million tonnes in the third quarter, up 7 million tonnes year on year, and iron ore exports were about 19 million tonnes, up about 10 million tonnes. Smaller vessels have also strengthened, helped by demand growth in coal and grains and by slow fleet growth in geared ships. Kpler forecasts 2026 seaborne coal trade growth of 2.8% (37 million tonnes) and grains growth of just under 4% (24 million tonnes).

War disruption opens unusual trade routes

High freight can change what buyers purchase. Colombian coal exports to Asia have risen this year despite high freight, as lower LNG supply to Asia and El Niño concerns increase demand for coal. Russian Black Sea coal exports have collapsed to about 80,000 tonnes in August, with no cargo recorded in September, against typical monthly volumes of 1.5 million to 2 million tonnes. Turkish buyers took about 800,000 tonnes of Colombian coal in September, the highest since December 2024. Some Turkish cement buyers have switched to US petroleum coke.

In copper, where the value of the commodity makes freight a minor factor, flows are being reshaped by US stockpiling ahead of possible tariffs, which have not been confirmed. Copper cathode exports from Southern Africa to the US reached about 300,000 tonnes from January to September, against about 115,000 tonnes in all of 2025. Sulphur and sulphuric acid shortages are also changing trade: Escondida copper concentrate exports to Europe reached about 335,000 tonnes, against about 152,000 tonnes in 2025, in what Kpler sees as a swap for sulphuric acid. In Panama, the Cobre Panama mine, closed since 2023, has exported stockpiled concentrate in 2025 and again in August and September, encouraged by high prices.

Dry Freight Earnings Outlook: lower, but still high

Capesize earnings for 2026 are priced at just under $41,000 a day, against about $24,800 in 2025. The forward curve implies about $36,750 a day for 2027, close to the Kpler forecast, although Kpler expects different seasonality. Demand from West African iron ore, El Niño-driven coal trade in the first half of the year and grains remains strong. The main question is whether additional Capesize demand can absorb the expected delivery of new vessels. With bunker prices above pre-war levels, Kpler expects freight rates to ease in 2027 but remain high by historical standards.

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