A natural phenomenon happening in the Pacific, then falling into the narrative and asset pricing of the crypto world.

Written by: Fortune

On July 6, 2026, Arabica coffee futures surged 18.5% in a single day, marking the largest increase since July 2000; New York cocoa futures rose over 13%, to $5723 per ton. How did agricultural products suddenly "turn the tables"? It was all due to the El Niño phenomenon. However, once in the world of exchanges, even the direction of the wind must be labeled as bullish or bearish. As the old saying goes, when the United States sneezes, the whole world catches a cold. This year, the Pacific coughed, adding a new member to the list of those affected, called Web3.

Currently, sea temperatures in the equatorial Central Pacific continue to rise, and NOAA has confirmed the presence of El Niño conditions, with expectations of developing into a medium or stronger strength event by summer and autumn, with a probability of over 60% for an extreme event. Various meteorological agencies are forecasting this El Niño more seriously than traders guessing Bitcoin tops. This article aims to clarify a transmission chain: how a natural phenomenon occurring in the Pacific makes its way around half the globe—first pushing up coffee in Brazil and cocoa in West Africa, then following paths of electricity bills, agricultural tokens, and macro inflation, ultimately landing in the narrative and asset pricing of the crypto world.

A Pending Case, Different Opinions

The World Meteorological Organization issued a report in June stating that the probability of El Niño occurring from June to August is 80%, and the likelihood of sustaining it until November approaches 90%. Most models predict at least a medium-strength event, with opportunities to touch the threshold for a strong El Niño. A medium or stronger event will form in summer and autumn. The European Centre for Medium-Range Weather Forecasts is even more aggressive, stating a probability of a strong El Niño at 80%, with a little over 20% for an extreme event. Three agencies, three opinions, resembling three analysts each calling out their own lines on the same K-line, none convincing the others.

The source of divergence is referred to in the industry as the spring prediction barrier: every year in April and May, the feedback mechanisms of the ocean and atmosphere are inherently unstable, with model errors reaching as high as 40%. Historically, the only two El Niños deserving the label "extreme" occurred in 1997 and 2015, with peak sea temperatures exceeding 2.5 degrees Celsius. This time, most voices lean towards medium strong, still a distance from extreme, but enough to make commodities shake a little.

Actual temperature changes may not matter much to the average person. What truly matters is the rhythm of this event: we are currently in the expectation speculation phase, with actual production reductions expected to materialize from late this year to early next year. This time lag becomes the main character to discuss next.

Transmission Double Helix: The Spear of Inflation, The Shield of Liquidity

The first stop of El Niño is the rain in Southeast Asia. Palm oil, natural rubber, and white sugar all depend on rainfall, and once Indonesia, Malaysia, Thailand, and India face prolonged drought, production reductions are only a matter of time, though the timing may vary. Historical records are clear: in 1982, palm oil rose by more than double, in 2009, natural rubber rose by 150%, and in 2015, white sugar rose by 65%. This time, institutions are forecasting a target increase of over 60% for natural rubber.

Production reductions raise food prices, food prices raise inflation, and inflation collides with another troublesome factor: the Middle East situation has not truly calmed, oil prices are fluctuating at high levels, and fertilizer and shipping costs are rising accordingly. The Federal Reserve has a new chair this year, whose stance is much more hawkish than the market had previously imagined. The dot plot shows that the space for interest rate cuts this year is nearly erased, and statements from most officials even put interest rate hikes back on the table. Goldman Sachs has pushed its rate cut expectations to 2027, and Citigroup has pushed its timeline back by a month, causing gold to fall from high levels, dropping below key levels within a week.

This is what is called the liquidity paradox: El Niño causes commodity price increases, and rising prices force the Federal Reserve to restrain rate cuts, while the delayed rate cuts directly suppress the valuation of risk assets. The crypto market has always relied on liquidity; climate determines water temperature, while monetary policy determines how much water can flow from the tap. Only when these two elements combine does the true macro background for the crypto space in the second half of the year emerge.

Agricultural Product Tokens: Half Fundamentals, Half Fireworks

The good news is that this price surge coincides with the most lively year for RWA (Real World Assets). The scale of on-chain real-world assets has surged over $20 billion in a single quarter, with tokenized commodities growing nearly threefold year-on-year, no longer dominated solely by gold, as agricultural products and energy contracts are also being integrated into on-chain warehouse receipts. Platforms like AgriDex aim to slice up the warehouse receipts of palm oil and rubber, allowing small farmers and small investors to share a piece of the pie.

It is crucial to distinguish between two categories: one consists of agricultural RWAs backed by warehouse receipts, custodianship, and legal structure, which rise based on fundamentals; the other comprises climate-themed meme coins that have emerged riding on the heat of El Niño, which rise based on sentiment and engagement. The former grows slowly, while the latter can often drop to zero with just one piece of news. Confusing the two is the easiest way to lose in this market cycle.

The time difference is also worth pondering. The production reductions caused by El Niño, from drought signals to volume realization, usually take about three months to a year. This means that in the second half of the year, the market is trading on expectations, while actual stock depletion will only become apparent in the first half of next year. Old traders understand this saying: buy expectations, sell facts. If macro trends overshadow the production reduction narrative, or if drought conditions are less severe than expected, any prior gains could be given back all at once. Another weak point of agricultural RWA is that liquidity and compliance thresholds are still immature; when real problems arise, escaping may not be possible.

Hardware Adaptation: Miners Moving, Oracles Asking the Heavens

The first to learn from climate change are the miners. Mining farms in Texas have learned to actively shut down their operations during tight power grid periods, earning demand response income, relying on power price signals rather than weather forecasts. Meanwhile, miners in Southeast Asia's hydropower-rich regions have a less comfortable experience: if the rainy season is delayed, water levels drop, and hydropower output is reduced, miners have to migrate like migratory birds to search for the next cheap electricity source. This phenomenon is referred to in the industry as "running with the electricity"; it sounds simple but involves substantial migration costs.

Another adaptation path is hidden within DePIN. IoT Oracles connect weather stations and soil sensors on-chain, using a mechanism called PoPW to prove the equipment is functioning in the real world, thus issuing token rewards. Originally, this infrastructure was meant to tell the story of decentralized weather stations, and El Niño has fanned the flames: the more abnormal the climate in a given year, the easier it is to revalue the on-chain weather data. Parametric agricultural insurance follows the same logic; once drought triggers a preset threshold, claims payments are automatically issued without waiting for the insurance company's slow disaster assessment. The carbon credit ReFi narrative also hops on this train: as disasters become more frequent, the scarcity of compliant carbon assets is increasingly acknowledged by the market.

It is worth mentioning that weather has also long been brought to prediction markets like Polymarket, where temperature and rainfall can be traded. In El Niño years, these contracts are likely to be even busier.

The Tide Speaks for Itself

Breaking the whole matter into three segments to view is a more prudent approach. The first half of the year is suitable for laying low with physical RWAs and meteorological Oracles that lean towards fundamentals, trading on expectations; the second half enters a main uptrend, with significant internal differentiation among industries, where long-cycle varieties like natural rubber, palm oil, and white sugar may not move in sync with short-cycle products. At this time, it's crucial to monitor whether the Fed's stance may suddenly shift; by the first half of next year, as production reductions are gradually realized, positions that should take profits should be cashed in to avoid slipping into recession trades.

The risk checklist is also not complicated: macro factors always come first. As long as liquidity tightening outweighs positive fundamental support, any narrative about production reductions will be pointless; following closely is the old rule of buying expectations and selling facts, particularly dangerous in climate trading; the remaining risks are hidden in the details—whether it's the transparency of agricultural warehouse receipt custody or the credibility of the weather Oracle's data source, once problems arise, the entire logic chain could collapse.

The water temperature of the Pacific originally cared only about ocean currents and trade winds, never about K-lines. Yet the market is inherently sentimental, wanting to relate to everyone. What El Niño brings this time is not a definitive answer but a timeline that requires patient verification: who is in the realm of expectations, who is in the domain of facts, who is swimming naked—when the tide goes out, the truth will reveal itself.