Here’s the best place to hedge severe El Niño shocks to the food supply chain, BofA says

New Zealand looks to be the best place to hedge impact from severe El Niño shocks to global food supply chains, according to Bank of America.

"Historically, El Niño has been associated with widespread crop losses across key exporting regions, and current risks are amplified by elevated fertilizer prices and lingering supply-chain disruptions," BofA strategist Oliver Levingston said.

While a major El Niño weather event posed growing risks to the global food supply chains and shortages in fertilizer inputs have been disrupted by the developments in the Strait of Hormuz, New Zealand's outsized dependence on agricultural exports would mean that a sustained trouble for the global food supply "is likely to be a positive terms-of-trade shock," the bank noted.

"For New Zealand, whose economy is unusually exposed to agriculture relative to other G-10 markets, the risk is that markets begin pricing a more favorable terms-of-trade outlook, creating an upside risk" for the New Zealand dollar, BofA said, adding it expected the kiwi to see a sharp appreciation.