With the upgraded La Niña probability in Apr ENSO report and La Niña likelihood from 2Q22 through YE22, we can expect higher chance of drought condition or drier weather in the upcoming US summer and a repeat of drought in southern Brazil and Argentina in 2H22. The continuous 2022/23 La Niña weather for three straight years will bolster the global soybean (SB) price in 2H22, posing the risk of lower soybean meal (SBM) usage and lower sales volume with a stagnant GM arising from an inability to fully pass on higher SB costs to clients. However, the anticipated drought in southern Brazil will lead to lower cane output and higher sugar price. We reiterate our HOLD call on TVO and our TRADING BUY call on KSL.
Upgraded La Niña probability; dominant La Niña through YE22
Based on the El Niño-Southern Oscillation (ENSO) Diagnostic Discussion report of Apr 14, the Climate Prediction Center (CPC) upgraded La Niña probability forecast by 9 percentage points (ppt) in 2Q22 from 80% (in its Mar report) to 89% (in its Apr report), by 5ppt in 3Q22 from 47% to 52% and by 10ppt in 4Q22 from 44% to 54%. In other words, La Niña will dominate the overall weather pattern starting 2Q22 through Jan 2023 even if its probability will be only 51-54% in 2H22 which we regard as moderate intensity. CPC has upgraded La Niña probability for eight consecutive months (since Sept 2021). Meanwhile, CPC downgraded the ENSO-neutral probability forecast by 9ppt in 2Q22 to 11%, by 3ppt in 3Q22 to 44% and by 4ppt to 37%.