We regard the upgraded La Niña weather condition in Sep ENSO report as short-term, with its strong intensity only lasting to YE22 before shifting to the dominant ENSO-neutral condition in 1H23. With the US soybean (SB) crop now entering the harvest during Sep-Oct, we expect almost no negative impact on US SB crop. However, Argentina and southern Brazil will be the prime victims of drought. Despite the likely higher global SB price in 2H22, its crushing margin should be affected due to the inability to fully pass on higher SB cost to SBM prices. The anticipated drought in southern Brazil will underpin the global sugar price. We reiterate our HOLD rating on TVO and our TRADING BUY rating on KSL.
Upgraded La Niña; short-term dominant La Niña through YE22
Based on the El Niño-Southern Oscillation (ENSO) Diagnostic Discussion report of Sep 8, the Climate Prediction Center upgraded its La Niña probability forecast by 17 percentage points (ppt) in 3Q22 from 80% (in its Aug report) to 97% (in its Sep report), by 10ppt in 4Q22 from 79% to 89% and by 7ppt in 1Q23 from 47% to 54%. Hence, La Niña will dominate the overall weather pattern starting 3Q22 through 4Q22 with its 89-97% probability before weakening to 54% in 1Q23 and 16% in 2Q23. Thereafter, ENSO-neutral condition will replace La Niña in 1H23 with its 43-67% probability in 1H23. We regard the stronger La Niña as short-term given its intensity peaks in 3Q22 and subsides in 1H23.