Equity Analysis /

Thailand (Bualuang): Agro & Food - “La Niña” to peak in 4Q21

  • Further La Niña upgrade in Oct report to peak in 4Q21

  • Negative for cane output in south-central region of Brazil

  • Uncertain impact on SB in Brazil; but mostly negative in Argentina

Bualuang Securities
20 October 2021

With the further upgrade of the La Niña probability in 4Q21 through 1Q22, we are more confident in our call on “sugar” than “soybean (SB)” in light of Brazil’s tighter cane and sugar output expected in 2021/22 and 2022/23. However, its impact on SB output remains uncertain because the previous La Niña boosted Brazil’s SB yields and output. Although the intense La Niña condition squeezed Argentina’s 2020/21 SB output, the overall SB attractiveness in 2021/22 will be reduced by the enhanced US SB stock buildup. We reiterate a TRADING BUY call on KSL and a HOLD call on TVO.

Further La Niña upgrade in Oct report to peak in 4Q21

Based on the El Niño-Southern Oscillation (ENSO) Diagnostic Discussion report of Oct 14, the CPC upgraded La Niña probability forecast again by 15 percentage points (ppt) for 4Q21 from 78% (in its Sep report) to 93% (in its Oct report), by 17ppt for 1Q22 from 60% to 77% and by 6ppt for 2Q22 from 22% to 28%. The CPC has raised the La Niña probability for five consecutive months from 49% (in Jun report) to 93% (in Oct report) for 4Q21 and from 43% (in Jun report) to 77% (in Oct report) for 1Q22. La Niña probability will then tumble from 77% in 1Q22 to 28% in 2Q22 and ENSO-neutral probability will jump from 7% in 4Q21 to 64% in 2Q22. In light of this, La Niña weather will dominate in 4Q21-1Q22 and ENSO-neutral will dominate from 2Q22 onwards.