By V. Phani Kumar
The El Niño weather effect currently developing could mean
fewer storms this year in the Atlantic, but in Asia it's raising
concerns about likely agricultural inflation and the fallout for
related stocks.
"A significant El Niño would negatively impact agricultural
output in much of the Southern Hemisphere, setting in motion a
chain reaction of higher food prices as the world economy
recovers," Deutsche Bank analysts Niklas Olausson and Xun-Ming Ip
wrote in a report released Friday.
"Exporters Malaysia and Indonesia are potential beneficiaries in
Asia. Importers China and India face higher food bills and
uncertain agricultural prospects," they said.
The El Niño effect causes dry weather conditions in some areas
due to warmer-than-normal waters along the equatorial central and
eastern Pacific Ocean.
Deutsche Bank wrote that the plantation sector will be the focus
as the El Niño effect develops, adding the brokerage has upgraded
plantation stocks in Malaysia and Singapore.
It added that an increase in crop prices should boost demand for
fertilizers and agricultural chemicals in the medium term, while
regional food companies and tire manufacturers in South Korea could
be negatively affected.
Referring to palm oil companies, they said: "While El Niño
should cause oil palm yields to decline, the positive effect
dominates."
In Friday's trading, shares of Genting Plantations rose 0.2% and
Sime Darby (4197.KU) fell 0.6% in Kuala Lumpur trading, while
shares of ABB Grain (ABB.AU) fell 1% and Graincorp (GRCLF) gained
3% in Sydney.
Bakrie Sumatera Plantations (PBSLF) slipped 0.1% in Jakarta, and
shares of Bridgestone Corp. (BRDCY) fell 2.4% in Tokyo.
In wider market action, Japan's Nikkei 225 Average fell 1% to
10,283.55, Australia's S&P/ASX 200 dropped 0.8%, Hong Kong's
Hang Seng Index dipped 1.1%, South Korea's Kospi was flat and
Singapore's Straits Times declined 1.1%. Indonesia's main index
fell 0.1%, while Malaysia's KLSE Composite gained
The Deutsche Bank report came after Australia's Bureau of
Meteorology said earlier this week that the odds of an El Niño
"are now thought to be above 50%, which is more than double the
normal risk of an El Niño in any year."
Separately, the U.S. National Oceanic and Atmospheric
Administration said Thursday the El Niño continues to develop.
"El Niño produces stronger upper-level westerly winds over the
Caribbean Sea and tropical Atlantic Ocean, which help to reduce
hurricane activity by blowing away the tops of growing thunderstorm
clouds that would normally lead to tropical storms," said Gerry
Bell, lead seasonal hurricane forecaster at the NOAA's Climate
Prediction Center.
Merrill Lynch economist John Rothfield wrote in a report Friday
that Australian farm output is less than 3% of the country's
economy, "but weather-related variations in output can be large
enough to impact GDP and income materially."
"The aggregate economic impact of El Niño is that it is a
supply event, not a demand event, thus unfavorably impacting the
growth/inflation trade-off and requiring that domestic consumption
comes from costly imports," Rothfield wrote.