Balanced Portfolio - Strategy Update Agricultural Sector
Emergence of La Niña
Switch 1.5% Duxton Waters (D2O) to Elders Limited (ELD)
Date: 07/03/2024
*** GENERAL AVICE ONLY***
The National Oceanic and Atmospheric Administration (NOAA) has issued a La Niña watch as the strong El Niño begins to wane, signaling a potential shift towards cooler La Niña conditions in the tropical equatorial Pacific Ocean, which could significantly impact global weather patterns. According to NOAA’s forecasts, the chance of transitioning to ENSO-neutral conditions (neither El Niño nor La Niña) stands at 79% by the April to June period, with a 55% chance of La Niña developing by the summer. By the fall, the probability of La Niña’s presence increases to 77%. This anticipated shift could enhance hurricane formation by reducing wind shear and potentially exacerbate drought conditions in the southern United States. Moreover, while El Niño contributed to record global temperatures in 2023, the onset of La Niña could slightly cool global averages, though 2024 is still expected to be exceptionally warm.
*** Trade Plan ***
Sell Duxton Water (D2O)
Current Portfolio Allocation: 3%
Exit: above $1.45 (Loss of around 1% inclusive of dividends)
Buy Elders Limited (ELD)
Current Portfolio allocation: 2.5%
Elders is an existing holding from last year that we trimmed for around $9 while we waited for further confirmation of La Niña. Now that we have a high chance of this occurring, Elders outlook back in November was for dry conditions which has not occurred and will almost certainly be reversed in future company updates.
The last occurrence of La Niña saw Elders reach a record peak around $15, and while we don’t see record highs in the near term, we feel the market is not pricing in the reversal of the weather conditions
New Portfolio allocation: 4%
Entry: below $9.50
Trim Price: $11 (+16%)
Target Price: Above $12
Disclaimer: The recommendation given is general advice only. It does not take into account your personal objectives, financial situation, or specific needs. This information should not be your sole resource when making such decisions. We strongly recommend you to seek the advice of financial, taxation, and legal professionals before finalising any investment decisions.