Highlights

• Against the backdrop of a strong El Niño expected during Sep 26-Feb 27, agricultural commodity prices have already risen, well ahead of the previous two El Niño cycles.
   
• We expect upside pressure on domestic sugar prices to be manageable, supported by comfortable domestic supply conditions and lower reliance on imports. In contrast, palm oil remains the key swing factor within the food cost basket, although any meaningful cost pressure is more likely to emerge in 2027.
   
• El Niño could affect consumer companies through two channels. On the supply side, it may increase input costs and, as a result, create pressure on margins. We see the impact as most relevant for: a) food producers with high exposure to instant noodles, bakery products and snacks; and b) apparel manufacturers and brands. On the demand side, it could affect seasonal consumption trends, particularly by dampening demand for cold-weather products. Maintain OVERWEIGHT.

Analysis

• High probability of a strong El Niño during Sep 26-Feb 27. According to the National Oceanic and Atmospheric Administration (NOAA), the Oceanic Niño Index (ONI) reached +1.8 during Jun-Aug 26. At the same stage (June-August) of the four most recent strong or very strong El Niño events, the ONI stood at +0.8 in 1982, +1.5 in 1997, +1.4 in 2015, and +1.0 in 2023, indicating that the current event is developing more rapidly than all four historical episodes and has been running ahead of them since May-July. According to the World Meteorological Organisation, there is an exceptionally high probability (nearly 100%) that El Niño will persist during Sep 26 – Feb 27, while the NOAA Climate Prediction Centre assigns a greater than 90% probability that the event will reach very strong intensity.