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WeatherBell Analytics

Senior Forecaster Sunday, April 24, 2011

Copyright WeatherBell Analytics LLC

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OVERVIEW Agricultural (and energy) commodities have virtually across the board enjoyed an amazing rally in recent months due to a combination of favorable fundamentals (supply shortages), a weak dollar, political unrest, use of corn and cane for fuels and intermittent weather issues. Inflation in raw commodities has not yet been fully reflected in final food products here in the United States. The top concerns in the market are the heavy rains and major flooding that is slowing fieldwork and planting and southern plains drought which has severely impacted winter wheat. This week’s crop progress should be very telling. HIGHLIGHTS

(1) Corn continues to rally at contract highs as corn carryover is smallest of all grains and global demand is high. Significant planting delays are in parts of the Corn Belt and will continue with no end in sight for the heavy rains. Rains impact maybe compounded by a late frost or freeze in May for any areas where planting takes place.

(2) Wheat followed corn and beans higher as US wheat production will be seriously

impacted by severe drought Dryness issues may impact planting and emergence in Argentina in months ahead. Spring wheat planting delays in northern US and southern Canada also expected.

(3) Late rains aided southern Brazil beans. Issues may develop in United States as

heavy rains and flooding threaten planting in the north down into the central Delta bean areas and drought persists to the south.

(4) Cocoa prices continue to slide from 32 year high. Cocoa surplus, a good mid-crop and demand issues and a return of political stability in Côte d’Ivoire weigh on market prices

(5) Sugar prices back off record highs but demand remains high and supplies tight.

(6) Coffee prices remain near recent record high as supply issues remain for high quality Arabica beans.

(7) Orange Juice is off its recent peak but will begin adding hurricane season

premium in a few months as La Nina and cold Pacific increases threat. La Nina will slowly weaken but memory state will prevail (see)

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GRAINS Top exporters of grains (hyperlinks lead to USDA maps for grain regions)

Rank Corn Soybeans Wheat

1 United States United States China

2 China Brazil India

3 Brazil Argentina United States

4 Mexico China Russia

5 Argentina India Australia

The market was focused on wheat in the Northern Hemisphere where the upcoming crops are being counted on to improve global supplies of high quality wheat after a poor year last year in Russia tightened supplies of milling grade winter wheat. Wheat futures had pulled back 20% since surging to 2 1/2-year highs in March on an increase in export demand. Global 2010/11 wheat supplies are nearly unchanged as higher beginning stocks are mostly offset by lower world production. Global ending stocks were projected 0.9 million tons higher by the USDA on April 8th.

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Wheat though has followed corn and beans up but have the continued support of dryness in the southern plains HRWW areas, typical of La Ninas. Corn is near contract highs and beans not far behind. Wheat has recovered from recent sell off but remains $1 below the February peak levels. #6% of the winter wheat crop is in good to excellent conditions down 33% from last year.

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Heavy showers largely missed the driest winter wheat areas but continued to improve soil moisture conditions in the Delta. Excessive rains has fallen over the Ohio Valley causing significant river flooding.

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Storms the next week will continue over the same region with perhaps as much as 10 more inches along the Ohio River. In the HRWW region, the best rains will be over the northern and eastern wheat areas - CO, KS, NE, eastern and central OK. Drought conditions will continue to improve over the prime Delta bean regions.

The heavy rains will slow planting of corn. As of the last report, 7% of the corn had been planted, 9% behind last year. 4 of the top 5 producing states were more than 11% behind last year’s pace. Heavy rains will continue to limit fieldwork and planting the next few weeks especially in the Ohio Valley. The summer given the soil moisture is likely to e cooler and wetter than normal in most growing areas.

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SPRING WHEAT

United States: Spring Wheat

Spring Wheat is grown in many areas of the northern US, southern Canada, Russia, northern China (Manchuria). Spring floods could be an issue in parts of the northern US again. After more snow fell last week, snowmelt was rapid. Runoff continues to feed river flooding. 5% of the spring wheat has been planted as of April 17, down 13% from last year. In southern Canada, the concern will be for late planting of spring wheat and barley due to spring cold and lingering snowpack as is usually the case after La Nina winters (most recently 2008 and 2009).

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CHINA: Wheat, Corn, Beans

In China, winter is normally a very dry season thanks to northwest winds with the Asian winter monsoon and crops rely on irrigation and farmers hope for enough snows to protect the dormant grains. In the north in Manchuria, where temperatures tend to be most extreme, mainly spring wheat is grown.

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Beijing for example normally receives only 1 inch total for the November to March period. An inch falls in March and 1.1 inches on average in April. It ramps us in late spring as the Meiyu rains lift north to the Yangtze River in June and North China in July and August, when Beijing averages about 14 inches of rain.

This is why irrigation is heavily relied on for winter grains and for planting summer grains but is usually not needed after. Light showers in recent weeks provided supplemental moisture in the North China Plain though most areas are running small deficits. Vegetative Indices are about normal. Corn planting is completed in the south and begun in the north. Showers will benefit the northern winter wheat and help germination and establishment of corn in the north and spring grains in Manchuria. Analog years suggest more than adequate spring and monsoon rains for China’s wheat and summer crops regions.

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EUROPE, RUSSIA and UKRAINE Growing Areas: Germany Wheat , Poland Wheat ,France Wheat, UK Wheat, RussiaWheat ,

Ukraine Wheat

In Western Europe in the last few weeks, dry weather has accelerated the development of winter grains into the reproductive and filling stages while enabling planting for spring grains and summer crops. Some rains brought welcome moisture to northeast Europe but some areas are still in need of rains. In Russia, cool wet weather improved moisture conditions and melted much of the remaining snow. Winter crops are only slowly emerging from dormancy. After some moderation and drying, more cool wet weather is likely week 2 including some late wet snow.

In Europe, this summer, dryness concerns may increase in France and southeastern Europe. It will extend into Belarus and the Ukraine.

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The next two weeks though look to bring beneficial showers to virtually all of Europe.

NORTHWEST AFRICA

In Northwest Africa, increasingly hot and mainly dry weather accelerated grains through maturity and will favor early harvesting. Recent years have produced bumper crops.

MIDDLE EAST Growing Areas: Winter Wheat

In the Middle East, recent rainfall has improved prospects for winter grains but some concerns remain because a dry fall had limited crop planting and establishment. USDA [production estimates were lowered 1.3 million tons for Egypt as the latest reports indicate a sharp year-to-year drop in yields as unusual, early season heat affected pollination and

reduced grain size. Production is raised 1.1 million tons for Iran on higher area. Widespread locally heavy showers have favored winter crops from Turkey to northern Iran. INDIA AND PAKISTAN

Growing Areas: India Wheat, Pakistan Wheat

In India and Pakistan, moderate showers followed by pre-monsoonal heat are not expected to have any impact on wheat which was already mature across northern India and Pakistan. Harvesting is winding down.

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ARGENTINA and BRAZIL Growing Areas: Argentina Corn, Beans, Winter Wheat , Brazil Corn, Beans, Winter Wheat

Corn is forecast by Safras and Mercado to increase 2% and soybeans 4% from last year in Brazil. Harvest of beans is 92% complete. Second crop corn will benefit from rains in the center south part of Brazil the next two weeks.

Looking ahead, winter wheat last season in Argentina 2010 production was raised by the USDA 1.0 million tons based on higher reported yields. Success in the upcoming season though will depend on arrival of fall rains as soil moisture remains below normal in most central and southern Argentina.

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Brazil wheat areas have abundant soil moisture currently. Analogs suggest a normal winter for precipitation in Argentina and slightly dry in southern Brazil assuming a weakening of La Nina. In the WASDE report on April 8th, Brazil corn production for 2010/11 was raised 2.0 million tons reflecting higher reported area and yields in the summer crop. Soybean production for Brazil was projected at a record 72.0 million tons, up 2 million from last month as ample moisture and favorable late-season weather in the southern states improved yield prospects. Soybean production for Paraguay is projected at 8.1 million tons, up 0.6 million, also based on higher yields.

AUSTRALIA Growing Areas: Winter Wheat

Australia has had a wet summer with a cold PDO and La Nina, and winter wheat planting should benefit from the adequate soil moisture. The USDA raised 2010 Australia exports by 1 million bushels based on good growing conditions in the West where harvest conditions were not hurt by heavy rains as in the east. Planting of the new crop begins in May. Continuation of even a weak La Nina would ensure a good crop. The continued PDO will help regardless of ENSO.

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Rains fell in eastern Australia last week and some mainly light showers will be seen the next week in the West and far South.

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Analogs suggest near normal rainfall this winter.

SOUTH AFRICA: Corn; MEXICO: Corn; INDIA: Corn

In South Africa’s Maize Triangle, needed rain came to the eastern Maize triangle where dryness had become a concern. It will provide a boost to summer crops. Global corn production is raised 1.2 million tons but ending stocks were lowered 0.7 million tons. Mexico corn production had been reduced 2.0 million tons as the unusual early February freeze destroyed standing corn crops across much of the northwest winter corn region, which normally accounts for about one-fourth of the country’s total corn production. Production in Indonesia of corn was lowered by 1.3 million tons.

SOFTS

SUGAR

Brazil Sugar

Sugar prices continue under pressure on forecasts that output will increase in Brazil and

India, the world’s largest producers. They have fallen 23% since the early February peak.

Sugar output in Brazil, the leading grower, will rise 3.8 percent in the year that started

May 1, a U.S. Department of Agriculture unit said last week.

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Output in India will increase 6.2 percent in the year beginning Oct. 1, the USDA’s Foreign

Agricultural Service said in a separate report. Mexico in late March reported production

was up 24% from last year.

China, #3, grows cane in the south and analogs suggest that region will have below normal rainfall though likely still adequate. Mexico in late March reported production was up 24% from last year. COTTON

United States: Cotton Brazil: Cotton China: Cotton

Cotton is in short supply with high demand especially from China and prices remain within 20 cents of the highest levels of March 7th. Rains were welcome in the Delta and southeast states ahead of planting which begins shortly. These areas are likely to see below normal precipitation this growing season overall unless a tropical system comes ashore. The US plantings according to Dow Jones Newswire on April 8th suggest a 14.5% increase in the United States. However, the USDA April 8th WASDE reports U.S. cotton forecasts for 2010/11 show lower production, higher domestic mill use, and lower ending stocks. Ending stocks are reduced 300,000 bales to a record low 1.6 million, the equivalent of 8 percent of total use. The world cotton forecasts for 2010/11 include lower production and higher consumption, resulting in a 2-percent reduction in ending stocks. World production is reduced about 400,000 bales, based on decreases for the United States, the African Franc Zone, Turkey, and Pakistan, partially offset by an increase for Brazil. Forecast ending stocks of 41.6 million bales are 36 percent of world consumption, which is the smallest stocks-to-consumption ratio since 1993/94. Planting was slowed in parts of the northern Delta and Carolinas by severe weather and in parts of Texas by severe drought except where irrigation is available in places such as West Texas and the Rio Grande Valley. Cotton farmers await showers for planting elsewhere. ORANGE JUICE United States: Orange Juice , Brazil: Orange Juice Florida output is expected to be low the next two years after successive winters of freeze and frost conditions.

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Also both Florida and Brazil are fighting not only weather but also disease with citrus greening and SDS causing loss of trees. Global demand has been down in recent years due to low carb diets but that fad is fading. The rising prices are likely more of a drag on sales. Although U.S. orange juice production is forecast by ERS to be 8-percent higher for the 2010/11 marketing season relative to the previous poor season, lower beginning stocks and projected reduced imports will push overall supplies to a 17-year low, driving orange juice prices higher. Both the low supplies and higher prices will work against domestic consumption, along with exports which is also projected to increase from last season. As a result, domestic consumption is projected to continue its general downward trend, falling to 1.1 billion gallons—5 percent below last year and off 18 percent from the 10-year average. This projected decline in domestic consumption is being reflected in retail sales of refrigerated not-from-concentrate (NFC) orange juice as reported by the Florida Department of Citrus using Neilsen data.

Florida is also vulnerable to hurricanes which this year would again be above normal in the Atlantic with a greater chance of landfall than the last two years. Hurricanes in 2004 and 2005 did considerable damage to Florida citrus. Three hurricanes criss-crossed Florida in 2004.

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Note the wide spray of landfall sites during La Ninas. In El Ninos, the landfalls are confined to the Gulf.

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The probability of a landfall along the east coast from Florida north was put at 48% versus the normal of 31% by the Colorado State hurricane experts Dr. William Gray and Phil Klotzbach. We share that concern. COCOA In central Africa, the cocoa main crop is harvested. The mid-crop is doing well with good rains and in fact in Cameroon and Nigeria, the mid-crop is said to be ahead of schedule. Harvest has begun. Farmers and traders had said they expected a bumper midcrop harvest in the region due to the early start of rainfall there this year. The November to March rainfall anomalies show the Ivory Coast had good rainfall.

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Cocoa is scarce due to increased demand and prices rallied strongly since November and reached a 32 year high early last month with the help of political unrest in Côte d’Ivoire. The fundamental picture in West Africa is bearish according to the International Cocoa Organization. News agency data showed that cocoa bean arrivals in Côte d’Ivoire were about 100,000 tonnes more compared to the same period for the previous season. Similarly, in Ghana, cumulative cocoa purchases recorded for the current crop year totaled about 744,000 tonnes as at 24 March, representing an increase of approximately 44% compared with the same period for the previous season. On the other hand, reports from Indonesia show that fungal diseases are spreading as a result of excess rainfall which could be detrimental to cocoa production in the country. On the demand side, there are lingering concerns that the unrest in Côte d’Ivoire which disrupted the supply of cocoa beans could affect grinding activities. The crisis continued to instill nervousness among market participants but that has diminished. After Cocoa’s benchmark May contract reached a 32 year high March 4, it has fallen significantly since then and further declines are expected unless further political unrest develops.

Unlike coffee, world cocoa markets are expected to post a surplus of 120,000 tons this year due to excellent growing conditions in West Africa, which supplies 70% of global cocoa, according to figures from the International Cocoa Organization.

COFFEE Coffee prices remain near recent highs as warehouse supplies of high quality beans are still low. According to the March ICO report, although crop year 2010/11 is still under way in many exporting countries, the information received indicates a volume of 133 million bags for total production, representing an increase of 8.1% in relation to the preceding crop year. Crop year 2011/12 has just begun in a number of countries, including Brazil, Indonesia, Papua New Guinea and Peru. In Brazil it corresponds to an off‐year season in the biennial cycle for Arabica production.

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The biennial cycle does not appear with the Robusta.

However, there are indications that the reduction in production will be limited as more than 43 million bags are expected. Production is down in Indonesia due to La Nina. Heavy rains in Columbia could cause some flooding issues until La Nina weakens this summer. World stocks continue to fall, as information received from Members indicates that the volume of opening stocks in crop year 2010/11 is around 13 million bags, reflecting the tightness of the market. Inventories held in importing countries were estimated at around 18.3 million bags at the end of December 2010. The revised estimate of World consumption in calendar year 2010 is 134 million bags compared to 130.9 million bags in 2009. This represents a strong growth of 2.4% and is evidence of the recovery in consumption after the relatively weak performance in 2009, which resulted from the global economic crisis. Judy Ganes notes “ The coffee market is within easy striking distance of breaking over $3.00 for the first time since May 1997. The market balance this season proved to be not nearly as plentiful as some had anticipated due to ongoing strong demand but also some of the coffee was needed to make up and fill supply gaps created last season”

Joseph D’Aleo, Chief Meteorologist WeatherBell Analytics Trader’s Edge