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WeatherBell Analytics

Senior Forecaster Sunday, April 11, 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, turmoil from the earthquake and tsunami, 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 USDA Supply/Demand report was released Friday morning keeping corn and soybean stocks the same as March. Corn ending stocks pegged at 675 million and soybeans at 140 million bushels. Wheat ending stocks were considered supportive coming in at 839 million bushels. World corn ending stocks fell to 122.4 mmt and soybeans at 60.94, up slightly from last month. World wheat was up to 182.83 mmt, from 181.9 mmt in the March report.

HIGHLIGHTS

(1) Corn continues to rally at contract highs as corn carryover is smallest of all grains and global demand is high. Planting delays in parts of the Corn Belt will enter market followed by possible late freeze in May.

(2) Wheat followed corn and beans higher as US wheat production likely impacted

by drought and dryness issues may arise 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 with

drought in the Delta and some planting issues in the northern CB.

(4) Cocoa prices continue to slide from 32 year high. Cocoa surplus, a good mid-crop and demand issues weigh on market. Political unrest in top producer ivory Coast remains a wild card.

(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 of high

quality beans.

(7) Orange Juice is off its recent peak but will begin adding hurricane season premium in a few months as La Nina increases threat

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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. Dryness is seen in parts of China, South America, the south central United States and parts of South Africa. Wheat futures had pulled back 20% since surging to 2 1/2-year highs last month 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.

In the southern United States, drought conditions are worst in the southern areas.

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Right now it is the dryness in winter wheat areas that is of primary concern. The Soil Moisture anomaly map reflects the dryness.

Heavy showers largely missed the driest winter wheat areas but continued to improve soil moisture conditions in the southeast.

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Storms the next week will be mainly north and east of the region. Better chances exist week 2 especially in northern and eastern HRWW wheat areas - CO, KS, NE, eastern and central OK. Other winter wheat areas of the nation are in generally good shape.

CHINA: Wheat 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. 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. Shandong province, the nation's second-largest wheat producer, is expected to produce slightly more wheat this year, despite a prolonged drought, according to the state-run China News Service. The province's output will likely increase by 150,000 tons to 450,000 metric tons, the report said, citing the provincial agricultural department. Analog years suggest more than adequate spring and early monsoon rains for China’s wheat areas.

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

Ukraine Wheat

Russia and eastern Europe had an extremely cold late winter even as Western Europe moderated nicely from what was in places a record cold December. Snowcover in Russia and Belarus was deep and protected dormant winter grains there from burnback or winterkill. Snow came on in time in the Ukraine to protect the dormant winter crops from late cold. Snowcover has diminished with warmer readings in Belarus and the Ukraine into the Southern District and is becoming patchy in western Russia. Winter grains are easing out of dormancy in these areas. Deep cold low will limit warming and slow further melt the next week and beyond.

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Cool at times wet conditions will extend into Eastern Europe. Goodly showers and cooler temperatures are enabling improved moisture conditions in Germany and Poland where in March some early warmth and dryness had been a concern for greening and vegetative greens. In Western and Southern Europe continued showery weather maintained favorable soil moisture for vegetative to reproductive winter crops and increased irrigation reserves for warm-season crops. This upcoming week will be drier in the west and south favoring vegetative and reproductive winter grains.

NORTHWEST AFRICA

In Northwest Africa, increasingly hot and mainly dry weather accelerated grains through maturity. Adequate soil moisture exists in Tunisia and Algeria grain areas but heat in southern Morocco is stressing wheat there. Recent years have produced bumper crops.

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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. The deep vortex over Eastern Europe and Western Russia extends down into the Middle East and is likely to produce widespread showers this upcoming week improving soil moisture. 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. ARGENTINA and BRAZIL Growing Areas: Argentina Winter Wheat , Brazil Winter Wheat

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. Brazil wheat areas have abundant soil moisture currently.

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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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SPRING WHEAT

United States: Spring Wheat

Spring Wheat is grown in many areas of the northern US, southern Canada, Russia, northern China (Manchuria). Late winter snows and spring floods could be an issue in parts of the northern US again. Recent warmth has eroded the snowpack In North Dakota.

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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).

CORN AND BEANS

In the United States the focus will be on the upcoming planting and the heavy rains in the stormy pattern in the next few weeks likely to continue into May. Other issues for soybeans that need monitoring are the dryness in the Delta Bean Belt and southern Plains. A late freeze is possible in La Nina Mays and this could cause some the need for replanting of emerged corn in the Corn Belt. Non commercial commitment of traders are bullish by better than 4 to 1, which eventually would exaggerate any corrections.

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

The soybean harvest in Brazil hit 77% of the area estimated in the week ended on April 8, according to SAFRAS & Mercado. A week earlier the figure was 68%. In year-ago comparative period, the index was 77%, and the historic average for the period is 69%. In Mato Grosso, the harvest is 95% complete. In Mato Grosso do Sul, the figure is 97%.

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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. The normal dryness in La Ninas in southern Brazil and Argentina was eased during the late summer by a warming of the eastern tropical Pacific. This region called NINO12 is key to precipitation in these areas. Alternating pulses of warmth and cooling helped bring beneficial rains for corn and soybeans to central Argentina and parts of southern Brazil followed by dryness. That on and off again pattern is expected the next two weeks. With a dry week 1 in Argentina while rains fall in southern Brazil. Action extends south to northern Argentina week 2 while drying takes place central Brazil aiding harvest activities.

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

In South Africa’s Maize Triangle, unseasonable warmth and dryness hastened maturation. The drying trend affecting the eastern areas reduced yield prospects of filling corn. However, favorable conditions continued in other major production areas, helping to offset the shortfall in eastern areas. Production and exports were lowered 0.5 million tons.

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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. This upcoming season should be generally a good crop season for grains in China, Europe, Asia and the United States. The greatest risk of issues in the southern United States, including the southern Delta bean region and Gulf States where dryness already shows and where as shown above the spring rains should lag normal. Planting delays are seen as a possible issue. Given the high corn prices, the normal switch to beans should be reduced. Soil moisture models suggest the summer will be normal to cool and wet across the north but warmer in the dry Gulf States. Spring soil moisture is a key factor in summer conditions and this soil moisture model shows the most skill this time of year.

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SOFTS

SUGAR

Brazil Sugar

Sugar prices have fallen over $7 since their early February peak of $33 as supplies have improved. Mexico in late March reported production was up 24% from last year. Brazil cane areas received very heavy rains as they did in the previous La Nina. In the last La Nina, though large losses were forecast, in the end the yields ended up from early estimates. India crop that year also was projected short but surprised on the high side. Brazil and India are the top two sugar exporters. China, #3 grows cane in the south and early indications are that region may have some moisture issues develop. Tropical systems would change the moisture picture although lodging is always a concern. 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. 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. 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.

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.

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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.

Cocoa is scarce due to increased demand and prices have 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 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. However, should the dispute be resolved, significant volumes of cocoa will flow from the country after the logistical issues have been addressed. Such a development could lead to a likely decline in prices as a result of the bearish fundamental outlook of the cocoa market.

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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.

However, there are indications that the reduction in production will be limited as more than 43 million bags are expected. 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.

Coffee prices are inversely proportional to solar activity. High prices are associated with quiet solar periods as we have seen in recent years. Recovery to moderate solar activity levels the next two years along with increased production due to attractively high prices may improve the supply situation although global demand is increasing in countries where tea was the staple and may limit the decline.