Author: Michael Ferrari, PhD
VP, Applied Technology & Research

Per monday’s note, spot sugar futures coming down:

EIA Natural Gas Storage Data
Total (01/29/10): 2,406 Bcf
Total (01/22/10): 2,521 Bcf
Change: -115 Bcf
Year ago stocks: 2,207 Bcf
% diff to yr ago: 9.0 %
5-year avg stocks: 2,256
% dif to 5-yr avg: 6.6 %

stats here www.eia.doe.gov/oil_gas/natural_gas/ngs/ngs.html

Author: Michael Ferrari, PhD
VP, Applied Technology & Research

Despite a healthy seasonal pattern, South American soybeans are becoming susceptible to rust outbreaks this season.  The cool and wet El Nino-induced precipitation pattern set the stage for precursor conditions that are conducive for fungal development.  Following the development, we are now concerned with transport mechanisms.  The Weather Trends map below shows the short range pattern, which is one that puts soybeans in a particularly vulnerable position as they enter the flowering phase in the crop cycle.  Drier conditions look to be developing over the next few days, and as this moist front begins to dissipate and migrate eastward, the prevailing winds from the north/northeast will allow for easier fungal and microbial transport, into the soybean regions of Cordoba. 

Author: Michael Ferrari, PhD
VP, Applied Technology & Research

Will this be the week where world sugar breaks, or will the impressive rally in raw sugar continue? While most in the ags space spend nearly all of their time and energy in analyzing the grains sector, the big story, and one that will continue to unfold throughout 2010, has emerged from the sweetener space.

The run in spot raw sugar futures to 30 cents has been nothing short of spectacular from a %gain standpoint, but at this stage, the market is now at a crossroads. Producers rode the wave up to 30 cents with wider margins, but at these levels, sustained higher prices will curb demand, which we are already seeing in India, Pakistan and Egypt. Add to this the continued strength of the USD, and there may be more downside pressure in the short term.  Weather Trends acknowledges that the market is still in a global deficit and the view for the Indian growing season is not favorable from a weather perspective, so there will be some resistance against a rapid downturn. However, in the short term, we do feel that a slight retracement to the mid 20 cent range (.25-.27) may be coming in the near future. We are advising to monitor for short term softening combined with strength in 3rd/4th futures as an attractive spread opportunity.

Author: Michael Ferrari, PhD
VP, Applied Technology & Research

Yesterday’s EIA natural gas storage report (period ending 22Jan) showed total US natgas stocks at 2521 Bcf, 5% higher than one year ago. Following a brief reprieve based on this news, which was not unexpected, we should see a bounce in the short term with the cold pattern in the eastern US over the next few days. See AO (CPC) forecast below.  The two week pattern looks more benign from a demand perspective (see map).

Author: Michael Ferrari, PhD
VP, Applied Technology & Research

Adverse weather continues to plague Mongolia, raising fears of a serious threat to the country’s food and resource supply over the coming months. As we have seen by the recent disaster triggered by the earthquake in Haiti, geophysical events have the ability to disrupt society on an extremely large scale without much in the way of advanced warning, and it is no surprise that the world’s less affluent nations are particularly vulnerable to such tragic consequences.

Evening temperatures in December and early January in several northern Mongolian cities have dropped to -45°C, which is 10-15°C below normal for this time of year (see purple shades on the map below). According to a statement from the United Nations on Monday, the recent extreme cold pattern that has been affecting much of Mongolia’s population in the northcentral and northwestern regions of the country over the last month highlights the risk for nearly 200,000 people to face hunger coupled with more significant poverty before the winter ends.

This recent cold outbreak is actually the second event in recent months to affect the economy of Mongolia. Entering the 2009/10 winter, Mongolia’s stocks of domestic grain staples in the form of both food and livestock feed were low, which is in part related to a severe drought which negatively affected the region’s agricultural production over the summer. As nearly 22% of Mongolia’s economy is directly related to agriculture (and much more when considering related industries), there was already a potential for crisis before the winter commenced as stockpiles were already low. Now, with the recent severe cold pattern to affect the region, it is estimated by the United Nations resident coordinator in Mongolia that the low temperatures and snow have contributed to the loss of nearly 1 million livestock, with more expected as feed supplies are dangerously low. Further, with little or no food and/or energy stockpiles, and travel routes inaccessible resulting from snow and ice, the numbers for potentially affected populations is expected to increase. The next few weeks will be crucial, and while the short term pattern through the first week in February is still expected to remain cold, by the second week, the pattern looks to return to a more seasonal pattern, thereby potentially limiting the numbers of resource-access problems. The map below shows the WTI minimum temperature forecast (vs. the same time last year).

Continue to refer back to the WTI outlook for changes in this situation.