Current water vapor satellite is showing less activity in more weak activity & this supports the JulAug dryness that the Weather Trends long range forecast had predicted for this period.  With tight physical supply, this is constructive for #11 futures.

October sugar trading at 31.06 this morning (+4%)

In light of the softer market regarding futures prices, extreme heat across the corn belt this week should add some strength to the sector with widespread warmer temperatures and a drier pattern in the southern belt for several days potentially limiting yields.  With season to date weather now figured into our models coupled with the forecast weather through harvest, the WTI outlook for US corn (18 major states) is for 2011 yield numbers to come in just above trend line (7 year) yields.  We also feel that USDA crop numbers will start to reflect these limitations on the crop. 

this morning’s September chart below

Looking at current Monsoon activity, the IMD weekly update noted that the past week has seen drier conditions across central and western India; regarding sugarcane development, the low precipitation activity across Maharashtra (the largest producing state) may be a cause for concern when projecting physical balances this year.  The seasonal rainfall map to date for the 2011 Monsoon season is shown below.

 Refer to the Weather Trends weekly forecasts to see how the Monsoon is progressing.

The map below shows the Weather Trends Y/Y precipitation forecast for July, with the corn belt highlighted.  While June will help the crop get off to a good start, we are noting the potential for some weather risk due to drier conditions in the western corn belt.

The above graphic from the Indian Met Department shows the advance of the 2011 Monsoon as compared to typical onset milestone dates.  As we can see by the progression as of 29-30 May, as well as on the inset map, the convective activity originating over the southern subcontinent has been developing favorably, and new plantings in the (sugarcane) growing regions in the southern states of Karnataka & Tamil Nadu are already benefiting from this pattern.  Further, the analysis of satellite-derived vegetation maps are showing an improvement in both plant health and soil moisture over last year as well as the five year average, supporting the view that the 2011 season will be a benefit to 2011/12 output.

This will be important for the coming ‘11/’12 marketing year, as most analyst expectations seem to support a global surplus to fall in around the range of 5.5-7 mmt, which is an increase over the slight positive balance in 2010/11 following two years of net deficit.  In spite of a favorable weather picture for India as well as Brazil in the short term, higher crude oil (currently up) and a weaker dollar (currently down) will serve to limit the downside risk to Jul/Sep #11 futures in the coming weeks. 

Please visit the Weather Trends updates for notes regarding the progression and impacts of the 2011 Monsoon season through September.

The table above from this week’s USDA Crop Progress report underscores the effect that delayed planting this year has exerted on emergence of the crop.  In spite of planting progress that has picked up over the last 10 days, some regions may start to run into situations where there will not be enough growing degree days in the season to make a decent yield, and as a result, acres in some regions may start to shift to soybeans which have a shorter the maturation cycle.

Here is an excerpt from the note sent to clients early this week:

…we have been highlighting the delayed start to the corn season in the US as a result of the cold and wet conditions, inhibiting planting progress.  Over the last couple of weeks, we have seen planting progress close the gap between the pace set last year and the 5 year average; in Monday’s USDA Crop Progress update, the major growing states were now 79% planted, vs. 92% this time last year and the 5 yr ave of 87%.  While some lost time has been accounted for in recent weeks, the crop is still behind.  The emergence chart above from yesterday’s report shoes that 45% of the crop is emerged, vs. 69% last year.  In any other year, this might not be a cause for concern, but with such a tight supply balance this year, which is expected to remain tight into early 2012 due to strong demand expectations, this will likely translate to a bullish outlook for  corn futures at least through September.  In spite of the recent decline, we advised clients that this dip may be a favorable entry point for July/Sep corn contracts, and our forward view still supports a constructive market…

This note in the Farmgate Blog echoes what we have been discussing, supporting our expectations that Weather Trends has been pointing to as risk factors for the last two months.  Mid-crop weather will become VERY important this season.