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.

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 chart below shows the dramatic shift in the Southern Oscillation Index (SOI) from May into June, where the current value is in the neutral range.  Further, the map from Weather Trends notes the absence of the cold equatorial Pacific Ocean SST anomaly, with warming starting to build in the eastern (Nino 1.2) regions.

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.

Weathertrends360.com mapping.

Our biggest weather concern in the US at the moment is on the corn side.  A cold and wet start to planting in the US has put planting pace well behind last year.  The week ending May 15th saw some significant planting progress, narrowing the gap that has been present since the season started.  But even though the planting pace has picked up, the crop is still delayed (21% of corn emerged vs. 53% last year in the 18 major growing states).  We may start to see a shift in acres from corn to beans.  This coupled with sustained demand we feel will place upside risk to costs on the feed side, which we feel will continue to rise through the end of 2011.

Sugar may start to turn constructive on analyst reports of a smaller than expected crop.  We noted yesterday that one high-profile estimate has recently called for a 10.6 mmt surplus in 2011/12, which follows a slight return to positive supply balances in the current marketing year.  However, as we also stressed, the Indian Monsoon is likely to get off to a good start in June, but mid-crop weather may serve to limit the strong numbers being discussed in the market.  In addition, in a Bloomberg article today, there is now appears to be some sentiment that output in Brazil may temper some of the positive supply expectations for both the current and coming year.  It is appropriate to take a look at some of the information that was presented to clients in a newsletter from February 28th (excerpt below), highlighting the potential supply risk:

 "A smaller safety net –The reports that Weather Trends has been issuing regarding the global sugar supply situation has, for several months, been calling for a gradual improvement to the global balance sheet; however, we have always been somewhat less optimistic than most consensus estimates regarding the timing and velocity regarding the shift to surplus status.  Most agencies had been figuring a number of +1.3 to +1.5 mmt for the 2010/11 (Oct/Sep) year, which is down from earlier projections in the +2.5 to +3.0 mmt range.  The International Sugar Organization (ISO) recently issued a revision to their outlook, placing their expectation for 2010/11 at +196,000 mt, down significantly from their 1.3 mmt number from last November.  Given the margin of potential error on these forecasts, 2010/11 could easily remain in deficit or at least at a break even point for the current marketing year.  Further, there is still the potential for poor weather  over the next couple of months to negatively impact cane devoted to the next (2011/12) season."

Amidst strong global demand, weather will play a very important role in determining the size if the global 2011/12 balance.