This article in Bloomberg Business Week today is in line with how we are viewing the current US corn & soybean crops at Weather Trends.  No doubt, the 2010 crop for both commodities will still produce good numbers for the 18 major growing states.  However, we think both the USDA and the market are too optimistic regarding crop potential.  Look at the July map below – this shows the year-over-year (2010/09) max temperature for July.  Remember, 2009 was a ‘good weather year’, particularly in the Jul-Sep time period.  Heat stress in July followed by a very wet start to August in key states will likely translate to smaller yield numbers than the market is currently figuring.

As a result, we are in agreement with the assessments in the article quoting the analyst from Northstar Commodities. 

Once again, we make the case for space-based research combined with advance weather outlooks as a simple yet powerful suite of tools for early identification of crop problems in key agricultural producing regions.  As an example, the map below is an indicator of vegetation health as derived via satellite for the wheat regions to the north of the Caspian and Black Seas.  There has been no shortage of coverage regarding the current crop problems afflicting Russia and Kazakhstan, so this region is an obvious area of focus. 

The source of the data for this map is from MODIS, and this particular graphic depicts the Normalized Difference Vegetation Index, or NDVI, for the region, shown as an anomaly vs. the 5-year average (for mid to late July).  The NDVI derives information from both the NIR and the Red wavelengths in the electromagnetic spectrum, and a simple calculation is performed to assess vegetation health.  The index then assigns a value for crop health, and based on the color scale shown in the legend, it is clear that the region has been exhibiting severe vegetation stress – the important thing to note here is that wheat futures started to increase in July, then exhibited a violent spike in early August.  As this map is from mid to late July, we show that by using tools such as satellite indices in conjunction with the Weather Trends long range weather forecast for the region, the current impact in wheat prices could have been anticipated and financial effects avoided through a proactive physically based risk management strategy. 

week ending Aug 1

Corn (18 major states):  93% silking vs. 74% LY & 86% 5ya; 31% dough vs. 13% LY & 24% 5ya. 

Soybeans (18 major states):  86% blooming vs. 74% LY % 83% 5ya; 53% pod-set vs. 33% LY % 48% 5ya.

The drier pattern for the next 7 days will help the US corn & bean crops, after a few weeks of very wet weather.  According to yesterday’s USDA crop update, 73% of US corn was rated either good or excellent, and 69% of soybeans received the same ratings.  These were both down slightly (2%) from the week prior, but with the current pattern coupled with the expected outlook for the next 10 days, we are anticipating ratings for both crops to improve.   The map below shows the Weather Trends outlook for rainfall over the next 7 days, with corn/bean regions shaded.

Readers of our long range discussions should recall that last year we were forecasting for a favorable planting season to develop for US corn and soybeans in 2010. So far this season, the expected pattern has been materializing, with planting progress putting most yield expectation models in an early plant scenario (particularly for corn); early planting does not always correlate with high final yields, but it does get the crop off to a favorable start, increasing the chances of higher numbers by harvest. The current week will have some rain affecting soybean planting activities with more impact to the western belt, but next week looks to turn favorable again. As a result, we expect some support to the upside in corn/soy futures trading for this week before a return back down to current levels by week 2.

As we are approaching June, Weather Trends has turned our attention regarding agricultural commodity research towards the outlook for this year’s monsoon season in India.  In 2009, the lack of seasonal rains resulted in poor growing conditions for many Indian farmers, which resulted in supply shortages and rapid price spikes across the agricultural spectrum.  Most notable from ‘09 was the story which came from the Indian sugar market.  India is the worlds second largest producer of sugar, following Brazil; despite this strength in production, strong internal demand for the sweetener used to mean that India usually still required imports to satisfy their domestic requirements.  However, the last few years had seen a shift, and with a concerted expansion of acreage, India became a net exporter, which is a significant position concerning the global balance of physical supply.  

Enter 2009: as of May of last year, the Indian Meteorological Department, which is the only source of weather information for many across the subcontinent (and elsewhere), was forecasting a normal rainy season during the monsoon period.  Relying on one source of weather information for a forecast that carries such a significant financial risk, can be dangerous, and last year’s pattern eventually underscored this point.  The 2009 monsoon never got off to a good start, and conditions did not improve, particularly for sugarcane growers, until harvest approached.  So instead of a healthy monsoon producing 23-24 mmt of sugar, the crop came in somewhere between 16 and 18 mmt (depending on the source) and sugar futures reacted accordingly in a year where there was already a well documented global supply deficit.  The world futures market saw the sugar contract rise from below 16 cents (per lb) to the 30 cent range within a three month time span.  Prices have since retreated down to previous levels (current spot sugar below 15 cents/#), but the global supply shortfall still exists, so the coming monsoon season is extremely important if growers are to return to a position where India returns to net export status in the coming crop year.
 
Fortunately, not only for sugar growers but for all Indian agricultural producers along with the ancillary supporting industry sectors, we are forecasting a better start to the Indian Monsoon season in 2010.  We stress that the onset period is critical for healthy agricultural production, and the Weather Trends long range forecast combined with analysis of various climatological indices, primarily warmer northern Indian Ocean temperatures, have formed our view to support a better beginning to the season. The maps on the coming pages highlight the WTI outlook for the monthly rainfall pattern from June through September.  

JUNE 2010
The map below depicts the WTI forecast for total precipitation in June. With a strong start to Monsoon convection developing in the south, this is a very favorable pattern for growers in the Karnataka/Tamil Nadu region. Even parts of eastern Rajasthan should expect a better June than last year. The inset map to the right shows the projected year-over-year change in the pattern, which clearly highlights a better start to the season in 2010.

JULY 2010

Total rainfall in July still looks to be healthy, but readers should note that there is a reason that we have been stating to clients that the start of the monsoon should be favorable, but we have not been calling this year a complete recovery over 2009. The pattern in the south is still expected to remain strong, but there are regions in central India where the totals are not reflecting an active pattern. Remember that while the current El Nino is certainly weakening, we are still in the El Nino pattern, which does have moderate negative correlation with monsoon behavior.

AUGUST 2010

Again, in August, WTI is anticipating an active pattern, with a particular benefit to the northwestern regions, but areas to the east, while still receiving adequate monthly totals, should not expect a dramatic increase over the prior year. Regarding sugarcane, the northeastern growing belt which spans across much of Uttar Pradesh and Bihar do have susceptibility for drier conditions, which could have negative impact on sugar tonnage and agricultural yields.

SEPTEMBER 2010

The monsoon will start to retreat from Rajasthan in September, but a fairly active pattern will persist, helping with a final push before harvest (groundnuts/oilseeds). A drier pattern in the south will be more conducive to stronger final yields, provided adequate tonnage is secured through the pattern that we are expecting in the prior months.

SUMMARY

As noted on page 3, the current El Nino is fading but still present, and there can be a lag before a return to a neutral precipitation pattern. While there are arguments both for and against the causal factors when analyzing El Nino years and monsoon strength, there does seem to be a relationship when we examine similar years.

Entering the 2010 onset period, Sea Surface Temperatures surrounding the subcontinent are warm, as seen in the map above; this should help the monsoon get off to a healthy start. As we move through the season, while we are looking for a better overall year than last year, we do note that there are still periods where certain geographic regions may be deficient in moisture, and the risk has therefore been highlighted. At this stage, we are expecting a year-over-year improvement, but we are not going to state that the coming monsoon will be favorable for the entire season, as we are concerned with the potential for some deficiencies which are in the forecast for the mid/late season pattern.

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. 

On Tuesday, the USDA issued their 2009 crop production summary report for the primary commercial US crops.  As readers of Weather Trends crop reports are aware, we discuss our US agricultural outlook in our weekly reports in terms of the 18 major producing states for both corn and soybeans.  Now that the annual summary is in, we see that we were spot on in regards to our US corn yield forecast, which was issued to clients during planting.  The USDA’s final number for corn yields (for the top 18 states) was 153.9 bushels/acre.  This compares to the Weather Trends yield number, which was in the 154-156 bu/acre range for nearly the entire growing season.  As total agricultural production and yields in the high volume corn belt states are ultimately, more important to the market (ie., it doesn’t matter much to the market that that AZ corn yields are 175 bu/acre), we always argue that it is better to focus on the top 18 states.  So while corn did produce a 13.2 billion bushel crop, it actually could have been higher with optimal weather conditions as the season’s yield was limited by lower growing degree days.

While the market was reacting to every passing front during the growing season, this serves as another example of the value embedded within the long range forecast for setting seasonal crop expectations.  The text below was pulled from our weather/market discussion that was issued on 17 August.