Sugar Asia2009 Summary

Long Range Global Weather Outlook and the Implications to the World Sugar Market

Michael Ferrari, PhD

VP, Applied Technology and Research

03 July 2009

Disclaimer

• Global Weather Pattern• 2009/10 Transition• Impacts to Indian Sugar• Global Commodity Market Impacts • What to Expect

Topics for Discussion

• Differences from traditional meteorological forecasting

• Rely on a blend of diffeq, datamining, pattern seeking in historical data, neural networks

• Directional vs. point FC• Success of global approach

Weather Trends Approach

Traditional Forecasting Methods

Quasi-Biennial Oscillation (QBO)

Stratospheric Directional Winds

Strong nino Strong nino precursorsprecursors

Supports late 09 Supports late 09 ENSO ENSO developmentdevelopment

Downscaling Downscaling with finer scalewith finer scale

El Niño:Onset and Ending Dates

Southern Oscillation Index – transitioning from La Nina to El Nino

Global Climate Driver this year is the Developing El Nino

2008 Subsurface anomaly 2009 Subsurface anomaly

Much larger +4.0°C temperature anomaly

SST anomaly: rapid ENSO transition

weekly

monthly

seasonal

•Equatorial Ocean warming

•Shift in convection

•Increased SSTs off of western South America

•Warmth in south/central Indian Ocean

Current Global SST pattern

Current Global SST anomalies (vs. LY) highlights ENSO transition

Global precip 7 day forecast week 1

Global precip 7 day forecast week 2

Shifting global precipitation patterns (OLR)

seasonal

weekly

May precipitation anomaly

JUN precipitation summary

JUN precipitation summary

JUN precipitation summary

JUN precipitation summary

JUN temperature summary

Two Week Forecast

Two Week Forecast

Two Week Forecast

Two Week Forecast

Two Week Forecast

Two Week Forecast

• Split pattern between the northern and southern cane growing belts. Last year’s dipole to cease.

• Warmer and slightly wetter pattern in the north

• Normal to slightly cooler pattern, and drier then normal

Forecast: August into September

July Soil Moisture Deficiencies

June 2009 Soil Moisture

Current NDVI

Monsoon Progression

Brazil 2 week precip forecast (vs. LY)

UV Index

Sunshine Index

OCT ICE Sugar

(02 Jul)

*Bigger issue now becomes OCT/MAR spread

Verification of Methods

2008 Weekly Precipitation

Verification of Methods

2007 Weekly Precipitation

Verification of Methods

2006 Weekly Precipitation

ALL INDIA RAINFALL FORECAST

ver: 2009 Weekly Precipitation (to date)

What does this mean for sugar?• Fundamentals are supportive of a significant rise

in sugar prices.• Monsoon deficit coupled with ENSO progression

will start to quantify crop expectations; upside price potential exists.

• ENSO pattern will be problematic for next year’s crop in major origins...India, Thailand, Australia & Brazil. Upside potential for OCT/MAR futures.

• With uncertainty in market, we advise to capitalize on all short term pullbacks in the market, while overall extending long positions.

Extended outlook – Important fundamentals to monitorIn nearly every source of commodity news, the talk of food crises and/or inflation is pervasive. As

such, in addition to the ‘normal’ weather fundamentals, there are numerous factors that require constant analyst attention. Some of these factors include (but are not limited to):

Energy: Crude prices have nearly doubled since August 2007, and the speculative ranges for future oil prices span $100 to $200 per barrel within the next 6-24 months. As long as oil prices are high ($70 is still high crude), biofuels remain attractive (corn/sugar ethanol & biodiesel from soybeans) for producers, and higher raw material prices will therefore be supported. Our range for crude by late 2009 is in low to mid $70 range.

Related commodity news: The global raw material supply chain is now so inter-related that news in one area nearly always has a ripple effect across the commodity spectrum.

Global S&D: Increasing global demand for grains from both the food and fuel sectors looks to remain constant over the next 6-12 months. Longer term support in the biofuel sector is more speculative, so a reduction in demand from the energy side may ease price pressure for food raw materials.

Open interest: New investment instruments in commodities have contributed to an increase in relative long positions in grains. While this does not translate directly to price support, it does lend itself to increase volatility in both futures and physical prices.

Severe weather: Beyond the weather outlook which shapes our view on supply, any acute weather impact affecting crop operations and distribution will add to volatility.

China: While it is often used too freely by analysts and traders, China’s role can not be underestimated. Buying power (especially with a weak USD) can take significant tonnage off of the world market, leading to tighter global stocks and additional upside price risk.

Technical indicators: Even if the long range market direction is driven by the fundamentals, analysts should bear in mind the key technical signals for over/underbought markets.

Weekly grains, energy and sugar reports

WTI Year-Ahead Forecast AreasWTI Year-Ahead Forecast Areas

WEEKLY & DAILY year-ahead Forecast AvailableWEEKLY & DAILY year-ahead Forecast Available

Weather Intelligent ClientsWeather Intelligent Clients

QUESTIONS ?

For any questions, please contact:

Michael Ferrari, PhDVice President, Applied Technology and Climate/Commodity Research

Weather Trends International, USATel: 610 807 3582Mobile: 484 542 0111 Email: mferrari@wxtrends.com