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SugarAsia 2009 presentation, Delhi, India
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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: [email protected]