Weather, Climate and the World Sugar Market Michael Ferrari, PhD Director, Climate Informatics CSC May 16, 2012

Agenda I. II. III. IV. V. VI. VII. Global Weather Pattern 2011/12 Transition III. El Nino in 2012? IV. Sugar Production & Market Impacts V. ClimateEdge – Manage the Risk VI. What to Expect in 2013 VII. Questions

La Nina of 2011/12 dissipating – El Nino signals starting to emerge Source: Australia Bureau of Meteorology Source: NOAA ESRL

Higher potential for negative crop conditions for BR/IN/AU Source: NOAA

Conditions are favorable in BR C-S now…. may start to shift Source: NASA-MERRA

La Nina of 2011/12 dissipating – El Nino signals starting to emerge Source: NOAA ESRL

Westerly anomalies starting to emerge…. Source: TOA/TRITON

…Subsurface warm mass increasing Source: TOA/TRITON

Convective activity indicative of healthy start to the Monsoon, but BR Centre-South risk appearing Source: NOAA ESRL

Pressure anomalies supporting favorable Monsoon onset Source: NCEP

However, some hints of 2009 are present in the data MERRA June v LY Source: NASA/MERRA

Monsoon Progression

JAS Risk Favorable onset period, particularly in south Seasonal dipole eroding Y/Y pattern: drier in both production belts for Jul/Aug Highest risk: Aug 2009 analogs appearing Risk to cane yields Aug v LY Source: JAWF

Vegetation Health - 2009 Source: NASA MERRA

#11 Market Snapshot Source: ino.com

Commodity Snapshot Source: FinViz.com

Extended outlook – Important fundamentals to monitor Supply side risk needs to be viewed in the context of broader global macro indicators. 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 Oil prices are high, but have softened in recent sessions (trading yesterday at $94). However, as long as oil prices are high, defined as above $84, biofuels remain attractive (corn/sugar ethanol & biodiesel from soybeans) for producers, and higher raw material prices, including raw & white sugar, will be supported. Related commodity news: There has been a broad sell-off in commodities, but the agriculture sector remains relatively strong. 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. Monsoon will be key in 2012. 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.

Risk and Losses are on the Rise Source: Munich RE

CSC ClimateEdge – Managing Agriculture Risk

Why Climate Data as a Service (CDaaS)? “Today analytics is moving to center stage as more people can access the tools and analyze all the data, leveraging data from multiple sources and unleashing the power of a distributed grid of computing resources to do the heavy lifting involved with the analysis.” “. . . many of today’s analytics are using ‘in-database’ techniques that are faster and more efficient because the data are not moved to a separate analytics server . . . “

Source: Lloyds, Forecasting Risk, 2011 ‘Traditional’ risk management methods introduce significant error. A Climate Data Service model will provide a data-driven approach coupled with subject matter expertise to better identify and quantify weather and climate risk.

Identification of Weather Black Swans

For any questions, please contact: Michael Ferrari, PhD Director, Climate Informatics CSC Tel: +1 202.746.9189 Email: mferrari3@csc.com

Thank You