We are seeing one of the most volatile weather markets for corn and soybeans in recent memory. Cool temperatures are preventing an explosion in grain prices. The map below shows the continuation of a wide variety of crop conditions across the Midwest grain belt.

We have warned clients about the cooler weather, highlighting how wet it has been (blue) in parts of northern Indiana and Illinois. This has resulted in shorter-than-normal crop height for this stage of the game. Although drought continues across the Dakotas (red), it has not entirely consumed Iowa. Models have been too zealous with their rain predictions. For prices to retrace back to the recent lows, the market will need bearish numbers in this week’s USDA report in addition to perfect rainfall through to summer’s end. These two cards might not be dealt.

“In the midst of a drought, it is unusual to see corn and beans in a bull market that is not associated with hot weather,” says Jim Roemer. “However, the corn and soybeans have already sold off from the psychology of cooler weather, and rains are essential for filling corn and podding beans over the next few weeks.”

Traders must be attentive to weather forecasts for the remainder of August. These will dictate any subsequent grain price movement. The next chances for beneficial rain in Iowa will be this coming Thursday, and then again, in about 8 to 10 days.

Turning now to coffee, Brazil exports were reportedly 1.6 million bags which is the lowest volume in last 10 years. One of the factors driving the export drop is reduced availability of high quality coffee beans.

The culprits are beetles, and we’re not talking about Volkswagens! There is an infestation of Hypothenemus hampei. The street name for this pest is the berry borer, or “broca” to the locals. Analysts say that they could bore their way to an 11% drop in Brazil’s coffee harvest. It isn’t the weather, but an environmental issue at play here. The broca are flourishing because an effective pesticide used in Brazil for 40 years was banned in 2013. Since then, every little incident of beetle damage to coffee berries goes completely unchecked.

The weather will resume its importance when the fourth quarter comes into view via rainfall forecasts for northern Brazil.

The map below shows a few zones of crop stress in the northern coffee areas. While this is not yet a concern for the 2018 crop, an expansion of the dry area during the coming autumn could lead to a price rally. On the other hand, good rains in Brazil would boost crop prospects, turning prices around as we move down the road.

climatelligence

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