Photo Credit Judy Gaines: check out her website here The picture above shows leaves wilting on coffee trees in Brazil prior to the main bloom that begins in October. In the coffee areas, there were several droughts over the last 30 years during the critical October-December period. The most severe drought in that time frame occurred in 1985 when coffee prices rallied 80%. We will also monitor certain weather issues in Indonesia and Colombia. This enables us to build an overall longer term view of South American coffee production and price potential. This type of analysis is only available to paid subscribers.
December coffee futures have bounced nearly 15 cents from the early September lows. The buying flurry is a result of the dry weather seen in the early development of the coffee crop. Prices have remained in the $1.20-$1.50 range since May. See the December contract prices below (Credit Barchart)
Lack of Rainfall
June is the peak of the dry season in Minas Gerias, Brazil’s greatest coffee producing state. Typically, rains start to pick up in September, on their way to a peak in December. However, 2017 has been stingy. Most areas have received 50-150 mm (2-6 in) less than average. The past 30 days of rainfall in the four major states outlined in the graph indicate poor conditions occurring over all areas.
This is an ‘on-year’ for Brazil coffee, with a massive crop expected. These hopes aren’t ruined yet, but rainfall is definitely needed over the next 2-6 weeks. The latest GFS forecast does not look beneficial for coffee in the 7 day outlook. Very little rainfall is expected. What about in the following weeks? Only paid subscribers will receive updates on if rejuvenating rains will occur, impacting prices.
MJO Moving to Phase 8 and Weak La Niña Signal. Will It Break Brazil Dryness?
The Madden-Julian Oscillation (MJO) is a tropical disturbance that propagates eastward around the global tropics with a cycle on the order of 30-60 days. The MJO has wide ranging impacts on the patterns of tropical and extratropical precipitation, atmospheric circulation, and surface temperature around the global tropics and subtropics. There is evidence that the MJO influences the ENSO cycle. It does not cause El Niño or La Niña, but can contribute to the speed of development and intensity of El Niño and La Niña episodes.
The MJO (below) may be moving into a wetter Brazilian phase by October that could ease the Brazil dryness and if it does, break coffee futures. However, our unique Climatech Program can forecast weather months in advance and has been used recently to predict the very active hurricane season and many major moves in commodities. Will the dryness in Brazil break the coffee market if rains fall? Email us at email@example.com for information about our services. –Jim Roemer