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The short answer regarding El Niño is no! El Niño has not officially formed yet and will not be a factor for months.
The coffee market did not rally because of dry weather in northern Brazil. In fact drier weather is beneficial for the upcoming Brazil harvest. They do not want rain; way too late to help the crop.
More than 6 months ago I put out a very bearish (-8) Weather Spider score and coffee prices collapsed from $3.50 to $2.80 a few weeks ago. This was because of the weakening La Niña event I predicted last fall and that usually “excellent summer (Brazil) weather”.
Notice my prediction last October of normal-to-above-normal rainfall for Brazil’s coffee from November-January greatly helping out this next year’s crop and easing most of previous drought.
My Weather Spider was scaled back a couple of weeks ago from very bearish to bearish due to the factors I mention, below.
So why did prices rally sharply earlier this week? For one thing, the Strait of Hormuz being shut down restricted exports from Southeast Asia in mainly the cheaper variety Robusta coffee. This, plus the stronger Brazilian Real the market to rally. Remember the big crop does not hit the market till later in May and June.
However, it is way too early to talk about El Niño and if there will be crop problems to global coffee this year. Currently we are in an El Niño neutral phase with generally good global weather. This trend should weaken the wet weather aggravation that the world’s #2 coffee producer (Colombia) has recently.
Jim Roemer
