This video below talks about the following from July 5th:
How Hurricane Beryl may affect commodity markets (this is old news now)
Why it has been coffee most adversely affected by a warming planet
The potential for a bull market in grains later? Possibly, but our overall bias for weeks has been “against the crowd” predicting doom and gloom for U.S. grain crops. For now, the delay of La Niña has prevented any major widespread weather problems for corn and soybeans, other than a few isolated areas
Why traders were wrong being bullish natural gas over $3.00 a few weeks ago
Click above and also feel free to join my YouTube channel
by Jim Roemer – Meteorologist – Commodity Trading Advisor – Principal, Best Weather Inc. & Climate Predict – Publisher, Weather Wealth Newsletter
MAY 1, 2024
A few weeks ago, it became obvious to me that buying cocoa on a 400% rally would be a huge mistake and prices might soon mimic what happened during the “Tulip Craze” in the 1600s. Dutch Tulip trading is the first well-documented speculative commodity bubble. The same thing has just happened to cocoa prices.
W h e n t o s e l l a p a r a b o l i c c o m m o d i t y m o v e ?
In order for me to justify entering a short position in a rising futures market, I need to see a change in the “fundamentals” of the particular commodity, ahead of time:
For cocoa, this is the time of the year that the smaller West African Mid-crop hits the market. This often results in hedge fund selling occurring ahead of and during harvest.
Most of the bullishness in cocoa was already built into prices.
I have been preaching this to my newsletter clients for a couple of months: That the “seasonals” would ultimately become bearish for cocoa.
Source: Moore Research Center, Inc. (MRCI)
Below, are four examples in which the weather, or other fundamentals, caused a major collapse in commodity prices. Parabolic moves often last less than 6 months. Such was the case in cocoa.
Below are some of the technical indicators to call potential tops in markets. This is extremely sophisticated. Typically, I use fundamental analysis when the 5-day moving average goes above or below the 20-day moving average (see cocoa, below).
Look for Divergences:
Examine indicators like RSI, MACD, or momentum indicators for divergences between the price action and the indicator.
When the price is making new highs but the indicator fails to make a new high, it can signal the parabolic move is losing steam.
Identify Overextension:
Use technical tools like Bollinger Bands or standard deviation channels to identify when the price has moved too far, too fast, and is becoming overextended.
Parabolic moves often reach levels 2-3 standard deviations above the mean, signaling a potential reversal.
Examine Volume Patterns:
Look for a sharp drop-off in trading volume as the parabolic move progresses. (This began in cocoa three weeks ago)
Declining volume can indicate waning enthusiasm and buying pressure to sustain the move higher.
Apply Fibonacci Retracement Levels:
Draw Fibonacci retracement levels (23.6%, 38.2%, 61.8%) from the start of the parabolic move.
One of these common Fibonacci retracement levels is where significant reversals often happen.
Watch for Blow-Off Tops:
Identify capitulation-type price spikes with extremely high volume at the end of the parabolic move.
These “blow-off top” patterns can signal the final exhaustion of buyers before a sharp reversal.
Bottom line (WRITTEN APRIL 8TH): “A change in fundamentals and the 5-day moving average going below the 20-day often signal a major trend-change. It is possible that (based solely on history) cocoa prices will peak soon (or have just peaked) and enter a deeper bear market in 2024-2025.This would be especially true if La Niña results in a slight surplus of cocoa next year.”
Nevertheless, prices have sold off too quickly to justify selling the market at these prices. Early on Tuesday (4/30), WeatherWealth clients were advised to take potentially huge profits on recent short positions. BUT short call options and longer term (limited volume) make sense.
In early April, the issue addressed parabolic moves and how to navigate them. If interested in joining expert and novice commodity traders around the world who want better weather information and trading ideas, please request our free 2-week trial period to the WeatherWealth newsletter.
Thanks for your interest in commodity weather!
Jim Roemer, Scott Mathews, and The Weather Wealth Team
Mr. Roemer owns Best Weather Inc., offering weather-related blogs for commodity traders and farmers. He also is a co-founder of Climate Predict, a detailed long-range global weather forecast tool. As one of the first meteorologists to become an NFA registered Commodity Trading Advisor, he has worked with major hedge funds, Midwest farmers, and individual traders for over 35 years. With a special emphasis on interpreting market psychology, coupled with his short and long-term trend forecasting in grains, softs, and the energy markets, he established a unique standing among advisors in the commodity risk management industry.
Trading futures and options involves a significant risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of future results. There is no warranty or representation that accounts following any trading program will be profitable.
African dust, the Harmattan Wind, and how I called the unprecedented explosion in cocoa prices three weeks ago.
Why El Niño has strengthened recently: Potential impacts for grain prices and the Midwest summer
Why record-warm global oceans have thwarted any bull move in natural gas prices
A look at potential late February and March weather
Join farmers, traders, and investors on six continents who have benefited from a seasoned meteorologist’s 38 years of experience as he second-guesses standard computer models. What is the next big trade in Ag commodities? Is it too late to buy cocoa and go short the grains?
This video addresses the climatic factors that are causing an unprecedented price move in cocoa and what will bring drought-easing rains to Plains wheat — Enjoy!
Our BestWeather Spider became bullish more than a week ago, catching this historic move up in prices on new concerns about a dry, dusty wind in West Africa called the “Harmattan.” However, at these price levels, the only way to trade cocoa is by using sophisticated strategies in options and spreads, as we already had the move I expected.
Jim Roemer, Scott Mathews, and The Weather Wealth Team
Please feel free to learn about Jim Roemer, our track record, and how we use weather to help traders, hedgers, and investors. If you have any questions, please don’t hesitate to drop me a line – Scott Mathews, Editor
Mr. Roemer owns Best Weather Inc., offering weather-related blogs for commodity traders and farmers. He also is a co-founder of Climate Predict, a detailed long-range global weather forecast tool. As one of the first meteorologists to become an NFA registered Commodity Trading Advisor, he has worked with major hedge funds, Midwest farmers, and individual traders for over 35 years. With a special emphasis on interpreting market psychology, coupled with his short and long-term trend forecasting in grains, softs, and the energy markets, he established a unique standing among advisors in the commodity risk management industry.
Trading futures and options involves a significant risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of future results. There is no warranty or representation that accounts following any trading program will be profitable.
“You can’t change the weather, but you can profit from it”
The Madden-Julian Oscillation (MJO) is an eastward-propagating, large-scale atmospheric circulation pattern observed in the tropics, particularly over the Indian and Pacific Oceans. It is characterized by alternating phases of enhanced and suppressed convection. The MJO plays a crucial role in modulating tropical weather and influencing the development of tropical cyclones. It is identified through various meteorological parameters, including cloudiness, winds, and precipitation anomalies, and its activity is monitored using different indices, such as the Real-time Multivariate MJO Index (RMM) or Wheeler-Hendon Phase Diagram.
It is also ultra important for commodity and crop water along the equator–particularly for West African cocoa and northern Brazil soybeans, sugar, and coffee crops. The MJO will be going into a drier phase for West Africa. This means, finally, some improved dry weather for the West African main crop cocoa harvest. It will then go into a wetter phase for northern Brazil soybeans and coffee bringing some relief to the recent drought by later December.
Hence, after a major bull market in cocoa prices has occurred, there may have to be some added El Niño weather-related disruption, later this winter or spring for cocoa prices to make new highs.
Think of the MJO as a globe-trotting storyteller in meteorology. This index tracks a pulse of stormy weather as it travels across the tropical regions near the equator. It’s like a weather adventure, influencing rainfall and storminess along its journey. Sometimes it brings rain, sometimes calmness, and it loops around the Earth, affecting weather patterns in far-reaching places. So, when meteorologists mention the MJO, they’re essentially talking about this fascinating traveler-shaping weather tale around the world.
The El Niño-driven bull markets in cocoa and sugar
Two bull markets in soft commodities have been in cocoa and sugar brought on by a variety of summer weather problems from India to Thailand and West Africa.
My cocoa Spider, featured in my WeatherWealth newsletter for about 8 commodities each week, has been basically bullish cocoa since summer. Sometimes it has gone neutral, but overall, we have developed long-term bullish call option spread ideas for summer.
Wet November weather could further compromise cocoa and sugar crops
This time of the year, dry weather is needed for the sugarcane harvest in Thailand (the #3 producer) and in the Ivory Coast and Ghana (top cocoa producers) where the incessant wet weather has caused disease issues all year.
Usually, El Niño can bring wet weather for Thailand in November but typically it dries out in West Africa for the remaining main crop harvest. One such El Niño year that was super wet in Thailand was 1987. The fact that West Africa has remained wet is atypical of El Niño and more so due to warming oceans and Climate Change.
Wet weather in Thailand during November can negatively impact the sugar crop for a few key reasons:
Flooding – Heavy November rains in Thailand bring a higher risk of flooding, which damages sugarcane fields and disrupts harvesting.
Cloud cover – Increased cloud cover and reduced sunlight slows sugarcane growth during this critical time before the harvest. Photosynthesis is diminished.
Disease – Wet conditions promote fungal diseases like red rot, which damages stems and leads to sugar content loss.
Delayed harvest – Excess soil moisture makes it harder to operate harvesting equipment on muddy fields. This can delay crop collection.
Diluted sucrose – High rainfall right before harvest dilutes the sucrose concentration in stalks, reducing sugar content.
Crop loss – Severe floods from monsoons can completely submerge and destroy portions of the sugarcane crop.
Overall, wetter than normal November weather reduces both the quantity and quality of sugarcane yields in Thailand. Dry conditions are needed for optimal sucrose development and timely harvest. Excessive rain has a very detrimental impact on both yields and sugar content for the Thai sugar industry in the critical pre-harvest period.
While adequate rainfall is crucial for cocoa production in Ivory Coast and Ghana, excessive wet weather over months can cause major issues:
Prolonged heavy rains increase the prevalence of fungal diseases like black pod rot and myriads. These have caused severe damage to cocoa crops recently in very wet conditions.
Overly wet soil makes bean harvesting and drying more difficult. This can delay and disrupt cocoa harvest operations.
Persistent moisture also promotes canker and algal bark diseases which damage cocoa tree health and yields.
Flooding from heavy rainfall can rot the roots, asphyxiate trees, and reduce yields.
So while November rains are important for cocoa pod development, too much rainfall over consecutive months promotes crop diseases, hampers harvest logistics, and reduces bean quality.
HELPING YOU MAKE THE BEST INVESTMENT DECISIONS BASED ON THE WEATHER
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