There’s a new bull market in town other than cocoa, gold, silver, and most recently crude oil (Middle East tensions and stronger global demand). It is coffee. Our WeatherWealth newsletter https://www.bestweatherinc.com/membership-sign-up/ advised clients close to a month ago about a potential severe drought developing for Robusta Vietnam crop regions (similar to the lingering spring El Niño conditions in 2016).
In contrast to other firms suggesting La Niña will form this summer, we have disagreed. In fact, some computer models just came out agreeing with our feeling that occasional weak El Niño conditions will persist until at least June or July.
So… how does that influence global coffee weather? For one thing, it may turn too wet for parts of northern Brazil’s coffee, following earlier heat and dryness in December-January. This was related.
Not only due to El Niño but also to deforestation in the Amazon and climate change.
Source: EPA.GOV
However, of even greater concern is the continuation of record levels of tight Robusta coffee supplies. Irrigation levels are extremely low. Combine this with nearly record April heat (map below) and a pesky high-pressure ridge, and one can see why Robusta prices are testing historic high levels.
Another parabolic commodity move, similar to cocoa as the planet continues to warm
Consequently, will I change my forecast to more rain and a bearish outlook? How does one use coffee spreads, futures, or options to potentially capitalize on the lingering El Niño? That is where WeatherWealth comes in. Please feel free to click on the link at the top of the page for a 2-week free trial period covering all Ag and natural gas markets. You will also receive my BestWeather Spiders with trade sentiment for a dozen commodity products… for example: Robusta coffee advised a month ago.
The temperature index score is now very bullish at a +4 with record heat in Vietnam. This makes the total score very bullish at at least a +9.
(Our video from last week addresses why we reversed our bullish attitude in natural gas early this past week and enumerates the implications for South American grain weather.) It’s a bit too late to sell natural gas in the hole now, especially with a potential friendly EIA number later this week.
El Niño usually brings big crops to Argentina
It is common knowledge that more than 80% of the time, El Niño brings above the normal corn and soybean yields in Argentina and southern Brazil, but can often bring dryness and reduced crops in northern Brazil. This certainly happened earlier this winter (South American summer) with drought hurting Matto Grosso soybean yields. Nevertheless, we had been in the bearish camp for weeks in soybeans due to worries over the Chinese economy and our earlier forecast that South American weather and crop conditions would improve.
Click on this image In the above video, I cover the following:
A) Why late January and February heat and dryness in Argentina is unusual during El Niño but some problems may develop from excessive heat;
B) How teleconnections such as the MJO and AO index can affect South American corn and soybean weather in February and offset typical ideal “El Niño type” weather (too wet at times for the northern Brazil soybean harvest and some potential minor issues resulting from hot and dry in Argentina);
C) How we warned clients of a top in the natural gas market by predicting a +AO index;
D) How the Red Sea tensions have helped markets such as Robusta coffee and cocoa soar. These two markets already have had tight supplies due to El Niño-related crop problems (Brazil coffee weather will continue to improve vs. some previous crop reduction issues);
E) If February is hot and dry in Argentina, this might suggest that the 1987-88 El Niño analog could hold, suggesting the potential for summer Midwest weather problems affecting corn and soybeans (right now we are not calling for this, but something to watch).
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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 video above discusses the weather extremes affecting South America’s soybeans, coffee, and sugar crops.
Will the chances for rain increase in drought-stricken N. Brazil and the floods ever abate in southern Brazil? There could be some important rains (down the road) for northern Brazil, with flooding occurring to the south. So how do you trade coffee and soybeans and what is my longer-term view?
Find out our futures, ETFs, and option strategies in our WeatherWealth newsletter and join farmers and traders around the world who have benefited from the only meteorologist who is—a commodity trading advisor with 38 years of experience.
These are the climatic factors resulting in incessant rains in southern Brazil, while northern Brazil has record heat:
A mix between strong vs. weak El Niño conditions
The MJO is moving into phase 2/3
Deforestation of the Brazil rainforest
Flooding and landslides triggered by heavy rains in southern Brazil have claimed at least six lives over the past week, The fatalities occurred in the states of Santa Catarina and Rio Grande do Sul, and major property damage in the latter was reported as thousands of people sheltered in gymnasiums.
Southern Brazil has been hit by historic rains in the last few months. This could threaten soybean planting and production in two of Brazil’s key producing states.
Soybean planting in Brazil is way behind schedule (Source: AgResource)
In contrast, extreme heat is threatening soybeans in Matto Gross (the #1 soybean-producing area)
Climatological factors causing a wide variety of Brazil weather
There are a few key factors that can contribute to a pattern of flooding in southern Brazil and heat in the north during November in an El Niño year:
El Niño shifts tropical rainfall northward, leaving southern Brazil and Rio Grande do Sul susceptible to frontal systems and atmospheric river events that stall and lead to heavy rainfall and flooding.
The warmer tropical Atlantic waters during El Niño allow more moisture transport into southern Brazil, increasing rainfall intensity.
With reduced tropical rainfall across northern Brazil during El Niño, prolonged heat is more common as subsidence and dry conditions dominate.
Weakened easterly trade winds allow cold fronts to penetrate farther north into Brazil’s northern regions during El Niño.
These displaced fronts and overall circulation changes enhance north and south Brazil’s temperature gradient and extremes.
Deforestation of the Amazon in conjunction with El Niño, has built a huge, hot ridge in northern Brazil.
We have a mixed situation in the jetstream pattern in the Southern Hemisphere right now, while Pacific Ocean temperatures are incredibly warm, portending strong El Niño conditions, other variables we look at depict weak El Niño conditions.
The MJO
There is also a climatic phenomenon called the Madden-Julian Oscillation Index (MJO. It is like a traveling pulse of storms and rainfall that moves eastward around the equator, and it is a weather pattern that can influence things like monsoons and tropical cyclones. This makes the weather more active in some regions and quieter in others. Picture it as a cycle of increased and decreased rainfall marching across the globe.
Contrasting two El Niños: The MJO was in similar November phases during these 2 infamous El Niño events. One was weak (2009) and one strong (2015). Both of these years had heavy rains and flooding in parts of southern or central Brazil affecting either sugar cane or soybeans.
This November, it is soybean areas in Rio Grande Do Sul (#2 biggest Brazil soybean producer) and Santa Caterina experiencing the worst effects of flooding.
As my discussion illustrated at the top of this report — El Niño can often bring heavy rains to parts of central or southern Brazil. The most recent infamous case was in the fall (Brazil spring) of 2009. The result was extreme crop stress and dilution of Brazil’s sugar crop.
Brazil’s sugar crop was diluted due to heavy 2009 rains. There was also a drought in India as there was this year.
Global weather and crop conditions suggest two different types of El Niño events
During weaker El Niño events, such as in 2009 (2nd map below), notice how much further north heavy rains were during October than during the strong El Niño of 2015. This was much more of a detriment to the sugar crop than to other commodities like coffee or soybeans.
CONCLUSION:
Global weather patterns are fluctuating between weak and strong El Niño conditions. Despite its weakness, historically weak El Niño events, like 2009-2010, impacted global crops such as sugar and cocoa, leading to notable market volatility.
This season, intensified weather extremes in Brazil, fueled by a strengthened northern Brazil ridge, raise concerns for soybean production in Matto Grosso. The heightened ridge, stronger than in November 2009, may amplify crop problems, underscoring the potential extreme volatility in the soybean market.
Will the 2009-2010 pattern be similar this season for the soybean market? This is what I will be answering for subscribers to my WeatherWealth newsletter.
Frequent trading strategies and long-range weather forecasts are available for multiple commodities.
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