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
(note: Weather maps and BestWeather spider are by Jim Roemer and added to this article by BestWeather, Inc.)
Coffee futures rallied last month, with the benchmark robusta variety climbing to a record and prices for arabica at their highest since 2022. But analysts suggest that prices for both have topped out for the year as weather conditions in Vietnam look to improve.
Robusta coffee futures peaked in April and have been selling off since, said Jake Hanley, managing director and senior portfolio specialist at Teucrium.
Drought in Vietnam, the world’s largest robusta coffee grower, is curtailing production, “driving local prices higher, incentivizing farmers to hold on to their beans rather than sell them,” he told MarketWatch. He cited a Bloomberg report that said Vietnamese robusta coffee farmers have failed to deliver up to 200,000 metric tons of beans under contract.
The coffee market is a “weather market and volatility should be expected,” said Hanley, but there is talk that drought conditions in the Central Highlands in Vietnam will let up by the end of this month, he said.
On the ICE Futures Europe exchange, the most-active July contract for robusta coffee D00, +0.09%DN24, +0.82% hit a record intraday high at $4,575 per metric ton on April 25, based on data going back to 2008, according to Dow Jones Market Data. Based on Wednesday’s intraday trading, it was around 3.3% lower for the week, but has climbed 12.4% year to date.Robusta coffee prices have dropped from a record highSource: FactSet
Robusta and arabica are the two most common types of coffee beans produced and sold, according to Bean & Bean Coffee Roasters. Robusta coffee makes up 40% of global coffee production is commonly used to make instant coffee, and is cheaper to produce, while arabica makes up about 60% of global coffee production and requires more energy and resources to grow.
The rise in robusta coffee prices to all-time highs “inadvertently” helped Arabica “rally more than it should have,” said James Roemer, the publisher of the WeatherWealth newsletter.
Since then, there have been forecasts for rain in Vietnam — that, along with the stronger U.S. dollar and record long speculative position in coffee, “caused a major washout” for prices, he said.
Looking ahead, without a frost scare in Brazil, prices for arabica could trend to the $1.50 to $1.70 area come July or August, said Roemer.
For robusta, following expected rains over the next two weeks, the crops in Vietnam could still be hit by dryness this summer as weak El Niño conditions exist, he said. Most forecasters are calling for La Niña conditions, which could bring heavy rainfall, but he does not expect that until after September.
Meanwhile, Roemer said Chinese demand has not been a factor in coffee’s rise this year, with demand having been weak against the backdrop of a record-warm global winter.
Coffee is technically weak, Roemer said, and the market will “need to see the dryness return in June and July in Vietnam and/or a Brazil freeze scare to see a new bull market again.”
Jim Roemer’s Weather Spider featured for grains, soft and natural gas commodities each week in his WeatherWealth newsletter
Why corn prices have not rallied in the face of disease issues and lower production in Argentina
The near-historic drought for Vietnam’s coffee & how we called this for clients more than a month ago
Why El Niño-neutral conditions (not La Niña) may persist through the North American summer. This will have implications for potential improved Plains wheat weather and good planting for corn
A look at global crop stress
If you haven’t done so already, please feel free to download a WeatherWealth issue we published two weeks ago:
“How to trade parabolic commodity moves and early season grain weather”here
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).
f you have not yet had a complimentary trial to WeatherWealth, please request one, and join farmers, ETF investors, and futures traders on six continents and those who just want better (more accurate) short and long-range weather forecasts, often before markets react. While past performance is not indicative of future results, calling the $1 collapse in soybeans the last 6 weeks and the recent huge weather market natural gas volatility pays for the newsletter for years in just a matter of weeks.
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