Meteorology’s MJO index: What it means and how it is affecting sugar and coffee prices

Meteorology’s MJO index: What it means and how it is affecting sugar and coffee prices

Jim Roemer – Tue May 14, 7:49PM CDT 

(SBN24) (SBV24) (SWQ24) (SWZ24) (CANE) (RMN24) (RMU24) 

“Meteorology’s MJO index: What it means and how it is affecting sugar and coffee prices”

by Jim Roemer – Meteorologist – Commodity Trading Advisor – Principal, Best Weather Inc. & Climate Predict – Publisher, Weather Wealth Newsletter 

 –  May 14, 2024


The MJO index tracks an area of enhanced rainfall and storminess that travels around the global tropics every 30-60 days. It measures the strength and location of this propagating wave of cloud cover and precipitation. The MJO can have a significant impact on weather patterns across the globe by influencing the strength and location of the jet streams, formation of tropical cyclones, monsoon patterns, and development of El Niño and La Niña events.

Meteorologists closely monitor the MJO index because when the MJO is active, it provides better predictability of weather systems around two weeks in advance. A strong MJO signal over the Indian Ocean or western Pacific can increase the chances for tropical cyclone formation in those regions. Conversely, when the MJO is weak or incoherent, weather patterns tend to be more unpredictable at lead times beyond about a week.

The climatological effects of the MJO are especially relevant in Southeast Asia. For example, over the next two weeks or so, look how the rotation of this disturbance in what we call “phase 5” will bring important drought-easing rains to Vietnam coffee and Thailand sugar cane areas. 

Of course, the U.S. dollar, Brazil’s Real, technical chart patterns, crop conditions in other countries, and the CFTC’s Commitments of Traders reports are all big factors for soft commodities. However, this little-known disturbance (MJO) is a background influence on the recent collapse in Robusta coffee (Vietnam production) prices and for sugar, as well.

Screenshot 2024-05-14 at 7.08.44 AM.png

Source: NOAA & WeatherWealth newsletter

Important rains coming to the Tropics may prevent a return of a soft commodity bull market

As one can see, drought stress has expanded and rainfall is critical to get the 2024 sugar cane and Robusta coffee crops off to a decent start.

Screenshot 2024-05-14 at 7.14.49 AM.png

Source: NOAA

Brazil is the largest sugar producer in the world. Currently, parts of Brazil’s sugar cane area are experiencing heat and dryness. This has benefited the nation’s upcoming huge harvest in 2024, however, it could threaten the 2025 crop. Presently, as the sugar chart illustrates below, traders and producers are comfortable with what could be a big rebound of sugar production in Thailand and India if the monsoon kicks in this summer.

Screenshot 2024-05-14 at 7.17.25 AM.png

Source:Barchart.com and WeatherWealth newsletter


Three weeks ago, we called for the end of the parabolic commodity hype in the cocoa market. In our newsletter we talked about parabolic markets and when to recognize they may be over and to sell into the bullish fever. 

You can download a past free issue from WeatherWealth here  > > >   https://www.bestweatherinc.com/new-membership-options/

Screenshot 2024-05-14 at 7.27.13 AM.png

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. 

“You can’t change the weather, but you can profit from it”
Commodities Corner: Why coffee futures may have already hit their peak for the year

Commodities Corner: Why coffee futures may have already hit their peak for the year

 

Myra P. Saefong

(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

Calling the historic price collapse in cocoa

Calling the historic price collapse in cocoa

(CCN24) (CCU24) (CCZ24) 

(CAN24) (CAU24) (CAZ24) 

“Calling the historic price collapse in cocoa”

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).

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.

Feel free to download a complimentary issue of WeatherWealth here:  https://www.bestweatherinc.com/new-membership-options/

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.

Craving a Cup of Joe? Vietnam’s Drought Could Leave You High and Dry

Craving a Cup of Joe? Vietnam’s Drought Could Leave You High and Dry

See this video above. It covers the following:

  • 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   

How a lingering El Niño & Climate Change are creating a new bull market in coffee futures

How a lingering El Niño & Climate Change are creating a new bull market in coffee futures

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.

Best Weather Spider (sentiment index)

Jim Roemer

Earth’s Accelerating Spin: How Melting Poles Impact Natural Gas and Grain Markets

Earth’s Accelerating Spin: How Melting Poles Impact Natural Gas and Grain Markets

by Jim Roemer – Meteorologist – Commodity Trading Advisor – Principal, Best Weather Inc. & Climate Predict – Publisher, Weather Wealth Newsletter 

  •  Thursday Evening Weekend Report – March 28-31, 2024  
Screenshot 2024-03-28 at 10.56.42 AM.png



Worried about losing one second of time? The melting Polar Vortex is not only creating more and more of a warming planet, but is also speeding up the Earth. 

My video (above) addresses how I predicted another warm winter, the collapse in natural gas prices and which analog years might be helpful to predict summer grain markets and crops. Enjoy!


Anyway, in the next couple of years, we’ll all lose one second from our day. It may not seem like much, but this tiny adjustment to our clocks is being impacted by the massive melting of polar ice due to climate change.

The length of our days is determined by the Earth’s rotation speed. As that spin gradually changes based on shifts in the planet’s surface and molten core, we occasionally need to add or subtract a “leap second” to stay in sync.

Source: NOAA

  • While we’ve added plenty of extra seconds over time as the rotation slowed, the Earth is now speeding up again. For the first time ever, we’ll need to remove a second instead of adding one. But, the unprecedented removal could create unforeseen issues for computing systems used to only adding time.
  • The kicker? This leap second subtraction was originally forecasted for 2026, based on the accelerating spin. However, the study shows the melting ice caps are enough to delay that milestone day of lost time all the way until 2029. A tiny difference, but one more stark reminder of the profound impact human-caused global warming has on the fundamental systems that govern our world.
  • In just a couple years, we’ll actually need to remove a second from our clocks – something that’s never been done before. And the surprising reason? Human-caused polar ice melt.
  • While the slowing effect of tides has dominated Earth’s rotation changes historically, the melting ice sheets are now a major factor speeding up our planet’s spin. As that ice shifts from the poles towards the equator, it’s causing the entire Earth to rotate faster, like a figure skater pulling in their arms.
  • However, another force in the planet’s core is outweighing even the ice melt acceleration right now. We don’t fully understand these mysterious core processes 1,800 miles below, but they are inexplicably spinning up the solid outer shell independent of the liquid core’s motion.
  • The net result is an increasingly sped-up rotation requiring that unprecedented “leap second” subtraction soon, (likely in 2026)  according to the study. It’s a seemingly minuscule adjustment, but one with huge implications for things like stock exchanges and computing systems only designed to add time, never remove it.
  • To me, it’s simply astounding that human activities like burning fossil fuels have now measurably altered something as fundamental as the literal spin of our entire planet on its axis. A stark reminder of our growing impacts.
  • When it comes to commodities, One of the impacts has of course been the collapse in natural gas prices once again. Selling natural gas in the fall and getting out in the early spring has worked “almost every time” the last few years. My Spider, which was firmly bearish at a -8 back in December, is a bit more neutral now at these prices, but I see nothing to get excited about in this market given such massive global supplies

As we head towards the spring and summer weather markets in grains and soft commodities, find out how to trade better, get a jump ahead of other weather forecast firms, with a 2-week free trial period to WeatherWealth, here: