The grain market has been influenced by a variety of factors in the last few months ranging from previous China Covid lockdowns (bearish), poor demand for corn and wheat (bearish), big Australian wheat crops hitting the market (bearish), a potential huge Brazilian soybean and corn crop (bearish) vs the expanding Argentina La Nina type drought (potentially bullish later).
Corn pollination begins in Argentina in the next few weeks and there is little hope of any major relief. I think the Argentina corn crop will eventually fall below 50 MMT.
Till now, corn and wheat traders have basically “yawned” at the expanding Plains drought for wheat (the worst early planted crop in about 20 years from Kansas to Texas) and the drought in Argentina. Why? A couple of reasons 1) The demand side of the equation has been poor; 2) Wheat has 9 lives and commercial grain companies will not panic unless La Nina continues next spring and timely rains do not fall in the important April-May time period.
The one big winner in the grain sector lately has been soybeans. Look at the seasonal of long soybean meal in December that has worked in 13 of the last 15 years and how prices previously skyrocketed.
Source: Moore Financial Research
Source: Stormvista models and Weather Bell
With respect to the corn market, again, I expect that prices may bottom soon due to this extreme heat, and La Nina is still alive and well.
But what about next spring and summer? In 75% of the cases since 1950 when La Nina eased and transitioned to a neutral climatic shift, corn and soybean crops were above trend-line. This would be a long-term bearish signal later next year, in which a 15-30% drop in grain prices would occur from whatever highs we make this winter.
Our Weather Wealth newsletter has helped farmers and commodity traders in more than 15 countries make much more informed hedging and investment decisions based on our long-range weather forecasts and 35+ years of analyzing markets. There is so much FREE information out there, much of it old news and inaccurate. We pride ourselves in 2nd guessing forecasting models and understanding market psychology. We also have a unique Best Weather spider that we publish twice a week for multiple markets. Here is an example of how we were slightly bullish on soybeans close to a month ago.
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For nearly three months we have touted an end to the northern Brazil coffee drought due to the third consecutive winter (South American summer) of La Niña and other climatic variables we analyze for clients. We were lucky enough to catch most of the big move south a month or two ago from over $2.00 to about $1.55 per pound.
However, coffee prices wiped all of those bullish traders out of the market. They were focusing on other fundamental factors and not the weather. My Best Weather “Spider” was at a very bearish minus nine (-9) during September and October. Recently our Spider became more neutral before the price spike.
Where the Spider Is Now
Notice, for example, the “anti-herd mentality” of a +2 (bullish) due to too many shorts in the market in the last few weeks. Also, see how global crop prospects changed in my view, from a -3( bearish) to neutral to slightly positive (+1). The Spider below was released yesterday to clients before Tuesday’s big price rally.
Two Crop Issues in the Coffee Market
Two crop issues have returned to the coffee market. One is that, even with all the rain in northern Brazil the last 2 months, some concerns from hail damage in Minas Gerais and some trees stressed from the drought a year or so ago and frosts are not producing an excellent bloom. The other problem is the incessant Vietnam rains right in the middle of their harvest. This is typical of La Niña, but the rain presently is particularly heavy. It could lower the Robusta coffee crop.
Source: Jim Roemer and StormVistaModels.
So… how does one trade coffee? The first chance I see of a drying trend for Vietnam and/or hear new reports with respect to the Brazil coffee crop, I will recommend specific JO (ETF) and options positions for traders.
There are many climatological factors that affect the Atlantic and Gulf hurricane seasons. Typically, a La Nina event like we have today reduces wind shear which can help enhance tropical activity. In contrast, El Nino events increase wind shear and reduce the number of storms.
Based on our research and similar global ocean temperatures, the 1996 and 2018 analog may be a good ones. 1996 was a La Nina event with some similar global climatological characteristics. In 2018, Europe also had a severe heat wave in drought that killed thousands of people. African dust also killed the beginning of the hurricane season that year; like this year.
Notice the storm tracks in both of these cases: Mostly out in the Atlantic or along the east coast. In both 1996 and 2018, total named storms were 13 and 14, respectively.
Could this season still reach the projected 17 storms or more that NOAA and others are saying? It could based on climate change and the warm loop current in the Gulf of Mexico (see the discussion below)
So here is what we are thinking at Best Weather about the general storm tracks this year
1996 La Nina and hurricane tracks
2018 was not a La Nina but similar major European heat wave with AFrican dust
and 2018
Why 2022 hurricane season got off to a slow start and what may be changing?
Summer 2022 got off to a slow start due to major African dust that disrupted any development in the Atlantic. However, in the main eastern development region near Africa, African dust is weakening and some tropical storms and hurricanes are forecasted by early September.
Additional factors that influence hurricane development (or not), are the following
The MJO (Gulf of Mexico and Caribbean Sea hurricanes are four times more likely to occur when the MJO is producing enhanced precipitation and divergent upper level winds than when precipitation is suppressed and upper level winds are convergent.)
2. The TNA index (ocean temperatures off the west coast of Africa
3. The loop current in the Gulf of Mexico (The warm loop current the last few years, brought on by climate change and global warming helped spawn no less than 5 category 5 hurricanes over the last few years out of nothing).
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