Another major severe weather outbreak is likely in the Plains and Midwest today. More could occur in the days and weeks ahead.
Huge South American crops are coming which we predicted months ago. This, combined with worries over Trump and Brazil’s currency, are keeping grains in a major down-trend. Soybean prices are also under pressure due to the fact that acreage switches from corn and soybeans are likely the next few weeks (too much rain for the Midwest). This may encourage flooded corn acres to go over to soybeans.
Source Allendale.com
“Corn Crop in Illinois will continue to suffer from heavy rains into late May. This will be the case in several other states. Usually, “rain makes grain” and is bearish corn and beans in the spring. However, another week or two of this type of weather may get noticed in the corn market (too much rain)”—Roemer
There have been 2 major spring corn rallies on severe Midwest Flooding that I can recall. One was in 2008 and of course the historical floods of 1993 that sent the Mississippi to the highest level in 150 years was the other. Much of Europe and Russia are enjoying an improvement in their weather benefitting the wheat crop. If it were not for the fact that, wheat prices would take note of more severe weather (see map) the next few days. The U.S. wheat crop will continue to come down and corn planting and early germination will be a problem heading into late May.
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A deluge of weather issues plagued Kansas wheat areas over the weekend. Consequently, a three pronged threat (that Jim gave a heads up to his clients on) may lead to a decrease in crop quality. The major short position in the market means a lot of investors are taking a hit with today’s rally.
Snowfall
For the western half of Kansas, up to a foot of snow fell. Due to warmer temperatures, it was heavy wet snow that fell, rather than fluffy powder. This is important because wind and snow can knock heads off the plant, limiting its yield.
SOURCE:NOAA
Late Spring Shiver for Wheat
Wheat can survive freezing temperatures during the winter, while the crop is dormant. However, the crop came out of dormancy early this year because of the warm temperatures in March and April. In Kansas, 25% of the crop currently headed. This portion is most vulnerable to freeze damage, with injury typically occurring at 30F. Less developed wheat is more resilient to cold conditions, with damage occurring at 15F-25F. Check out this informative graphic from Kansas State University regarding temperatures and potential injury.
SOURCE: Kansas State University
Flooding
For those that were spared snow and cold, their consolation prize was abnormally heavy rainfall. Rainfall totals ranged 1″ to +4″ in eastern Kansas and Missouri. Flooded soils can deplete the developing plant of oxygen. However, wheat usually can survive one or two days of flooding. Severe storms, included several tornados, tore through the midwest and South. See the video below:
SOURCE:AP
Jim’s comment and market view of this unique weather impact on futures prices is only provided to subscribers and private clients.
Coffee futures took a nose dive and dropped 8% in the past two days. The new unicorn frappuccino is not to blame. Instead, it is the Brazil harvest that is pressuring the market. This year, it will add to the global supply, despite being an “off-year” for the crop there. The trees have a natural cycle that typically leads to higher production every other year. This year, production is expected to fall over 15% in Brazil from last year. But given no urgent supply issues, traders are looking ahead and anticipating a massive Brazil crop in 2018. See price chart below:
This move coincides with a seasonal move seen in most years. The Brazil harvest typically pressures the market even during off years. As a result, farmers process and sell more coffee beans, decreasing the global price. Commercial sellers of coffee potentially hedge their risk by selling coffee futures to lock in their price.
Continuing the Downtrend
Prices slid down ever since the dryness in Minas Gerias was limited by decent rains in late January. A stronger La Nina would have led to higher chance of drought for some of the southern growing areas. Colombia (worlds 3rd biggest produce) coffee areas were also spared most of the extreme flooding sometimes observed in La Nina years.
Jim says “It will take a Brazil freeze scare in the next few months (Brazil’s winter) to take us out of the doldrums.” He has been bearish most commodities as he mentioned in his interview in Bloomberg. Watch it here: https://www.bestweatherinc.com/on-air/jim-roemer-bloomberg-tv-31417/
Last year at this time, frozen OJ futures were at the beginning of a 7-month rally. Global production had continued to declined since citrus greening and citrus canker have been ravaging crops in Brazil and Florida. The only way to treat infected trees is to remove them and others within a 1 mile radius. Therefore, global acreage has dropped. Hurricane Matthew and Hermine also provided a speculative boost in prices last year, due to worries of storm damage.
OJ Price Reversal
Now it appears that the nonexistent demand is the dominating feature in the market. Orange juice consumption has decreased in 14 of the last 15 years. Other beverages have taken orange juice’s place in American homes. This is similar to the decline in soda consumption, as people stray from sugary drinks.
Moving Forward
Rainfall in Florida over the next couple months is very important. Drought conditions are currently present. See the drought monitor below: If an El Nino develops, this typically leads to above normal rainfall. Most models forecast continued Nino 3.4 warming. Crop damage by hurricanes are always a concern for the summer and fall. But El Nino conditions cause increased shear, that shred tropical systems and hinder hurricane formation. A significant drought or damage from hurricanes would be necessary to really shake the market from its current low demand/low supply see saw.
Forecasters and models alike are warning that a potential El Nino is on the way. Consequently, worries of major crop issues across the globe are abound. The Nino 1+2 index jumped significantly in early February, leading to warm anomalies off the West Coast of South America. The other indices (Nino 3, 3.4 and 4) are slowly catching up as well. The graph below shows the latest weekly values from NOAA.
DATA SOURCE: NOAA/NCEP/CPC
FORECAST
The million dollar question is whether or not a full-fledged ENSO event will form by winter. Too soon to say? There is often a “spring barrier” for El Nino predication accuracy. Models do not yet have the capability to accurately forecast 7-9 months in advance with strong certainty. A great example of this happened in 2012. The model forecast from August 2012 is shown below. They clearly favor ENSO development. However, one never occured (black circles showing actual values).
DATA SOURCE: NOAA/NCEP/CPC, IRI, and all model development Institutions.
The severity and timing of the El Nino formation will determine whether global crops are impacted. Warm sea surface temperatures in the Western Pacific causes less rainfall to fall during the Indian Monsoon (June-Sept). Flooding during Brazil’s cane crush could limit sugar production. The summer & winter demand for natural gas may also be impacted. Knowing the ENSO forecast will give traders a heads up before major commodity price moves. Our proprietary analysis (that we only give to our clients) on the models and teleconnection will provide the true chance of whether or not poor crop conditions will occur in 2017/18.
HELPING YOU MAKE THE BEST INVESTMENT DECISIONS BASED ON THE WEATHER
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