“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.
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.
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.
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.
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”
Up to 5-10 feet of snowfall in the Sierra Nevadas coming
What is warming at NINO4 east of Australia & possible implications for the transition of El Niño
The 2016 analog may be a good one. This could be bearish grains and potentially bullish Robusta coffee and sugar prices this coming summer, if it verifies
A major stratospheric warming event can sometimes force very cold weather upon key natural gas heating demand areas. This is what normally happens for late February and March when the AO index goes negative. However, I have “faded” this solution to our WeatherWealth clients touting an overall bearish view in natural gas, most of this winter.
The record warm global oceans are contributing to latent heat release (evaporation and more water vapor in the Atmosphere). This is resulting in:
Improved rain chances for Argentina’s key soybean growing areas again deeper into February
Northern Brazil rainfall to rescue a coffee crop, beaten down by previous heat and dryness in December-January
A warm global outlook for natural gas regions with weakened LNG exports
In addition, El Niño has actually strengthened a bit again. The SOI index has gone the most negative of the winter due to the MJO phase, You can see here my warm forecast for the month of March from last week:
So… how do you trade natural gas, grains and other markets? After all, the CFTC Commitments of Traders report shows a large net short speculative position (managed money) in many commodities that may be bound for profit-taking. That is what we do at WeatherWealth (short and long range weather forecasts, but also specific trading strategies one cannot get from any meteorologist. For example, we told natural gas clients recently about the price comparison to the warm 2020 winter.
(chart) Natural gas prices are mimicking the warm 2020 winter. Prices are even lower than $1.60 in part due to a lack of LNG exports and warm weather in Europe as well as the US
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(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.
This video pinpoints the climatic variables responsible for the coldest U.S. weather in years. Frequent snowstorms will also occur. The good news is that some easing of the cold will occur by late January.
HELPING YOU MAKE THE BEST INVESTMENT DECISIONS BASED ON THE WEATHER
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