At this time of year the weather in Brazil for coffee and in West Africa for cocoa is increasingly important. We recently advised clients in our Weather Wealth newsletter that we thought both cocoa and coffee prices would rally–for now, anyway.
Coffee is Perking
Part of the recent rally in coffee prices is due to very tight coffee stocks and increased global demand following earlier worries over the pandemic. In addition, the rally is because of a lower Vietnam coffee crop.
USDA sees coffee production in Vietnam down by 3.5% to 30.2 million bags in 2020/21. According to Reuters:
“Inventories have run almost empty. Those who have to fulfil their signed contracts have to buy at those high prices,” said a trader based in the Central Highlands.
“It’s not possible to turn to Indonesia for beans now although supplies are rising there as beans from the ongoing harvest are only enough for Indonesian roasters and exporters.”
The extremely dry weather last winter in Vietnam (red) has been responsible for lower coffee production. Dry Vietnamese weather normally affects “lower grade” Robusta coffee (instant coffee), grown mainly in Vietnam and Indonesia.
This chart was recently sent out to our clients. Higher quality Arabica coffee prices have soared to over $131. However, for prices to continue to march a lot higher, there need to be weather problems for the Brazil coffee crop next month. Be careful getting suckered into this coffee rally, unless my forecasts in a few weeks are for dry Brazil weather.
So, the real question for coffee traders is this. What will be soil moisture levels and the rainfall outlook be for Brazil heading into late September and October? Weather between now and through October will have a big impact on coffee prices. Our bi-weekly commodity newsletter will have a lot more detail.
Cocoa Prices Soaring On Dry West African Weather
Weather is not the only factor in the cocoa market. A weaker dollar and some political unrest can send prices reeling higher. The global demand situation is in question with respect to whether cocoa prices challenge yearly highs or not. However, drier than normal weather for the last four weeks (red) in Ivory Coast and Ghana is gaining market attention. This is normally the dry season in West Africa, though. Major, devastating crop damage would only occur if it remained hot and dry through the fall and the 2nd rainy season.
Our long-range weather forecast program, climatepredict.com, helps farmers, commodity traders, and agribusinesses make important decisions, often months in advance. Notice the forecast for the next month or two for West African cocoa. Rainfall potential is as much as 8-12″ below normal (red).
For more detailed about our longer-term view of global crop weather for coffee, cocoa, and many other commodities, please sign up for a free trial at WEATHER WEALTH.
All the best,
Jim
The explosion in cocoa prices on dry West African weather. A 15% rally the last few weeks.
