The rally in coffee a week ago was due to the developing drought in Brazil and a big short position. However, I began telling premium clients close to two weeks ago, why a negative AAO index (from stratospheric warming) could soon pressure coffee prices and bring big rains to Brazil.

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The major warming occurring some 30-50 miles up in the Atmosphere is one key teleconnection influencing global weather. This has forced the AAO index to go negative. The map at the top of the page shows (blue–above normal rainfall) in key Brazil soybean and coffee areas when this index is negative.

Brazil ridge breaking down

The temporary fall in coffee prices is also due to the falling Brazil Real. This makes coffee prices cheaper in US dollar terms. Often, triple bottoms do not hold in commodities and the Brazil Real is challenging new lows.

Weather in Brazil, lack of new, positive Trade War news with China and the weaker Brazil Real has also pressured soybean prices.

What will happen with El Nino and other global climatic variables? Which commodities could be bullish? Stay tuned

Brazil Real

Jim Roemer

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