I had been in the bearish in coffee prices most of this winter (Brazil summer. My earlier sentiment was due not only to consumer demand worries from the Russian-Ukraine War and risidual concerns about COVID, but because I forecasted the northern Brazil drought to break, last October. Indeed crop prospects have improved for Brazil coffee following frosts and droughts last year.

I mentioned weeks ago to my Weather Wealth clients to sell call options when coffee prices were in the $2.30-$2.50 range. However, I alerted clients earlier this week to potential problems areas for both Colombia coffee and Brazil that might foster a rally again in coffee prices.

Here is a chart “Phenological Chartacterization Of Coffee Deveopment In Brazil” . Excellent October-December rainfall in Brazil aided the bloom and development stage of coffee. Presently, the coffee crop is maturing and “normally” dry weather is not a crop issue. However, it may be an issue this year. Temperatures for the month of April into May are well above normal that may cause some shrinking of the coffee beans, ahead of harvest.

We are in the “maturation stage” presently. Hence, weather later in May-July will be very important for the harvest.

The stronger U.S. dollar, caused by inflationary concerns and rising interest rates, helped to pressure coffee prices through support earlier this week. However, as is so often the case in commodities, “when everyone runs for the hills and is washed out”, that is often time to buy (on fear, not greed)

We can see below the dryness in Brazil and it being too wet for Colombia coffee. The last time this happened was during the La Nina of 2011-2012 when reduced crop estimates for Colombia helped coffee prices rally into June.

Will this happen again and could there be a frost scare for Brazil in the coming months? My next issue of Climatelligence will discuss more about coffee weather in the weeks and months to come and how to trade this.

Jim Roemer