Where Weather Matters Most (The Spider Knows) 5/28/2020

All around the world, weather affects many things, especially commodities that come out of the ground. My weather forecasts focus on many agricultural commodities, and just a few energy products. My research for these forecasts is steeped in the disciplines of meteorology, climatology and statistical analysis; it is then fine-tuned with my years of experience in the futures industry.

The quickest means to convey the big picture to my readers is a chart. I developed a BestWeather Spider to give investors a general idea of how weather affects a particular market.

This Spider that I sent to my subscribers TODAY shows the greatest confidence for Corn (-4) and for Robusta Coffee (+3). The following excerpts address just some of the supporting evidence behind my sentiments about those two crops:

CORN

Why have corn prices not fallen out of bed this last week or so? Summer risk premium and a big short position in the market are offsetting warm weather, even though some 70% of the US corn crop is in good/excellent condition. (See chart below from uk.reuters.com). A rebound in ethanol demand is possible with the economy opening back up from COVID-19, but crude oil prices are still so cheap, that any major pick up in ethanol demand is unlikely.

COFFEE

NY Arabica coffee reached the lowest level in weeks today. I believe this is due to false Brazil frost forecasts by other firms earlier in the week and a growing good crop in Brazil. Even in the face of a stronger Brazil Real, South American harvest pressure has hurt this market.

Robusta is the major source for instant, and other cheap types of coffee. It is grown mainly in Vietnam, Indonesia and far Northeast Brazil. Weather is a partial factor in this market. Record low river levels in SE Asia and a developing drought may keep the prices from falling very far. Robusta coffee futures are traded on the European ICE exchange.

There may be spreading opportunity in options or futures in these two markets, depending on weather over the next few months. You can learn how to trade these, and many other markets, with my WEATHER WEALTH subscription weather service.