Going in the opposite directions: Exploding coffee prices and potential new bear market for sugar

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“Going in the opposite directions: Exploding coffee prices and potential new bear market for sugar”

by Jim Roemer - Meteorologist - Commodity Trading Advisor - Principal, Best Weather Inc. & Climate Predict - Publisher, Weather Wealth Newsletter 

  •  Thursday Report:  July 11, 2024  

 

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Sugar prices after El Niño

As El Niño transitions to a neutral phase during the summer, sugar prices typically experience a downward trend due to several factors:

  1. Improved weather conditions: The end of El Niño often leads to more favorable weather patterns for sugar-producing regions, particularly in major exporting countries like Brazil, India, and Thailand.
  2. Increased production: With the return of normal weather patterns, sugar production tends to recover in countries affected by El Niño-induced droughts or excessive rainfall. This increased supply puts downward pressure on prices.
  3. Market correction: Due to supply concerns, sugar prices often spike during El Niño years. As these concerns dissipate with the transition to neutral conditions, prices typically adjust downward to reflect the improved supply situation.
  4. Stockpile replenishment: Countries and traders often take advantage of the improved production and lower prices to replenish their sugar inventories, which can temporarily support prices before leading to a more balanced market.

Other factors affecting sugar prices

It’s important to remember that sugar prices are not solely influenced by El Niño or La Niña alone. There are a few other factors that can play a big role:

  • Global demand: If people start consuming more or less sugar, or if the global economy shifts, it can impact sugar prices.
  • Government policies: The availability of sugar in the market can be affected by government policies, such as restrictions on sugar exports or changes to biofuel mandates.
  • Crop estimates: When new estimates are released about the expected production of major sugar producers, it can affect market sentiment and prices.
  • Crude oil prices: Higher crude oil prices can “sometimes” mean that Brazil producers convert more sugar cane to Ethanol to lower high energy cost risks. This lowers actually sugar cane production that can hit the market.

So, while prices generally tend to stabilize as El Niño ends, the exact changes in price can vary based on these other factors. I keep a close eye on weather patterns, production forecasts, and policy changes to predict where sugar prices might head next. 

 

My Weather Spider helps gauge market direction for all ag markets and natural gas in my WeatherWealth newsletter.

 

Look at the Indian Monsoon and the recent weather in Thailand

Generally, normal rainfall for key India sugar cane areas and a bigger crop in Thailand this year, combined with the weaker Brazil Real are bearish for sugar prices.

 

India’s monsoon picking up has pressured sugar, as I suggested to Weather Wealth subscribers last week, and I have developed longer term option strategies for these clients.

 

Source: ClimatePredict: Jim Roemer’s long-range weather forecast software 

 

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  • Find out how we recently called for the collapse in grain prices with specific profitable options and futures strategies for farmers and traders on six continents.
  • What is our feeling about coffee prices from here? 
  • How severe has the heat and dryness been in Brazil? 
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Thanks for your interest in commodity weather!

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. 


On the date of publication, Jim Roemer did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.