While the war in Gaza and Ukraine is of course taking headlines and having a positive effect on commodities such as gold, crude oil, and some agricultural commodities, we thought we would discuss how harvest pressure or lack thereof affects commodities. In the meantime, at the bottom of this report, you can download a complimentary sample of WeatherWealth and our free El Nino report. “Harvest pressure” is a term used in the financial markets, especially in commodities trading, to describe the downward pressure on prices that often occurs when crops are abundant during the harvest season. When farmers harvest a large amount of a particular crop, there is an increase in the supply of that crop in the market. Each commodity differs regarding the timing of its harvest and how weather, coupled with logistical problems (or not) may result in big supplies hitting the market, thus lowering prices. Or, these factors may also evolve into a supply squeeze, harvest delays, and a price rally, such as we’ve seen lately in sugar and cocoa. More supply, without a corresponding increase in demand, can lead to a drop in prices due to the excess availability of the harvested goods. This happened to the soybean market until last week, and especially wheat prices. You will notice the strong seasonal to be a long soybean meal that developed in mid-October. The combination of the lower USDA soybean crop and seasonal harvest pressure already built into the market a few weeks ago has lifted soybean prices. Source: MRCI.COM A similar event occurred in the wheat market, due to the huge Russian/European crops hitting the market in the last two months. Look at how the two biggest exporters of wheat saw a 5.3% and 6.9% increase in exports, respectively. So, harvest pressure refers to the tendency for prices to decline due to the increased supply that comes with the harvest. Now, the reduced Australian and Argentinian wheat crops that normally hit the market by late October and more so November and December could help wheat prices rally. Hence, lower southern Hemispheric crops “may result” in a bull market in wheat later this fall. Cotton prices broke some 10% in the last couple of weeks off their highs in anticipation of harvest pressure and worries over China’s textile industry. Look how the similar 2009 El Niño event had global cotton crop problems. With the U.S./China crop greatly reduced, there may not be the normal autumn harvest pressure. There could be a global supply squeeze. However, this squeeze would not happen until after the northern Hemispheric harvest--by late winter or next spring. Again, we need to see demand pick back up in cotton and China is the wild card. Concerning sugar, there is a squeeze situation, given tight stocks and reduced crops. The normal cycle of harvest pressure that begins shortly (see the seasonal) is questionable. While Brazil has a huge crop that sometimes results in profit taking in sugar, higher crude prices and flooding hitting Thailand (#3 biggest producer of sugar in the world) have kept this market in an uptrend. Finally, major Brazil harvest pressure and no frost talk from June to August helped coffee prices fall more than 20%. With the Brazil harvest and a big short position in the market, tight nearby supplies and hedge fund buying by the producers due to El Niño have helped coffee prices recover 10% from their lows this week. However, you can see below that a typical weather and chart pattern to the 2006-2007 El Nino might suggest a return of good rains or Brazil coffee and lower prices deeper into the year or in 2024. Source WeatherWealth newsletter CONCLUSION: Corn and soybeans already saw their harvest pressure a few weeks ago and seasonal demand and worries about the Amazon and the big northern Brazil drought are currently affecting prices. However, the odds are that El Nino will bring decent South American crops and potentially a big 2024 Midwest crop, so any longer-term bull market is probably unlikely. The wheat market was hit hard, not only by the stronger dollar, but huge exports of the Russian/Ukraine crop. This comes at a time when Russia desperately needs income and increase its export flow. However, the wheat market could soon shift its attention to the weaker Argentina and Australian crops that normally hit the market within the next couple of months. This could be a bullish situation for old-crop wheat. Every commodity is different with respect to harvest pressure and whether there is a squeeze or not. A supply squeeze has happened in cocoa and sugar recently where global weather problems from West Africa (cocoa) to sugar (India/Thailand) continue. In the case of coffee, the huge spiral down in prices from June to September occurred during the Brazil harvest. Now, with the harvest over, tight supplies have helped coffee prices soar nearly 10% in a week. However, El Nino does not bode well for a longer-term bullish view in coffee in 2024. We will be developing longer-term trading strategies for clients in many of these markets. Feel free to download our El Nino report here or a free 2-week trial period to WeatherWealth. We offer annual discounts to farmers and smaller traders, so if interested, please email scott@bestweatherinc.com for more information.