Commodity markets are squarely focused on the weather forecast thanks to a large drought in rural America. Mike Zuzolo of Global Commodity Analytics says the markets aren’t just looking at domestic weather.
He says, “I think what we’re seeing now is what I would refine from U.S. weather to global weather. We do have a global weather issue out there this year, unlike some of the most recent years, and what I mean is it seems as though Southeast Asia and Europe are still baking and also flooding at the same time. And it’s hitting both the European and Southeast Asian areas to the degree that I think it’s attracting the market attention, so it’s not all about the U.S. weather.”
He offered India as an example of a country facing serious weather concerns. “India comes out and says, ‘We’re considering banning almost all of our rice exports because of the super-high prices that we’re facing on food inflation.’ So, not only are they at a wheat export ban that’s been in place for several months, but now they’re talking about doing everything but basmati rice. And that would be about 80 percent of all their exports of rice if they would go ahead and follow through with that. That’s in no small part due to excess flooding in some parts of the country and excess drought in other parts of the country. So, I think we do have a global weather scenario that has to still play out in these markets.”
Zuzolo says another driving factor in the markets is a drop in the strength of the U.S. dollar. “I did not see a Dollar Index reversal coming until after the Federal Reserve gets done talking on July 26. The trade, however, after the Consumer Price Index numbers and the Producer Price Index numbers, feels so confident in the idea that the Fed will stop raising rates, and we will not have anything after this month, or if we even have one after this month. They have turned the dollar lower on a weekly basis. We’re down almost three percent on a monthly basis. We’re down almost four percent just in the first two weeks of July. That puts us down to levels not seen since a four-and-a-half percent reversal in 2022 and a five-and-a-half percent reversal in 2020.”
He says a falling dollar could lead to renewed strength in U.S. commodity exports as well. “I think it also opens the door up to the potential that we could start to gain that demand back in real exports of grains and meats faster than what I was expecting. I was expecting maybe we start to see that in the early part of 2024. But this is right underneath that global weather issue when it comes to the top two things I’m watching.”
For more information, go to globalcommresearch.com.
