(Our video from last week addresses why we reversed our bullish attitude in natural gas early this past week and enumerates the implications for South American grain weather.) It’s a bit too late to sell natural gas in the hole now, especially with a potential friendly EIA number later this week.
El Niño usually brings big crops to Argentina
It is common knowledge that more than 80% of the time, El Niño brings above the normal corn and soybean yields in Argentina and southern Brazil, but can often bring dryness and reduced crops in northern Brazil. This certainly happened earlier this winter (South American summer) with drought hurting Matto Grosso soybean yields. Nevertheless, we had been in the bearish camp for weeks in soybeans due to worries over the Chinese economy and our earlier forecast that South American weather and crop conditions would improve.
Click on this image In the above video, I cover the following:
A) Why late January and February heat and dryness in Argentina is unusual during El Niño but some problems may develop from excessive heat;
B) How teleconnections such as the MJO and AO index can affect South American corn and soybean weather in February and offset typical ideal “El Niño type” weather (too wet at times for the northern Brazil soybean harvest and some potential minor issues resulting from hot and dry in Argentina);
C) How we warned clients of a top in the natural gas market by predicting a +AO index;
D) How the Red Sea tensions have helped markets such as Robusta coffee and cocoa soar. These two markets already have had tight supplies due to El Niño-related crop problems (Brazil coffee weather will continue to improve vs. some previous crop reduction issues);
E) If February is hot and dry in Argentina, this might suggest that the 1987-88 El Niño analog could hold, suggesting the potential for summer Midwest weather problems affecting corn and soybeans (right now we are not calling for this, but something to watch).
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This video pinpoints the climatic variables responsible for the coldest U.S. weather in years. Frequent snowstorms will also occur. The good news is that some easing of the cold will occur by late January.
A negative NAO index has to do with a warm block near Greenland. (please watch my video —it explains how this is affecting commodities)
SNOWFALL PROJECTIONS NEXT 2 WEEKS (INCHES): A negative NAO will bring many areas in red and white over 1-2 feet of snow from at least 2 major storms. The most snowfall in several years
The opposite is happening over the South Pole (Antarctica), there has been a positive AAO index. This means the vortex stays put and does not move north. Combined with El Niño, this has brought improved weather for South American soybeans, something I alerted all my WeatherWealth subscribers about, three weeks ago.
Only 4 or 5 El Niño events have seen a powerful negative NAO index in January. Most of these years saw El Niño weaken by the spring or summer. Based on this scenario, this will be very important for many agricultural markets, and I will be developing trading strategies in options, futures, and ETFs.
How a negative NAO (warm block over Greenland that forces the Polar Vortex south) affects commodities:
1)Energy/Natural Gas: Coldest weather in at least 2-3 winters coming for Europe and the U.S. starting next week
2) Wheat: Isolated areas of winterkill in Russia and possibly Nebraska and big cold and snows for the southern Plains and Midwest. It will be important to monitor snowfall.
3) Cocoa: While I was bullish all summer and autumn long on major wet weather and disease issues, the lack of a Harmattan Wind in Ivory Coast and Ghana could prevent any further damage to the cocoa crop
How does a positive AAO index (The vortex that remains over Antarctica and does not move north) affect commodities?
1) Soybeans/Corn: Easing of the northern Brazil drought and potential big Argentina crops
2) Coffee: A hot November and early December likely will lower Brazil’s coffee production by several million bags, but improved rainfall is on the horizon that will stop further damage.
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This free report below was written three weeks ago before we changed the weather forecast for natural gas and energy markets)
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The Madden-Julian Oscillation (MJO) is an eastward-propagating, large-scale atmospheric circulation pattern observed in the tropics, particularly over the Indian and Pacific Oceans. It is characterized by alternating phases of enhanced and suppressed convection. The MJO plays a crucial role in modulating tropical weather and influencing the development of tropical cyclones. It is identified through various meteorological parameters, including cloudiness, winds, and precipitation anomalies, and its activity is monitored using different indices, such as the Real-time Multivariate MJO Index (RMM) or Wheeler-Hendon Phase Diagram.
It is also ultra important for commodity and crop water along the equator–particularly for West African cocoa and northern Brazil soybeans, sugar, and coffee crops. The MJO will be going into a drier phase for West Africa. This means, finally, some improved dry weather for the West African main crop cocoa harvest. It will then go into a wetter phase for northern Brazil soybeans and coffee bringing some relief to the recent drought by later December.
Hence, after a major bull market in cocoa prices has occurred, there may have to be some added El Niño weather-related disruption, later this winter or spring for cocoa prices to make new highs.
Think of the MJO as a globe-trotting storyteller in meteorology. This index tracks a pulse of stormy weather as it travels across the tropical regions near the equator. It’s like a weather adventure, influencing rainfall and storminess along its journey. Sometimes it brings rain, sometimes calmness, and it loops around the Earth, affecting weather patterns in far-reaching places. So, when meteorologists mention the MJO, they’re essentially talking about this fascinating traveler-shaping weather tale around the world.
After a massive sell-off in natural gas prices the last few weeks on a warm late fall and huge production, the NAO turning negative may offer some colder, snowier risks for the eastern third of the U.S. But, is it enough to warrant a major rally in natural gas futures?
Overall, however, our WeatherWealth newsletter has been bearish natural gas for more than a month, helping clients to potentially capitalize on various options and future strategies.
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