Clients to our Weather Wealth newsletter were advised to book some really good profits in some coffee positions before the price collapse on Thursday, as well as potentially a long MGE July spring wheat, vs short December corn spread.
The worsening drought in the northern Plains, Canada, and parts of Russia helped spring wheat prices rally close to $1.00 this past week until a slightly wetter forecast and a strong dollar put the breaks on prices, temporarily.
However, the video above talks about the Climatic factors needed to see a bull market in corn and soybeans this summer. Enjoy
The biggest rain event in months will come just in time for Texas farmers struggling with an La Nina type drought. While the drought rages out west, we have been in the camp the last few weeks that improved Midwest growing weather would be the rule for corn and soybean farmers. Now, it is Texas’s turn to see rains in excess of 1-2″; just in time for planting.
Which weather variables will cause at least a short term easing in the drought? There are two of them. One is called the MJO (Madden Julian Oscillation) and the other, positive GLAMM (Global Angular momentum)
Unlike ENSO, which is stationary, the MJO is an eastward moving disturbance of clouds, rainfall, winds, and pressure that traverses the planet in the tropics and returns to its initial starting point in 30 to 60 days, on average. This atmospheric disturbance is distinct from ENSO, which once established, is associated with persistent features that last several seasons or longer over the Pacific Ocean basin. There can be multiple MJO events within a season, and so the MJO is best described as intraseasonal tropical climate variability (i.e. varies on a week-to-week basis).
The MJO mainly plays a huge role in tropical rainfall and can also enhance or suppress the Atlantic hurricane season. The MJO alone is not the primary climatic variable that influences U.S. rainfall but combined with El Nino and La Nina and other variables can help ease or strengthen droughts for U.S. crops. The MJO is entering the western Pacific and one can see the tendency below for above-normal rainfall over the southern Plains next week (green)
GLOBAL ANGULAR MOMENTUM
GLAAM has to do with the spin of the earth and is often correlated with either El Nino or La Nina conditions. Without going into too much detail, when we see positive GLAAM (The case the next week or two) this represents that the atmosphere is acting a bit like an El Nino. While we do not officially have an El Nino of course, La Nina has been waning. Notice the map below that shows positive GLAAM.
These two teleconnections discussed above will bring rainfall up to 3-4″ (map above) in some areas of the southern Plains next week. This may lower wheat quality a bit before harvest but also benefit parched Texas land for cotton planting.
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Click on this video (above) to see more about the fundamentals which affect cocoa prices and how global ocean temperatures will affect tropical, soft commodities.
The charts below global cocoa production through 2017. The arrows show years when lower production due to El Nino, a negative TSA, and negative Indian Dipole helped to rally cocoa production. The video above discusses a lot more about this.
IF you have not already, you can subscribe to a two-week FREE trial of Weather Wealth hereand learn how we caught the whole move up in the coffee market on the Brazil drought, the recent collapse in grain prices, and how to play cocoa futures in the months ahead.
This Video by Jim Roemer talks about the grain market, Global Angular Momentum, and how weather has been partially responsible for the recent sell-off in some commodities
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My clients were advised last week this might happen in some commodities.
Atmospheric angular momentum (AAM), a measure of the rotation of the atmosphere around the Earth’s axis, is a useful quantity to investigate changes in the global atmospheric circulation, especially over the Tropics. In addition to maintaining the global energy balance, tropical circulations are also critical for maintaining the global angular momentum balance. It is the weather in the tropics that often affects, not only cocoa, sugar, and coffee but grain commodities.
When GLAAM is negative, we tend to have La Nina conditions in the Pacific. Positive, El Nino type conditions. While there are other factors such as sea ice, etc that play a role in our climate, the switch to positive GLAAM last week helped us catch the top of the grain market for clients and call for the easing of the drought for some key North West US corn belt, soybeans, and spring wheat states.
What will happen to GLAAM in the weeks and months ahead and could things become more bullish for grains and other commodities come summer? What are our trading strategies in commodity ETFs options and futures? For that, we invite you to subscribe to one of our newsletters here bestweather.com
Please click on the video above and subscribe to my YouTube channel and for $1 receive my monthly weather forecasting and commodity newsletter CLIMATELLIGENCE (normally a $300 value). Email us at Scott@bestweatherinc.com if you are interested.
This video above talks about the following:
The Brazil drought affecting corn, sugar and coffee
INFLATION FEARS HIT THE STOCK MARKET ON TUESDAY AS THE BLOOMBERG COMMODITY INDEX HITS NEW HIGHS
THE DROUGHT IN THE NORTHERN PLAINS AND NW CORN BELT IS BEING WATCHED BY GRAIN TRADERS
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In a commodity SuperCycle, supply is so inadequate to demand growth that prices rise for a decade or more.
The chart above about commodity supercycles was featured in Jim Roemer’s newsletter for Weather Wealth subscribers, as well as various important weather outlooks and general trade ideas for global commodities. Get a 2 week FREE TRIAL to Weather Wealth here
SUPER COMMODITY CYCLES OF THE PAST
I believe we should be in a commodity supercycle and it is important to take a brief look back at the last two. In the 1970s, spiking oil prices created a boom that lasted into the early 1980s. In the early 2000s, China’s demand for copper, steel, aluminum, and coal. Crude oil spiked, reaching record high prices in 2008. Copper prices stayed high through 2014. There are three components of a potential commodity supercycle. They are oil and gas, metals, and agricultural space. We have already seen near historical April moves up in wheat, corn, and soybean prices on historical tight stocks, global weather issues, and stellar Chinese demand.
A Commodity Supercycle is defined by the multi-decade price movements in the underlying commodities, which are affected by short-term factors like Wars, Famine, Overproduction, Recession & other cyclical factors. Barring these short-term shocks, the larger pattern that emerges shapes the commodity Supercycle.
So, in my mind, we have already entered a commodity SuperCycle in the grain market. Grain stocks are the tightest in more than a decade. The problem is, if you have not already taken advantage of these and several other commodities ETFs and grain futures, I would not recommend jumping right in unless you use certain grain spreads and options.
Take a look at this ETF. It has already rallied some 50%+ on global weather problems, strong China demand, and inflationary fears. What happens next will be dictated more by spring and summer weather.
WEATHER WILL BE A CRITICAL FACTOR FOR MANY AG COMMODITIES IN THE MONTHS AHEAD
Will there be more of an explosion in grains, cotton, and other ag commodities? Stay tuned. I think one sleeping giant may be the coffee market and the ETF (JO), while any summer weather scares could potentially set corn and soybeans on fire.
For now, Midwest weather may be improving for planting crops into the month of May. This will affect certain spreads in soybeans, corn, and wheat. We here at bestweatherinc.com help farmers, novice to more experienced commodity traders develop some general trade ideas based on the weather’s impact on global crops and in the natural gas market.
THE FUTURE OF OIL AND RENEWABLE ENERGY
Metals such as copper and silver, plus trace metals such as Lithium are potential good longer term investments
Oil and gas and metals are relevant to decarbonization prospects. They’re also increasingly connected to each other. I have been bullish on the Green Energy space for quite a while and continue to monitor weather patterns, climate change, hurricanes, and other natural disasters and what different countries are doing to ramp up adaptation to global warming. While some of you may not believe in this, although “the science speaks for itself” (that’s perfectly fine), this is still a sector worth considering.
With the International Energy Agency predicting that global oil demand won’t rebound to pre-Covid levels until 2023, OPEC’s spare capacity could be very relevant, especially if oil demand has already peaked, as BP Plc said last year. That’s not to say that prices won’t keep increasing, but rather, that the sector has mechanisms in place to meet demand.
I personally would be very surprised to see the crude oil price anywhere close to $100 in the near future. There is just still too much OPEC production, and the U.S. is more self-reliant on oil due to the shale boom and because of the global switch to more renewables over the next decade. This is barring any major Middle East war that would disrupt oil supplies.
Instead of trading crude oil, continue to consider the Green New Economy and the many opportunities which present themselves. From solar to lithium, wind power and trace metals, I continue to like stocks such as NIO (NIO), Fuel Cell (FCEL), Bloom Energy (BE), just to name a few.
CONCLUSION:We have already entered a SuperCycle in many commodities and caution is warranted at these price levels. However, I believe the global new Green Economy will continue to offer great opportunities in electric cars and the renewable energy space, such as carbon capture companies and trace metals. With respect to grains and commodities such as cotton, cocoa, and coffee, I have been bullish on some of these markets for quite some time now. However, what happens later this spring and summer will depend greatly on global weather and whether or not an increase in supplies later this year takes the steam out of some of these markets.