Other than off-again, on-again news about the Ukraine-Russian grain initiative that is affecting trading, this video below talks more about El Nino, the Canada drought, and improving Midwest grain weather.
Homes and cars are damaged, fields of crops flattened and hundreds of thousands are without power after a derecho raced across parts of the Midwest Thursday.
The line of severe thunderstorms roared across the region with winds that gusted up to 90 mph.
Please click on the image below to see Jim Roemer’s video about the major squall line that brought the first rains in weeks to much of Illinois and other areas of the central and eastern corn belt
CLICK ON THIS PICTURE AND SEE MY VIDEO ABOVE
This Dercho is fresh on the minds of Iowans with major damage back in August 2020. Hopefully, this time, drought-easing rains will offset in most areas, major crop damage.
Net, net over the next 2 weeks, drought-easing rains will prevent the 2023 corn and soybean crop from being a disaster due to the drought.
See this video below regarding the Midwest drought, explosion in grain prices, soft commodities, and more
In the weeks and months ahead I will be updating my longer-term view regarding spring and summer global weather (fall and winter in Australia). I will also try to forge ahead with investment views for various commodities.
This report focuses on how I predict long-range weather and some of my early opinions. I present four different studies, which I studied all of last week. In addition, I use our proprietary in-house analytic weather tool, Climatepredict.com, which I query in order to verify these studies, once it updates in early April, May and June.
Currently, it is KC July wheat that has the most potential in grains due to the drought. I also am leaning towards a bearish summer view for new crop corn and soybeans, in which prices could collapse 15-30% by July and August.
It is possible corn and soybeans are oversold , but the huge Brazil soybean crop created a massive spiral down in prices, given the record long position in soybean meal.
Click on the youtube video below
study #1
Study #1: Looking strictly at the wettest winters ever in California (shown above).
This study provides an analysis of the current state of the Plains wheat market, revealing that the prevailing drought conditions would subside during the spring season. This development would have an anticipated to have a bearish impact on the wheat market. Additionally, the study suggests that the upcoming summer weather may exhibit mixed trends for corn and soybean, with occasional bullish indicators. Furthermore, the research findings indicate that the natural gas market may experience slightly elevated temperatures during the summer season.
Study #2: This study portends continued dryness for Plains wheat, but a good summer for corn and soybean crops.
Just based on the heaviest winter snows out west and the best ski seasons, the two maps above illustrate July rainfall and temperatures. Generally, it points to a bearish July outlook for corn with cool wet weather over much of the Midwest
Study #3—This study looks strictly at the worst Argentina droughts. This year (2022-23) was actually the worst soybean drought in the last 50 years.
This study illustrates the likelihood for the Plains drought to continue. Most Argentina droughts did have Midwest summer corn and/or soybean weather problems, as shown below. However, a lot will depend on the timing of whether El Niño develops or not.
Source: Jim Roemer (CHAT GTP)
Study #4: Weakening La Niña events and the negative PDO
La Niña, El Niño, and the PDO in the northern Pacific have huge impacts on spring and summer weather for commodities. I will discuss more of this in due time. Currently, three years were the most similar to today, regardless if there were atmospheric rivers and a big western ski season, or not.
Out of these three years (1979,2009 and 2012), March of 2009 and 2012 had similar weakening La Niña events. In fact, like today, 2012 was the third consecutive year of La Niña–something that has only happened three other times since 1950.
Notice the difference in the weather patterns for summer grains. On the left, a wet and cool Midwest summer (blue) and sharply lower corn and soybean prices. On the right, is the infamous corn belt summer drought and heat wave.
June to August rainfall: Bearish (left) 2009 & bullish (right) 2012 Midwest drought
Hence, these are two different scenarios for summer grain production.
Identifying the most reliable study for predicting long-range weather patterns is a complex task. The potential impact of a warming climate on weather patterns makes it difficult to accurately predict future trends based solely on analog years. However, by analyzing available data, we can discern general indications regarding long-range weather. Therefore, the question of the most reliable study for predicting long-range weather remains a challenging and multi-faceted issue. I will have more details soon.
However, it appears to me that 2009 might be the closet analog, with respect to: a) A drought in Argentina; b) A good ski season out west; c) Several big California winter storms (nothing like today); d) A weakening La Niña and a negative PDO in the Pacific. I will discuss many commodities and my longer-term view soon
The news regarding Russian grain export manipulation, coupled with the challenge of monitoring global weather patterns, poses a significant challenge to market analysts. The upcoming season will require close monitoring of weather conditions in both Europe and Russia, which adds a layer of complexity to the already intricate task of forecasting grain markets. Despite these challenges, it is my professional opinion that the market is poised for a bullish trend in KC wheat.
This spread has already soared to record levels. KC wheat is now about $1.40 above Chicago wheat.
I am more concerned about the global economy and the banking system. It is my belief that global government actions to shore up bank problems are just a band-aid. With that said, potentially bearish outside markets and most of my studies above about decent corn/soybean belt summer weather should be bearish grains, longer term.
While I do not claim to be an economist, the table above is worrisome. What happens with the economy, various items regarding Russian grain exports (or not), plus the U.S. dollar (and, of course, weather) will have a big impact on commodities.
Stay tuned as we get into the Northern Hemisphere planting season.
If you read my updates last week I mentioned my more bearish attitude toward soybeans with prices some 70 cents higher than this, as well as a longer-term bearish summer view for December corn.
Unfortunately, I caught wind of the new weather problems for Indian wheat (not just the Plains drought) on Thursday. WeatherWealth is usually sent out twice a week and before that.
In addition, Russia may cut off wheat exports again. Earlier last week, I mentioned NOT to be short wheat and did advise premium clients about my more bullish attitude in KC July wheat.
Two to three weeks ago, I advised to take decent profits on short wheat positions. At this point, given the political uncertainty in Russia and the fact that they can make announcements about grain exports (or not) at any moment causing huge moves in wheat futures, it is risky to trade grains.
Two weeks ago, traders may have liquidated short July KC wheat with at least a $2,000-$3,000/contract profit and were stopped out of long May soybeans at $14.90 with about a $400 loss. My bias is bullish KC July wheat, especially if we see some sort of 10-20 cent price break.
I also mentioned a potential longer-term bearish attitude in the new crop December corn a few weeks ago and prices collapsed. I think the odds would favor $11 Nov beans at the end of the summer and possibly $4.00 Dec. corn. However, the growing season has not even started yet and there could be many important trading opportunities in the months ahead.
Around $2.50, I advised having a break-even stop a few weeks ago on any long ETF (UNG/BOIL) or mini-futures contract. On the colder than normal late winter, I did recommend more than a month ago, selling the April for $2.50 put option for 22 cents ($2,200 a contract).
The short $2.50 April put expires shortly and, as of this writing, traders who did this may be out about $800-$1,300 a contract. Following several successful big trades, (earlier this winter or last fall), short call options, mini futures, or the inverse ETF (KOLD) in the last month or so we have had some small losing trades from the long side. My confidence is low in this market, but I expect a major short covering rally deeper into spring and ahead of summer.
Traders have been in a July option strangle for 1-2 months (The short July $2.10 call and short the July $1.50 put). This trade is ahead about $1000
Tight supplies and the worries over a lack of fertilizers for farmers have helped prices soar. We did not participate in this 20% rally the last few months in the ETN (NIB) or long futures because the weather is generally beneficial in west Africa.
On the first day of March, I advised selling May or July cocoa for around $2,800; at one point this trade was up $1,500 a contract. When trading, always put trailing stops in. Look how cocoa got below the trend line on improving West African weather but then came back above it (star). This is where one could have put trailing stops to preserve profits. However, I basically mentioned risking a break-even stop, last week.
El Niño talk, strong chocolate demand ahead of Easter, and very tight nearby stocks helped cocoa prices soar again last week.
Given the collapse in crude oil and the potential for global sugar production in 2023 to reach 180.4 MMT (a record), I am surprised that this market has not begun a downtrend.
Two months ago, I expressed my concern about a lower 2022 Indian crop, due to a delayed reaction to a combination of summer and fall droughts and floods. Nevertheless, my focus has been so much on the coffee, nat gas, and grain market that I really did not come out with any investment strategy.
Notice my Weather Spider a week ago. The economics are bearish (-2) due to lower crude prices and the dollar. Why is the moisture index bearish (good harvest weather for Brazil sugar) vs. my bullish (+2) for global crops? The lower Indian and European crop from 2022 has tightened nearby supplies helping prices rally.
Until we get into the 2023 growing season in Europe, Brazil and India, I am not following this market much. If the 2009 analog year I discussed above occurs, this could cause world weather problems for sugar, later. For now, my recent bias was to sell rallies in July sugar with low-moderate confidence.
The growth of the cattle industry in the United States in the nineteenth century was due to the young nation’s abundant land, wide-open spaces, and rapid development of railroad lines to transport the beef from western ranches to population centers in the Midwest and the East Coast.
The Europeans who first settled in America at the end of the 15th century brought longhorn cattle with them. By the early 19th-century cattle ranches were common in Mexico. At that time Mexico included what was to become Texas. The longhorn cattle were kept on an open range, looked after by cowboys called vaqueros.
In 1836, Texas became independent, and the Mexicans left, leaving their cattle behind. Texan farmers claimed the cattle and set up their own ranches. The beef was not popular so the animals were used for their skins and tallows. In the 1850s, beef began to be more popular and its price rose to make some ranchers quite wealthy.
Post-Civil War cattle drives from Texas north to railroad depots in Missouri, Kansas, and Colorado were a necessary part of the American economy in the late 19th century. The nation’s growing demand for beef, coupled with the concentration of beef cattle in Texas, led that state’s ranchers to organize cattle drives to bring herds north to railheads so they could be shipped to slaughterhouses in Chicago and other cities.
The United States was the largest producer of beef in the world in 2022 followed by Brazil and China. The United States, Brazil, and China accounted for roughly 51% of the world’s beef production. The United States accounted for roughly 21% of the world’s beef production in 2022.
Plains drought and recent cattle on feed report bullish but the market has already seen a stellar rally
The most recent USDA Cattle on Feed report confirmed the cattle herd is continuing to shrink, and high beef prices will likely be with consumers for some time.
Cattle in feedlots came in at 98% of a year ago. High input costs and, more importantly, persistent drought conditions in the western half of the United States are a one-two punch that cow calves and backgrounders have experienced.
The most weighted variable to feed costs is the weather. In most years, weather determines if a bumper crop is to be had or if supplies will be limited and potentially rationed.
High input costs are impacting the marketing and processing of cattle. The drought had a significant impact on pasture and rangeland this summer, especially in the West and the Southern Plains. When drought causes pasture conditions to decline, heifers (female cattle that have not borne a calf) that would typically be kept as breeding replacements are instead placed into feedlots for eventual slaughter. High input costs have been another obstacle to farm profitability and have incentivized cattle producers to market more cattle.
Seasonality and technical picture for cattle prices
I have so many other markets to follow, I really have not advised even once in this market. One can see on the longer-term price chart (third image below, second chart) how prices clearly broke above resistance last summer in late 2021 as cattle supplies began being affected by a multi-year drought.
Cattle prices by late January have rallied in 13 of the last 15 years into mid-February.
Conclusion: While I have no specific advice in the cattle market I feel that July KC wheat prices may have bottomed for now given the drought in the Plains, the recent freeze 2 weeks ago, and this big-time warmth you see (map to the right)
Drought worsening for Plains wheat as La Niña holds on, for now. Notice the extreme warmth the next 2 weeks
The weaker Brazil Real, improved crop weather, and warm global weather pressured coffee prices again last week. Remember, warm winter weather reduces global coffee demand.
This is a critical time for Argentina’s corn pollination and for the early stages of soybean development in Brazil. You can see the extreme dryness and temps this week close to 40 degrees C (100 F) creating some excitement again in the grain market.
While a long way off (10 days or so from now), most models are increasing rainfall for the drought areas. Will this only be temporary? Stay tuned. Right now, corn and soybean crop prospects are falling sharply in Argentina and far southern Brazil.
We already had the huge price break in natural gas prices I was expecting due to record-warm European weather and the warm late December and early January in the U.S.
The return of cooling over the stratospheric, combined with a warming planet and oceans for years retreated the polar vortex far to the north and helped pressure natural gas some 50% in less than three weeks.
This was our best call of the winter– (see the blue-cooling stratosphere). This helped to retreat the Polar Vortex following the historic Buffalo (NY) blizzard. Natural gas prices were trading close to $7, two-three weeks ago before this major collapse I predicted. However, honestly, while I have been bearish, I was surprised to see prices fall below $4.
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As we get deeper into January and early February it is possible that a slightly colder weather pattern will return for the Midwest and/or Northeast U.S. This is due in part to the movement of the MJO.
However, look how warm it looks first in the next 2 weeks. Some of this has already been built into the collapse of natural gas prices.
I will have my popular weather Spiders by Thursday a.m. I will likely raise natural gas from very bearish to neutral; my wheat Spider (KC wheat) was raised (see below) to slightly to modestly bullish; my coffee spider is bearish, and my corn and soybean spider is really unsure (neutral) due to possible rains later this month in Argentina and worries over the demand side of the equation and a big Brazilian soybean crop
Long March corn from $6.54 on the Argentina drought from 2-3 weeks ago. The trade was up $1,000 a contract at one point and is now about even. Stop at $6.46 ($400 risk) ( confidence low-moderate)
Buy July KC wheat on the Plains drought and recent freeze and my weather spider in the video. Risk 20 cents ($1,000 a contract) (confidence moderate to high)
Long March soybeans and short November soybeans from last Tuesday (see last week’s reports) on the Argentina drought and seasonals, while November beans may lag due to an expected increase in 2023 Midwest acreage and the potential for wetter spring or summer Midwest weather. This trade is out $300 a contract before the opening Sunday night. Risk $1,000 on this trade. (confidence low to moderate). I frankly feel with a potential big soybean crop in Brazil and the chances for late January rains, there may actually be a shorting opportunity within a week or two. I am unsure about being in this spread for now.
OPTIONS:
Been short the March $1.80 coffee call for 1-2 months from 350-600 points and is now ahead $800-$1600 a contract. This is on top of at least two other option strangle or short call trades late last summer and early fall that potentially made you at least $2000-$3500 a contract, as well. (confidence high)
Been short the February $7,$8, and $10 calls for the last 2-3 weeks with nice profits again of anywhere from $1500-$3500 a contract. These short calls will expire worthless and be my 4 consecutive winning options trade in natural gas since late last summer. Stay tuned, I want to think about another trade in March options, but the market is quite oversold right now per my Spider in my video above. (confidence has been very high for 2-3 weeks, but I like taking profits on all short positions and waiting, for now)
ETFs/ETNs:
Took huge profits of 45-70% short the natural gas ETF (KOLD) last week. (confidence was very high the last few weeks)
Long the all grain ETF (TAGS) from two weeks ago and this trade is about even or down slightly. (confidence low to moderate)
Traders can buy the wheat ETF (WEAT) (confidence moderate to high)
HELPING YOU MAKE THE BEST INVESTMENT DECISIONS BASED ON THE WEATHER