Extreme heat in much of the deep south and west is beginning to create a new bull market in natural gas, but what about corn and soybeans? Right now, my biggest concern is for flooding in the NW corn belt that may mean a switch from some corn to soybean acreage. The potential also exists for some heat heading into July.
Back in April, our forecast for drought-easing Midwest rains, combined with terrible demand, helped pressure grains sharply. This collapse may be surprising in the face of lower and lower Russian wheat crop yields and damaged South American corn and soybean production. However, it will take consistent heat and dryness later to foster a new bull market in corn and soybeans.
Could this happen? Perhaps. In my view, occasional weak El Niño conditions are holding on. I predict a hot July for parts of the Midwest corn belt based on what I’m seeing about the global climate, as per the maps below. The key factors are record flood levels coming to Florida combined with a warm signal from a NINO4 and a negative PDO.
1) Solar Activity:
My point of view : T h e r e is z e r o c o r r e l a t i o n b e t w e e n s u n s p o t c y c l e s a n d gl o b a l w e a t h e r.
Perhaps, 50-100 years ago that might have been the case… but not today, with record global ocean warming brought on by man-made influences. Do you think that all of these record-warm years are cyclical and due to the sun? Guess again… NO! The chart below shows how the planet has warmed since the 1880s whether solar activity (yellow line) was high or low.
2) Similar teleconnections and a look at July rainfall trends
The negative PDO in the Pacific, along with warming and an El Niño signal east of Australia (NINO4 region), combined with cooling near Peru (La Niña signal) has only happened simultaneously in two years since 1950. Depending on how these teleconnections fluctuate in the next few weeks, may result in a dry July in parts of the corn belt and take the bearishness out of the grain market.
3) Signs El Niño/La Niña conditions are going back and forth
Volatile global weather patterns have N O T H I N G to do with solar cycles but everything to do with record-warm global oceans and the oscillation of El Niño/La Niña among other teleconnections.
My program is available for all WeatherWealth subscribers. The purpose is to apply weather forecasts to predictions about market trends for agricultural and energy commodities.
Shown below are the incredible rains that hit Florida: more typical of El Niño lingering than La Niña
Will we enter a new bull market in corn and soybeans? For natural gas, we became bullish last week. Please feel free to download a recent complimentary sample issue of our newsletter here, or join farmers and traders around the world who want a much better edge trading commodities on the weather, with a 2-week free trial to WeatherWealth
From historic flooding that has jeopardized southern Brazil’s soybean crop to a major freeze in parts of western Russia and northern Ukraine’s wheat area, the world’s weather has become more and more extreme. Do you think this is just the effect of a diving El Nino???
. . . Wrong !!!
The global heat content of the oceans has broken records set back hundreds of years (never observed before).
Now, with the USDA report out of the way, I will be monitoring the following, for WeatherWealth clients:
1) My Midwest drought easing forecast from a month ago:
a) Will this result in planting delays deeper into spring?
b) Could summer turn hot and dry?
2) Just how bad is the freeze situation for Russian wheat vs improving weather coming for Plains wheat with good rains?
3) Will the flooding in southern Brazil be enough to cause a bull market in old crop soybeans?
4) Does coffee, cotton or cocoa have upside potential this summer or autumn, due to a transition towards La Niña?
Currently, the atmosphere is still experiencing occasional weak El Niño conditions. This could bode well for the Midwest grain harvest this summer and benefit global cocoa crops following major weather and disease issues that launched cocoa into a parabolic trajectory that took futures to historic high levels.
One of the things we study at BestWeather is the correlation of commodity prices and cycles with weather and yields.
For example, take a look at the history of December corn prices since 2000.
Without going into too much detail, the red and green bars represent the months when December corn made its first and second highs. In other words, one can see that corn’s price often rallies during June, making its high, and then falls 70-80% of the time in July and August due to good Midwest pollination weather. Of course, there are exceptions, such as the summer droughts of 2011 and 2012.
Please join farmers, commodity investors, and hedgers around the world who want better weather information, and learn how one can relate it to the markets and trading. There is no obligation, you can cancel at any time.
You will also see some of my past reports and how clients may have made over $10,000 a contract by us catching the top of the cocoa market a few weeks ago and a bearish longer-term attitude last summer in corn and soybeans. Is this changing?
Here are the headlines of one of three reports this past week. Also, take a look at some of the photos of extreme weather this year, already.
Snows in Salt Lake City this winter… (First time, ever, that a soccer game was played in the snow)
The record-warm winter helped natural gas prices to collapse 50% this past winter (once again)
Historic western winter snows often bode well for Midwest corn and soybean crops for July and August.
Frost in Ukraine helped the wheat market rally earlier this week
Soybean market watchers will be keeping their eyes on more floods in southern Brazil vs Midwest planting and summer weather.
Thanks for your interest in commodity weather!
Jim Roemer, Scott Mathews, and The Weather Wealth Team
Mr. Roemer owns Best Weather Inc., offering weather-related blogs for commodity traders and farmers. He also is a co-founder of Climate Predict, a detailed long-range global weather forecast tool. As one of the first meteorologists to become an NFA registered Commodity Trading Advisor, he has worked with major hedge funds, Midwest farmers, and individual traders for over 35 years. With a special emphasis on interpreting market psychology, coupled with his short and long-term trend forecasting in grains, softs, and the energy markets, he established a unique standing among advisors in the commodity risk management industry.
Trading futures and options involves a significant risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of future results.
“You can’t change the weather, but you can profit from it”
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The video above discusses the weather extremes affecting South America’s soybeans, coffee, and sugar crops.
Will the chances for rain increase in drought-stricken N. Brazil and the floods ever abate in southern Brazil? There could be some important rains (down the road) for northern Brazil, with flooding occurring to the south. So how do you trade coffee and soybeans and what is my longer-term view?
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These are the climatic factors resulting in incessant rains in southern Brazil, while northern Brazil has record heat:
A mix between strong vs. weak El Niño conditions
The MJO is moving into phase 2/3
Deforestation of the Brazil rainforest
Flooding and landslides triggered by heavy rains in southern Brazil have claimed at least six lives over the past week, The fatalities occurred in the states of Santa Catarina and Rio Grande do Sul, and major property damage in the latter was reported as thousands of people sheltered in gymnasiums.
Southern Brazil has been hit by historic rains in the last few months. This could threaten soybean planting and production in two of Brazil’s key producing states.
Soybean planting in Brazil is way behind schedule (Source: AgResource)
In contrast, extreme heat is threatening soybeans in Matto Gross (the #1 soybean-producing area)
Climatological factors causing a wide variety of Brazil weather
There are a few key factors that can contribute to a pattern of flooding in southern Brazil and heat in the north during November in an El Niño year:
El Niño shifts tropical rainfall northward, leaving southern Brazil and Rio Grande do Sul susceptible to frontal systems and atmospheric river events that stall and lead to heavy rainfall and flooding.
The warmer tropical Atlantic waters during El Niño allow more moisture transport into southern Brazil, increasing rainfall intensity.
With reduced tropical rainfall across northern Brazil during El Niño, prolonged heat is more common as subsidence and dry conditions dominate.
Weakened easterly trade winds allow cold fronts to penetrate farther north into Brazil’s northern regions during El Niño.
These displaced fronts and overall circulation changes enhance north and south Brazil’s temperature gradient and extremes.
Deforestation of the Amazon in conjunction with El Niño, has built a huge, hot ridge in northern Brazil.
We have a mixed situation in the jetstream pattern in the Southern Hemisphere right now, while Pacific Ocean temperatures are incredibly warm, portending strong El Niño conditions, other variables we look at depict weak El Niño conditions.
The MJO
There is also a climatic phenomenon called the Madden-Julian Oscillation Index (MJO. It is like a traveling pulse of storms and rainfall that moves eastward around the equator, and it is a weather pattern that can influence things like monsoons and tropical cyclones. This makes the weather more active in some regions and quieter in others. Picture it as a cycle of increased and decreased rainfall marching across the globe.
Contrasting two El Niños: The MJO was in similar November phases during these 2 infamous El Niño events. One was weak (2009) and one strong (2015). Both of these years had heavy rains and flooding in parts of southern or central Brazil affecting either sugar cane or soybeans.
This November, it is soybean areas in Rio Grande Do Sul (#2 biggest Brazil soybean producer) and Santa Caterina experiencing the worst effects of flooding.
As my discussion illustrated at the top of this report — El Niño can often bring heavy rains to parts of central or southern Brazil. The most recent infamous case was in the fall (Brazil spring) of 2009. The result was extreme crop stress and dilution of Brazil’s sugar crop.
Brazil’s sugar crop was diluted due to heavy 2009 rains. There was also a drought in India as there was this year.
Global weather and crop conditions suggest two different types of El Niño events
During weaker El Niño events, such as in 2009 (2nd map below), notice how much further north heavy rains were during October than during the strong El Niño of 2015. This was much more of a detriment to the sugar crop than to other commodities like coffee or soybeans.
CONCLUSION:
Global weather patterns are fluctuating between weak and strong El Niño conditions. Despite its weakness, historically weak El Niño events, like 2009-2010, impacted global crops such as sugar and cocoa, leading to notable market volatility.
This season, intensified weather extremes in Brazil, fueled by a strengthened northern Brazil ridge, raise concerns for soybean production in Matto Grosso. The heightened ridge, stronger than in November 2009, may amplify crop problems, underscoring the potential extreme volatility in the soybean market.
Will the 2009-2010 pattern be similar this season for the soybean market? This is what I will be answering for subscribers to my WeatherWealth newsletter.
Frequent trading strategies and long-range weather forecasts are available for multiple commodities.
In this video (click above), I discuss the MJO index and how we use it as a weather forecasting tool in conjunction with El Niño:
Where the MJO will move to, and if it will influence the outcome of northern Brazil’s soybean drought;
the potential for a colder outlook in U.S. natural gas heating demand areas; and
a continuation of disease issues for West African cocoa.
While Equatorial Pacific Ocean temperatures are very warm suggesting strong El Niño conditions, other variables do not justify El Niño being more than weak-to-moderate.
For example, the MEI index (above) is a better representation of how strong El Niño is. This takes into account global atmospheric angular momentum GLAAM), and the SOI index and is also influenced by the progression and strength of the MJO.
Feel free to download a complimentary issue of one of my full WeatherWealth reports with recent trade ideas here and how we forecast longer-range weather for farmers and traders on six continents.
HELPING YOU MAKE THE BEST INVESTMENT DECISIONS BASED ON THE WEATHER
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