The EPO Weather Index and Why Natural Gas Soared, Then Collapsed

The EPO Weather Index and Why Natural Gas Soared, Then Collapsed

Weather Natural gas

Click here to play the video above.

What Gives With Natural Gas?

The historic volatility in natural gas continues. Last Friday, I told WeatherWealth clients about a major change in the weather pattern with a potential colder than normal late November and December. Natural gas prices proceeded to rally $1.00 from last Thursday’s lows and bearish EIA number to this Monday’s highs ($7.22) based on other firms changing their weather forecast.

This video describes both La Nina and what we call a “negative Eastern Pacific Oscillation Index. The combination of these two climatic variables working together can produce a cold, early winter. Why then did natural gas prices pretty much give everything back in one day? Incredible.

Four Reasons for Natural Gas Moves

Here are the reasons I felt that natural gas (UNG) prices ran up too much, too quickly in the face of changing weather forecasts. After all, we had a near-record warm fall (globally) that has hurt natural gas demand. In addition, the main LNG export terminal in Freeport, Texas has been down for months.

1)Natural gas prices above $5-$6 this time of the year is very unusual as U.S. production continues to grow.

2) While the LNG export terminal will reopen soon, the weather forecast is warm for Europe. Hence, we need to see sustained cold weather, not just here in the U.S. but in Europe to help demand.

3) The weather last week was very warm across the United States and near-record temperatures this week. While potential colder late November and December weather could well occur, the natural gas market was anticipating another bearish EIA report this Thursday.

4) The European forecast models suggest that after just a week or so of U.S. cold, it will warm up again.

European Weather Model

The European Model warms things up after Dec. 6 (red=warmer than normal). Source:


So what to do in the natural gas market currently?

Based on extraordinary natural gas and weather volatility, using certain option positions is the way to go in this market. This is something we advised quite successfully in several commodity markets over the last few months.

Feel free to take a complimentary trial of our twice-weekly weather-commodity newsletter (Weather Wealth) and see this and many other reports. You can also learn how you can mimic our trade ideas in a new program called AutoTrade. All the information is here:

Here are the headlines from one of our recent Weather Wealth reports.

Weather Wealth


Lessons For Successful Commodity Trading: Weather And Patience 

Lessons For Successful Commodity Trading: Weather And Patience 

Regarding trading right now: patience, patience, patience in the midst of global economic uncertainty, bearish chart patterns in some commodities, a stronger dollar, Russia’s war on Ukraine, and mixed weather signals.

The next big questions I will be answering for traders are:

  • 1) Will the Plains states drought continue into next spring and impact winter wheat?
  • 2) How serious will the flooding be that may lower the Australian wheat crop?
  • 3) When will demand worries and a stronger dollar (which has been bearish for corn) be offset by the potential for bullish corn weather in Argentina?
  • 4) How will a change in the jetstream pattern north of Alaska bring colder late autumn weather and put the brakes on the drop in natural gas prices?

Anyway,  there are two commodity trades that have been our home runs recently. They were natural gas and coffee. (Some of this is old news now. We already caught the huge move down in prices).

So… what is the best way for you to profit, whether in stocks or commodities? 

Listen to what Ted Williams once said (and my comments, below.)

1) Swing within your happy zone:

Baseball weather trading

Basically, this means sticking with markets and products you know best.

In my case, and recent trading advice in my newsletters (see the info and our track record here ): sticking to the highest confidence trades that I know are primarily weather, this time of the year, and were subject to significant profit-taking due to too many speculative (non-commercial) long positions in the open interest of the market. Most recently, these have been short natural gas and coffee over the past few weeks. These were definitely home runs.

2) I’m no genius, I’m smart in spots and I stay around those spots:

trading dog genius weather

I want to lend you my insight from 38 years of experience watching markets and how they react to the weather at “certain times of the year.”

For example, my highest confidence trades in corn and soybeans are almost always during the late spring and summer and during the north American crop season. I also like to recommend grain markets during December-February when I know traders watch South American weather very closely.

Weather is a huge factor in the natural gas market as we go into the late autumn and winter.

For markets such as coffee, the weather is a critical time (now) during the early stages of the Brazil crop cycle: usually between October and December. 

That is why, a month or so ago, I went against the bullish crowd in coffee. Take a look at the great early coffee bloom in Brazil due to the rain I forecasted for the Brazil spring, three months ago.

coffee trading weather

3) Be wary of over-hyped markets:

cat coffee trading weather

Some of the most successful investors like Warren Buffett and Ray Dalio are looking for opportunities that others are not.

In other words, catching certain industries early before the crowd and selling into panic and greed. Here too in the case of the soaring natural gas and coffee markets on past fundamentals, it was important for me to look into the future and anticipate a “change in the fundamentals” ahead of time. This is what I do best.

Some markets have already forced out all the longs and are heavily short… natural gas is a good example of this.


Having patience right now in the midst of global economic uncertainty and various global weather fundamentals for grains, natural gas, and soft commodities is no easy task. There are some potential changes to the bearish weather in natural gas with colder late November weather, while the Argentina drought may grow for the corn market. Floods in Australia and the Plains drought are all potential bullish aspects for the wheat market, but it is important to develop longer-term trade ideas based on the third straight winter of La Niña. Feel free to download a complimentary issue of our monthly newsletter Climatelligence here  and to read about some of our feelings. 

 If you like it and want to subscribe for a year, my December issue will discuss much more about the energy and grain market.

Commodities and Weather–Sample of Jim Roemer’s Premium consulting service

Commodities and Weather–Sample of Jim Roemer’s Premium consulting service

*Flooding for Canadian and US spring wheat

*Rains easing dryness to Brazil coffee, but will it turn hot and dry again?

*What cool ocean temperatures near Peru, but warm near Australia suggests for the US winter and for natural gas prices.

These stories plus “specific” trading strategies in commodities and ETF’s are Not available from other meteorologists. Mr. Roemer’s 35 years of commodity advising is 2nd to none. Here is a sample of one of his recent reports

For more information on this unique and exclusive weather-commodity service, please email Jim at

Learn how some of these analog years (above) could play an important role for South American corn, soybean, sugar and coffee weather this winter (their summer) and the US natural gas market.

The Exciting World of Weather Derivatives as an Alternative Investment/Hedging Vehicle

The Exciting World of Weather Derivatives as an Alternative Investment/Hedging Vehicle

Climate change and weather variations can cause literally billions of dollars of financial risk. This can impact every industry from agriculture and commodity trading to recreation and travel.  There is a need for an alternative product, which can help to offset that risk. Sure there is flood, hail and many other types of insurance products. But there is a growing need for something else—Weather Derivatives.

Weather Derivatives that are typically purchased come in the form of Call and Put Options, using weather indices as the underlying asset rather than the value of a typical asset (stock, commodity, etc.). For a premium, and up to a limit (maximum payout or cap), the weather derivative pays per index point away from the strike.  Here are a few examples:

weather derivatives, contract weather derivative, contract

See this quote by Rebecca Leonard, a Partner at Weather Risk Global:  “There is a clear link between the transpiring weather markets and the solutions to the problems created by climate-based natural disasters. If we subdivide and overlap weather risk markets, there are numerous opportunities for risk to be amassed and shared globally.  Adverse weather events slow economic growth, especially in economies driven primarily by agriculture. In many cases, catastrophes can negatively affect the real GDP growth of entire nations for years. Weather derivatives can provide financial protection at the critical juncture when weather events strike, before famine and crop devastation have taken hold (Filho, 2013). Weather Risk Markets are among the most innovative tools for transferring risk.”

To see a full article click here

Climate Change and Weather Derivatives

In addition, climate change may be one of the greatest threats of our time. But it also presents potential great opportunities. Businesses, farmers, tech firms and shipping companies can capitalize on climate change by investing in weather derivatives.  We here at BestWeather, Inc. are formulating a working relationship with WeatherRisk Global.

Farmers in developing and third world countries have a need to hedge weather risk. Also, the average investor who is looking for an exciting, alternative way to potentially capitalize on the whims of weather, WeatherRisk Global’s Weather Derivative Fund WEATHER LOGIX is something you should consider.

They have posted some extraordinary trading returns. While past performance is not indicative of future results, I suggest you contact me at and I can provide you with much more detail.

Fireworks for Grain Prices, While Natural Gas is a Dud. Why?

Fireworks for Grain Prices, While Natural Gas is a Dud. Why?

Grain prices have taken off, fueled initially by the first bull market in wheat in years.  A severe drought in spring wheat areas in North Dakota was the first sign of trouble.  Problems in Canada, Australia, and Europe followed.  Now, soybean traders are worried about dry conditions developing in the Midwest. Just over 10% of soybeans are grown in the Dakotas.  The drought is spreading into Iowa, with hot dry conditions expected over the next few weeks.  Moving forward, less moisture on the ground will increase daytime surface heating, allowing for warmer maximum temperatures.

Image Credit:  USDA &

Natural Gas prices have lagged behind the grains, despite some hot weather in the southwest and midwest.  The pattern just does not want to push the hottest temperatures in the the Ohio valley and the East Coast.  New York, Illinois, and Pennsylvania consume large amounts of natural gas for cooling demand.  Therefore, it will take a decent heat wave for natural gas to compete with the grain market.

On your mark, get set, Grain!

The USDA acreage report acted as a ‘starting gun’ last Friday.  Analysts forecasted more soybeans planted due to the rain delays in corn.  However, the report showed the opposite occured, with corn acreage increasing instead of soybeans compared to expectations.  That news, combined with the weather threats allowed soybeans to regain a month’s worth of declining prices in just a matter of minutes.

soybeans, futures

SOURCE: Barchart

We mentioned this grain scenario to our free newsletter subscribers back in May. The commodity ETN:JJG is comprised of wheat, corn, soybeans.  We knew that if our weather forecast verified, that some fireworks in one or more of these markets could occur. The ETN price has already reached 4 month highs.  In the coming weeks, traders will want to know how long this dry, hot weather will stick around in the Midwest. If wheat & soybean conditions continue to drop, so will the end-of-year yield/production estimates.  Any shift in the ridge could mean a big change for corn and soybeans.  For more on if grain prices will go higher, email



Cotton prices crumble on weather, despite decent sale; dry Texas ahead?

Cotton prices crumble on weather, despite decent sale; dry Texas ahead?

Cotton prices dropped nearly 20% from May highs into late June. July futures prices spiked in May on tight supplies predicted in the USDA report.  Great global crop conditions and strong speculative selling then spurred the current collapse.  cotton, price, 2017, futures, USCredit: Barchart

Most notably, India has had a great start to the monsoon (unlike the last few years).  Farmers are getting adequate rainfall, aiding in the irrigation already in place.  India is the second largest producer in the world behind China.  Another country that should have great production is the United States.  The latest crop condition report (June 25th) showed 41% of the crop rated good & 11% rated excellent (best since 2010 for this time of year).

cotton, conditions, futures,

Cotton Sales

The oddity of this price drop is that export sales have been very strong.  China’s glut of cotton has been dwindling over the past few years.  On top of that, China cotton users need higher quality cotton to blend with the old supply.

The next fundamental news to watch will be the USDA acreage report on June 30th. With good conditions, most analysts expect this to be friendly for U.S. production.  Traders will also continue to watch India and U.S. weather conditions.  We have an Indian monsoon report coming to our clients soon, giving the forecast for the rest of the season.  The slight drought in Texas cotton areas may begin to be noticed if it continues.  See the dryness developing in northern Texas:

Texas, drought, futures