Back in October, we began exploring the relationship between historically wet eastern United States summers and falls , as well as what we felt would be a very weak El Nino event, plus analog years from our proprietary in house long range weather forecast program CLIMATECH. Our forecast was for higher natural gas prices and a cold winter. In the past, these tools have helped us forecast numerous major moves in agricultural and energy commodities, sometimes months in advance.
Luckily for our clients, we began modifying this cold outlook a couple weeks ago, for a warm first half of January, before the most recent collapse in natural gas prices.
Typically, as the chart shows below, a weak El Nino event is associated with a cold U.S. winter. However, in our mind, a combination of climate change, and the MJO being in a warm phase has resulted in the lack of U.S. snow cover the last few weeks, as well as warmer weather.
The MJO above ( an area of disturbed weather in the tropics that can rotate around the earth and sometimes change global weather patterns), has been strong lately and partly responsible for the warm U.S. winter. The warm pattern started in mid December. You can see the historical relationship from December 17th of the MJO and natural gas prices. However, the MJO, once it moves to phase 8 and 1 for the second half of January, could well mean a colder solution for much of the United States energy areas with more frequent cold and eastern snow into February. The MJO will help the warming you see here (map below) over the Arctic displace the polar vortex south. This combined with incredibly low solar activity should spell a cold mid-late winter.
Source of Map: AER and Shawn Hackett, Hackett Financial Advisors
The next big weather item to watch is Brazil. While most commodities have been in the tank due to the stronger dollar and worries about the Trade War with China, developing Brazil dryness is beginning to affect the soybean crop and could influence the coffee market soon. This would suggest that El Nino conditions, (though again, not officially formed yet) will have to be watched in the weeks ahead for the “potential” of some explosiveness in certain agricultural commodities.
The charts below show the developing dryness for some Brazil soybeans and coffee areas. For more information, please email me at email@example.com