Hello everyone. Normally I send my 2nd weekly report out by later Wednesday pm or Thursday a.m. My first report of the week, of course, is always Sunday evening or early Monday. However, I have had a few requests from Midwest farmers and traders and from Australia and Europe about what is going on with the grain market and why the forecast changed. So, I am sending this report out a day or so early, this evening.
Between COVID-19 spiking again across the U.S., global concerns about demand for many commodities, new trade tensions with China, and the big heat dome staying south of the main corn/soybean belt states, many commodities continue to be in a tailspin.
Also, while I am not a stock market expert (I do follow stocks closely affected by weather and climate), I do follow the market and the administration’s effort to discredit Dr. Fauci is really ludicrous in my opinion. I may be wrong, but I think the stock market will be due for a pretty major set back sometime this summer or fall if COVID continues on its present, unrelenting course.
La Nina is not forming as quickly as expected. There are also very high dew-points over the Midwest grain belt. This means only the far southwestern 20-35% of corn and bean crops are currently seeing some hot, dry weather.
The weather remains a neutral to bearish aspect to the corn market, yes, even after this major sell-off as 70% of the belt is getting good rains and this dome is much further south than this and only affecting the southern soybean areas, cotton and bringing heat to natural gas regions. It is still possible for this dome to move further north deeper into summer, but right now I am suspect of any longer-term weather models and my own personal models will update next week. For this to happen, we need to see troughs, storms, and cool fronts dive into the west coast, not the upper Midwest, which has suppressed this dome way south. My discussion talks about all of this today.
When Will Markets Be Clearer?
Many of you are new to my newsletter, so please check the spreadsheet at the very bottom of this page. There only needs to be one big trade. Currently, in this environment, confidence has not been super high in any one particular market. As we get deeper into summer, and the hurricane season, hopefully, things will be much clearer for some commodities. Please email me any questions you have at firstname.lastname@example.org and I will take the time to try to help you.
Some of you want good, reliable long-range weather forecasts to make important management, business, or trading decisions. Others want my trade strategies. Again, I am trying to fit all of this into my reports
This Report Talks About:
Reasons why the big US heat dome is suppressed for the south allowing important rains for US corn crops
Where global crop stress regions are and why wheat prices have rallied
The seasonality of commodity prices in July
Any hope for a rally in coffee from the weather?
Weather Wealth spreadsheet
Why The Big Heat Dome Has Been Squashed To the South
Right now, I may look like the “dope” in the dome.” However, if La Nina can develop more quickly, the summer could still end up hotter than normal for many areas. The question becomes whether the rain will stop for the corn and soybean belt. That wouldn’t happen for at least another week, so that has been and may still be a bearish sign. However, the southern and western soybean areas are still dry and may see crop stress soon. (Again, this is not a day to day service. Friday I changed my confidence levels as I saw more rain in the Midwest. This happens occasionally, so please check my spreadsheet on Friday for any changes.)
Weather models about 8-10 days ago were showing a dome of heat and dryness over the Midwest grain belt. As can happen very often with the weather, things can change on a dime and began to change last Friday. This is why corn, especially, has crashed. I “pride myself” on my summer weather forecasting and second-guessing models quite often. So what happened, if you are interested in the science behind all of this and summer weather?
I invite you to see two previous reports I wrote. In June my initial concern was the PDO not being negative and hence warm ocean temperatures in the Eastern Pacific. This is not conducive for summer weather problems:
What Else is the PDO Impacting?
Because of these concerns, I did not recommend any long position in soybeans just yet. I was a bit unsure and suspicious of any long-lasting heat and dryness. I did recommend a conservative long position in corn, but this was incorrect. More great rains are coming to the corn belt during this critical pollination time. Also, global corn stocks are at 3-decade highs continue to be a drag on the corn market.
Look at the map below for how different things look this week. There is no extreme heat in the corn/soybean belt and fronts are dragging south. Big time rains are likely into next week for many key areas. It is the southern grain belt and cotton belt that will still have some dry, hot weather. With crop conditions presently above trend-line, this is not enough to create a bull market in corn and beans. What might change that is if this dome comes further north for several weeks.
Notice the blue trough swinging in across the Midwest the next couple days with big-time rains. Compare this to the map above this from 10 days ago, which was totally wrong. Last Friday, things began to change.
Best Weather Spider
OLD SPIDER FROM 2 WEEKS AGO
My “old” BestWeather commodity market spider was pretty bearish grains through late June, as you can see here. The only real bullish area was in cotton due to the Texas drought. Cotton prices have rallied about 20% since spring, but the weather is not the only factor. I have not updated this spider in the last couple of weeks but did paint the potential for some bullishness and a change in my sentiment about a week or so ago. However, it is hard to get bullish corn when you have all of this rain forecast for 70% of Midwest growing areas.
Extreme heat is coming up but also notice that over Iowa, northern Illinois, and Nebraska day time high temps are only in the 80’s. This battle dome between the intense heat and cooler weather to the north is what will cause more rain. Again, all this has to do with the PDO index and the fact that during almost every major bull market in corn and soybeans since 1950 the eastern Pacific was negative (cool), not warm. This heat could stress about 35% of the US soybean crop, but less than 15% of the US corn crop, the next 2 weeks.
Corn and soybean crop conditions fell slightly this last week but are still above the 10-year average. It is hard to get a bull market unless we have extreme heat about 200 to 300 miles further north and cut off the rain. Notice the red, dry topsoil moisture conditions. This is why I became a bit excited about the corn market a week or so ago, but that sentiment tapered down a bit recently. Many of these dry areas in red, except in southern Illinois and parts of Missouri, will be relieved by good rains. There is still the potential for dryness to return later. I need to look back at my updated in-house computer models over the next week to look deeper into August.
The Importance of Checking In
I am not sending out 3-4 reports a week or updates. However, I will occasionally update my Weather Wealth spreadsheet with confidence levels. So, for example, notice on the spreadsheet my confidence was lowered to low-moderate on being long corn anymore last Friday and Sunday night. My advice would be to log in occasionally on a Friday if you are tracking these trades. Stick more to the high confidence trades I have and whether or not I change my sentiment.
Why Has Wheat Soared?
Early this fall, weather will play a much more important role with respect to planting in Europe, Russia, and the US Plains. I look forward to helping you make some potential wise investment decisions in wheat going into 2021. A lot will depend on whether La Nina forms or not.
Much of Europe suffered through a wet fall last year that delayed planting. Then Europe had a warm winter and dry spring which lowered crop prospects, especially in France. Also, crop yields are coming down in Ukraine. It is often very hard to gauge the wheat market when watching no less than 5 countries’ weather at the same time. Also, some spring wheat areas in Russia are drier than normal. (You can see the stress on the second map below this.)
I have not been following this market recently. Instead, I’ve been watching some soft commodities, other grains, and the natural gas market.
A Look at Where Global Crop Stress Is Presently Located
A Look At Historical Seasonal July Trades
Below I briefly discussed a few markets that have some degree of weather in them in summer. Corn and soybeans typically are the markets most impacted by weather this time of the year.
We hope that the dryness for west Texas cotton will be a bullish signal for this market heading deeper into summer. However, as I mentioned in my report and video last Sunday night, “There are many other factors in global markets right now with respect to COVID-19 and the demand situation being tied to China. So the weather is NOT the only factor currently. So tread lightly”. You can see the strong seasonal to actually be short cotton from mid-July to September. It will take further global weather problems from locusts, etc. in Indian and Pakistan, not just the dryness in West Texas, for cotton to rally to the 67-70 cent level.
It was a lot safer back in the spring when cotton prices were 55 cents and there was a big short position to recognize a potential short-covering rally. At about 62-64 cents and given the world demand situation, it remains to be seen how much this market can rally on the Texas dryness, alone.
There is a strong sell signal on this spreadsheet in both corn and soybeans. It assumes that, as in some 13 of the last 15 years, early to mid-summer weather conditions are generally good for U.S. crops. We need consistent hot, dry weather to get corn and beans in a bull market. I will update everyone next week with respect to my own computer models, which are “usually” pretty good at looking longer term. Right now, the spread-sheet closed out a long position in corn recently.
Last Friday, my confidence was lowered on this corn trade due to my forecasts for more rains, so again, please once in a while check the spreadsheet if you want to know trades (some of you just want weather), as I may update occasionally confidence levels on Friday.
The table below shows how selling February natural gas has worked 14 times in the last 15 years. As of this writing, February natural gas was some $1.00 premium over the nearby August and September futures contract. This is because of huge present supplies of natural gas, following a warm winter, a mild spring, and the COVID-19 outbreak.
Hence, if later July and August are hotter than normal in sections of U.S. natural gas-consuming areas (COVID-19 is a wild card still), then the nearby natural gas contracts could outperform the normally bearish deferred and bearish contracts such as the February short seasonal listed below. However, after the spreadsheet was up about 10% on the hot early summer, worries about Covid-19 and less demand has offset any hot weather for now. The natural gas market, to me, seems to already know it is going to get hot and is tired. Hence, while prices may NOT explode to the upside and owning call options may not make sense, being short October puts hoping for time decay is a strategy we have had on the spreadsheet since June.
Any Hope For A Rally In Coffee Prices?
Quite a few of you have asked me about coffee. This market can always snap back in a dime, but with the Brazil harvest now 60% complete and huge crops globally, it would take a frost scare (do not see one), drought (too early till we get into October) for me to recommend a high confidence trade in this market. Historically, however, once the Brazil coffee harvest is over, prices always stage some kind of rally by later September or October.
I will be looking more closely at this situation, in a couple months.
PLEASE CLICK ABOVE—
The corn position has been closed out with a loss. I am still keeping some options just in case, but I see no reason right now for prices to head higher. Soybeans, too, do not have much hope for a rally on the weather just yet, unless the heat and dryness I discussed on the south can move north in a couple weeks.
Natural gas positions and cotton are at most moderate confidence trades right now, given market action and the demand side of the equation
The stock NIO, which is up 300-500% in the last few months and around 30-50% since I started this newsletter and recommended buying it, is not a pure weather play. It is influenced by a warming planet and pollution concerns in China, where the Chinese are taking extraordinary measures to make electric cars. NIO hit 16 a few days ago and was at 3, a few months ago, but sold off recently in sympathy to TESLA selling off. It had too much of a stellar rally so quickly
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