THE FOLLOWING IS AN ARTICLE FROM LAST MONTHS WEATHERWEALTH MEMBERSHIP

FALL SEASONAL COMMODITY PRICE TRENDS, LA NIÑA, AND THE SOARING OAT MARKET

October 10th, 2021

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FALL SEASONAL COMMODITY PRICE TRENDS, LA NIÑA, AND THE SOARING OAT MARKET

October 10th, 2021

My recent Best Trade recommendations & other investing ideas

Buying oats 1-2 months ago, the break-out in cotton two to three weeks ago were two trades that have brought in more than $5,000 a contract. My next high confidence recommendation was selling the $8 December natural gas call option last Monday at about 60¢. This could bring in a whopping $6000 a contract by the time it expires in late November. I should add “unless I see a cold early winter.”

Some of you were still long a small position in coffee and the ETF (JO). I recommended exiting any long coffee position a few weeks ago and have another trade recommendation in coffee at the bottom of the page.

Sugar was also a buy recommendation back in the summer and ahead of the Brazil frosts. I am unsure about sugar right now, but strong crude oil prices are helping.

We also had some profits from long wheat. I am not sure if the stronger U.S. dollar and other seasonal factors might pressure CBOT wheat for now. It has been spring wheat that once again has been the leader.

Finally, long OJ back in May but it reached my objective right at $1.50. Big-time rains in Brazil through October and a lack of hurricanes hitting Florida have helped the market sell-off. Usually, OJ futures go higher later into winter, but, I am unsure right now.

Oats: my best grain trade the last few months

The U.S. oat crop was harvested in early September. Typically, futures prices hit lows following harvest as the additional product is available, pressuring supply. Markets are concerned that production will be revised even lower when the actual harvested acres are calculated. This year’s drought could have lasting effects on oat prices for several months. 

In 2021, US farmers planted 2.4 million acres of oats, 20% below the previous year as competing crops took a greater share. The heightened drought in the Northern Plains also impacted yields, dealing a double blow to production.

This has been my best weather grain-related trade over the last few months, as well as in spring wheat, due to the drought and tight stocks. We are approaching long-term resistance on the charts. Prices can possibly penetrate $7.00 before the Dec. oat contract goes off the board. There is a major squeeze in oats. However, some of you who are long oats may be ahead by more than $1.00 ($5,000+ a contract). I feel comfortable recommending taking some profits on this major move up at this point.

some minor harvest delays in nw corn and soybean belt

Seasonally, soybean prices go higher deeper into the fall. Heavy rain and flooding may create a short-term buy in this market early this week, but these rains will only last a few days, otherwise much more of a concern would mount about harvest delays. Notice, that as of last week, there were still a lot of soybeans to harvest.

The next big trade idea in soybeans and corn will depend on La Niña and Argentina’s dryness. Stay tuned in the months ahead. Many of you know I was not bullish corn and soybeans this summer. It was oats and spring wheat that earned my bullish excitement. This could change with La Niña’s dryness in Argentina, later. Stay tuned for the next few. months.

LA NIÑA, CLIMATE CHANGE AND HISTORICAL WESTERN DROUGHT SUGGEST WARM EARLY WINTER

I will discuss a lot more about La Niña in the weeks and months to come. But typically, it is the weak La Niña events that can bring a cold U.S. winter, not a strong one. You have some folks spreading “doom-and-gloom” for a historical cold, snowy winter due to solar cycles and other climatic variables. However, they refuse to heed CLIMATE SCIENCE and what is going on with droughts and record heat around the world!

Natural Gas and Fall Weather

Sometimes, one has to be “patient” and wait for an opportunity that is rosy. It is very rare that we see a market that is so volatile and offers such good profit potential, if the early winter is warm, as in natural gas.

Everyone and their dog has been bullish, but I recommended near the highs last week to sell rallies. Stocks of natural gas are extremely tight and any little cold weather scare would send prices soaring. Hence, out-of-the-money call options are the way to go, for now.

SEASONAL TRADES

With the drought easing somewhat in Brazil and the seasonal to be short sugar later this month, my bias is to sell rallies in sugar, even in the midst of very tight stocks and a potential deficit this year. If you are still long sugar, put protective stops in.

Take a look at the seasonal trade table below. Notice how soybean prices rally some 15 years in a row through mid-October. Then check out the natural gas prices seasonal… it sells off 15 years in a row!

Orange juice prices tend to rally ahead of winter, in 14 of the last 15 years. The drought easing somewhat in Brazil this month and no hurricanes hitting Florida has helped prices sell-off. In addition, the stronger dollar has hurt this market, following my friendly attitude in OJ earlier this spring and summer.

While not listed here, oat prices have rallied in some 13 of the last 15 years in October. This is one reason, along with tight stocks and previous summer drought, for my oats bullishness the last six weeks.

WHY CAN’T COFFEE AND SUGAR FUTURES FALL IN THE MIDST OF EASING BRAZIL DROUGHT CONDITIONS?

Lower certified stocks, irreversible crop damage in Brazil from frosts, and droughts have offset the forecast of great rains for the October Brazil coffee bloom. This will be a volatile market for weeks (even months) based on weather, crop conditions, the Brazil Real, etc.

Vietnam coffee has made new highs due to lockdowns and export worries. If it were not for some easing in the Brazil drought (even Robusta areas), I would have been more apt to recommend buying it.

Here are some Comments about the Brazil coffee crop situation:

“While rain will revive the trees and help for new foliage to develop, agronomists and producers (concurred) that the rains will not help the trees that have suffered from the extreme drought as the fate of the crop is largely determined before the flowers open…”

“The rains will stop further losses from what would have occurred but the stress many of the trees have been under the pre-floral stage was extreme enough to be past the point of no return, no matter how beautiful the flowering may look. Trees with not enough leaves now will not have the proper energy to support the fixation of the flowers, even with abundant rain. The ratio of leaves to cherry is 5cm2 to 1. This equals about one to six cherries need two leaves depending on their size to provide sufficient carbohydrates and right now do not have enough of a reserve. Under normal conditions, a tree will try to keep as many flowers as possible to increase reproduction, which is about 35% of the total blossoms, and in periods of stress, this level declines…”

“The plants need photosynthesis now to help with the recovery process and fruit set. Depending on the extent of rainfall, once the flowers do fix depending on the recovery in foliage, the tree could develop the fruit but it also needs to pull resources to do both grow leaves and the crop and without stored reserves that becomes a challenge ”

(SOURCE: Judy Ganes)

“General market consensus agrees the world supply-demand balance is expected to be in deficit entering the new international 2021-22 crop cycle. The USDA “World Markets and Trade” coffee market report released this summer, that stocks in the markets of Europe, the U.S., and Japan would fall 13.1% to 22.072 million bags by the end of the 2021-22 cycle from ending stocks seen closing at 25.387 million bags by Sep. 30 this year. This forecast, however, came even before the most damaging frosts in over 40 years hit an estimated 65% of the producing area in Brazil, the world’s largest grower and exporter. Frost damage is now already projected to cause significant losses to the 2022 harvest in Brazil, on top of the current harvest is coming in below expectations, according to most analysts and exporters.”

(SOURCE: USDA)

I will update more about Colombia, Vietnam, and Brazil coffee weather in the weeks to come.

Models turned wetter (as I predicted a few weeks ago) with well above normal rainfall for key sugar cane, orange and coffee areas for the rest of October. On the map above, notice the area with 200-500% of normal rainfall. This is why I recommended, a week or so ago, to exit any bullish ETF, futures, or option positions in coffee. I am not sure if sugar will sell off on this at some point.

WEATHER WEALTH TRADE IDEAS

COFFEE: drought easing rains in brazil, but tight stocks, past crop damage and lower certified stocks causing market volatility

Sell 2 of the March $2.50-$1.60 strangles. This will cost somewhere around 8-10 cents per contract ($6,000 profit potential for these 2 contracts by late winter). Unless we see sustained drought conditions, there would be very little chance for coffee futures to rally above $2.50, and given such tight stocks, and past Brazil frost and drought damage, probably not go below $1.60 the next few months. This takes all of the guesswork of trying to time various fundamentals in the market like weather, certified stocks, etc.

I also recommended selling the December $2.20 call option at 600 points last Monday ($2,000 a contract)

natural gas: warm late fall bearish vs tight stocks and supply concerns in asia/europe

I casually recommended going short natural gas when November futures were above $6.00 last week by selling call options and considering buying this inverse ETF. It is very hard to trade this in the short term, so I recommended selling the $8.00 December call option a week ago at 60 cents ($6,000/contract profit potential by mid-November!)

With all of the winter ahead of us, I doubt we will see natural gas prices below $5.00 anytime soon. However, a rally above $7.00 is unlikely given a warm late fall and less demand and more bearish EIAs, ahead.

If all of winter is warm, then natural gas prices will fall to $4.00; a cold winter, at least $10. What will be in store after November and December? Stay tuned for more winter outlooks soon.

COTTON & OATS: Taking some great profits on the recent rally

I will update you about India and the global weather for cotton in another week. Part of this huge rally in cotton was due to crop and pest issues in India and wet weather in the Deep southern U.S. hurting the cotton crop.

But it is really the oats market that has soared on the recent historical droughts and tight supplies. (see my oats reports at the top of the page)

I mentioned buying cotton several weeks ago in the 93¢ to $1.00 level and to raise stops to $1.10 last week to preserve possibly $5,000/contract or more profits. With U.S. harvest pressure around the corner, it is possible cotton prices (for now) have seen the highs (not sure).

I will have an update this time next week regarding the wheat market, cocoa, and more on La Niña with my BestWeather Spider

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