THE “SQUEEZE PLAY” IN NATURAL GAS AND OATS ON WEATHER, TIGHT STOCKS AND STRONG DEMAND & BEST WEATHER SPIDER
September 15th, 2021
Natural gas prices and oats are the leaders as far as weather markets and production problems are concerned. But October weather could become bearish natural gas, later. The result has been a “squeeze” in nearby supplies and sharply higher prices. After a spring wheat washout on an overbought market, it’s possible that prices could get into a squeeze situation. Historically, however, prices go lower into the late fall and winter.
Spring wheat prices normally go higher into Mid October. After a washout of weak longs, global droughts could help this market come back.
NATURAL GAS (+3)—-STRONG LNG EXPORTS, GULF COAST STORMS, AND HOT U.S. WEATHER SENDS PRICES SOARING
Some readers know how to “read between the lines” in my reports. Last week, I said that I erred about a buy-on- rumor-sell-on fact situation in natural gas. That was 10 days ago, based on overall supplies and weather were bullish. Since my Monday report, natural gas prices have soared another 6-10%.
Several followers emailed me that you recently bought natural gas on my discussion about another Gulf storm and hot weather. Hence, you might be ahead of a whopping 30-60 cents ($3,000-$6,000 a contract), even though I gave no specific option or ETF strategies. The charts look great and so does the weather (bullish with a. hot September). But I think this market is overbought.
There has been a “squeeze play” in the nearby natural gas contracts. This is due to Europe needing LNG fast and natural gas stocks being well below the 5-year average. Again, I have been bullish on natural gas again per my recent reports. However, if October is warm, some injections and more bearish EIA numbers may occur within the next few weeks. Hence, my Weather Spider may be lowered to 0 to -2 soon.
Hotter than normal September weather (map above next 2 weeks) and strong LNG exports and tight natural gas stocks have resulted in the most bullish natural gas market in years. We caught some of this move back in June and July on the hot summer and also ahead of Hurricane Ida.
After thinking maybe natural gas was a “buy on rumor” sell on fact situation after Ida, two Mondays ago (was wrong), my reports last week and this Monday discussed the overall bullish situation in this market once again. Prices have exploded another 50 ($5,000 a contract) cents since my comments. I am advising taking some profits again ahead of tomorrow’s EIA number if you read between the lines and bought again recently.
OATS (+2)—Tight stocks from low crop yields and charts still look positive
I mentioned that out of all the grain commodities, it was perhaps oats that I was most bullish on, due to historical tight supplies, Take a look at the spread between oats and Chicago wheat. Also, seasonally, as I mentioned more than a month ago, oats go higher into early October.
La Niña may result in more weather problems in 2022, but this is not written in stone. I am not sure if oat prices will go down by November, once the bullish seasonal ends by early October. Consequently, I urge you to “crank up” your risk management in order to preserve nice profits, if you have them.
WHEAT (+2)—-LOWER FRENCH AND CANADIAN CROPS HELP STABILIZE PRICES
Again, after some great summer trades being long spring wheat on the historic droughts in eastern Russia, Canada, and the northern Plains, seasonal harvest pressure and the outside markets, pressured wheat prices about 10% or more off the high the last few weeks.
My Spider is at (+2) due to the potential for some heat and dryness affecting wheat planting in the Plains in the next month or so and because of La Nina that may cause some crop issues in 2022. Last week, ahead of the USDA report, I mentioned taking a chance at buying KC or CBOT wheat on the big break or possibly selling some out of the money puts. This trade is up slightly at this point. However, due to outside factors, I suggest not risking below last week’s low. Is it time to buy the ETF (WEAT)? Longer-term, this may be a good trade but again, we are sort of in-between weather market seasons right now.
The maps below show some minor drought concerns in Kansas for planting but nothing major right now. This could change in the weeks and months to come. Australia has been too dry lately, but La Niña and the Indian dipole should result in improved weather deeper into their spring and summer.
SUGAR (+2)—REBOUND IN CRUDE PRICES AND CONCERNS ABOUT BRAZIL DRYNESS STABLIZE PRICES, FOR NOW
I caught the frosts to Brazil sugar last July and prices spiked, Remember my comment about the Fibonacci retracement and that prices should rally above 20 cents?
The Brazil Real needs to recover and the drought to worsen the next few months for sugar to have any chance of getting over 20-22 cents again. This is because of a big crop coming out of India.
Traders may still be long the ETF (CANE) and/or futures the last months from this recommendation (below) in Weather Wealth in mid-July.
COTTON (+2)—LOWER GLOBAL PRODUCTION AND STRONG CHINESE IMPORTS CONTINUE TO SUPPORT PRICES
I have not followed this market too much due to time constraints and focus on coffee, grains, and natural gas all summer. However, my Spider has been conservatively friendly for months. Weather is only a partial factor. The drought out west has lowered acreage. There has been too much rain for crops in the deep south from hurricanes.
Seasonally, prices for cotton begin to go lower, but exports to China have been at a record. I think dryness will lower the Indian cotton production more.
COFEEE (+1)—BRAZIL DROUGHT AND RECENT FROSTS HAVE BEEN BULLISH BUT BUILT INTO THE MARKET (OCT-DEC BRAZIL) WEATHER KEY FOR PRICES
I expected coffee prices to go back above $2.00. (Please login and see my full Monday report about the factors in coffee). Big-time rains will hit parts of Brazil in about 11-15 days. I do not know if this will have an effect on trading considering the possibility still of La Niña dryness due to deforestation and climate change that can still hurt 2022 Brazil coffee production. It is also possible that La Niña may cause Colombian coffee to be too wet for their harvest.
This market has way too many factors in it and is much too difficult to trade in the short term. I have my Spider (+1)–neutral to slightly bullish. It would have been more like a +3 if it were not for these rains later in September and early October. We will need these rains to end by mid-October-December for there to be a major bull move in coffee. I do not have high confidence, by any means, that prices will soar to $2.20 just yet, but am hoping prices can remain above the $1.70-$1.80 area heading into October (not as easy as other markets recently, such as natural gas and oats)
I’d stay with conservative long option strategies that I’ve suggested for months and a small position long the ETF (JO).
Orange Juice (+1)—Demand for COVID19 reasons and potential lower Brazil crop keeps prices stable
I put out a buy recommendation last May or June around $1.20 in OJ with a $1.50 objective, which we barely got to. Florida weather is not a factor, nor are hurricanes. It all depends on demand and the Brazil OJ crop. La Niña could cause more problems with the bloom in São Paulo and if so, OJ no longer-term has a chance to rally in the months ahead.
CORN AND SOYBEANS (-1)—SOME PSYCHOLOGICAL EARLY CONCERNS ABOUT LA NIÑA AND SOUTH AMERICAN DRYNESS CREATING SOME SHORT COVERING
There is some talk of it too dry for Brazil for planting corn and soybeans. However, with harvest pressure still ahead of us, again, my bias for 2 months was to sell rallies or call options heading into the fall. I am not watching this market closely right now.
La Niña could impact corn and soybean yields again in South America this winter (their summer) and result in a bull market after harvest and once all weak longs are washed out of the market.
COCOA (-1): STRONG DEMAND AND CHARTS ARE BULLISH, WHILE LA Niña MAY BODE WELL FOR GLOBAL CROPS
From a weather standpoint, it is still slightly bearish. The only concern may be too much rain in Indonesia from flooding. The market has not been weather right now but will do so, deeper into this year and next year.
I mentioned a possible sell in December cocoa two weeks ago but not to let it get above recent highs, or about $800 a contract risk two weeks ago.
Cocoa, historically, has been one of my best markets. (lots of experience)
PLEASE NOTE: OFF AND ON THROUGH THE FALL, THERE WILL BE ONE REPORT PER WEEK (not two per week). THANK YOU AND HAVE A GOOD WEEKEND. MY NEXT REPORT WILL BE MONDAY AND DISCUSS LA NIÑA.
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