by Jim Roemer | Aug 25, 2020 | Gold Member, Weather
PLEASE SEE MY VIDEO ABOVE
A) I am really busy this week doing research with respect to the tropics and hurricane Laura. There have been numerous requests from some clients for me to provide a Midwest and Canada frost and harvest forecast for grains. I will have a report next week sometime on the factors going into forecasting an early frost for the Midwest corn/soybean belt. I’ll give my forecast, as well as offer some discussions about harvest weather potential for Canadian grain crops, etc.
B) I am updating this 2nd weekly newsletter, EARLY, because of Hurricane Laura. Remember, normally, this is NOT a day to day commodity servicing as my premium clients receive, catching every single short term move (like in cotton, natural gas, gasoline), earlier this week. Clients pay $1,000/month or more for daily trading ideas, nuances in markets and weather updates, etc. If you are interested in this, you can always email me at firstname.lastname@example.org. I am doing the best I can do, under the circumstances
C) Also, I updated and reposted my Sunday night newsletter with regards to the gasoline and crude oil market. Some of you may have seen it, and some not. The September crude oil contract went off the board last week, so I reposted the newsletter and had a recommendation with respect to the October-December crude spread. I also mentioned that I thought that gasoline prices would outperform crude oil. This is because Laura will go further west towards the refineries. It potentially could cut off short term demand for crude oil, but put stress on refineries to produce gasoline. The last time this happened was Hurricane Harvey in 2017.
D) Some of you have had questions about your account and not able to log in or some other issue. Please be aware that ANY QUESTION needs to be directed to email@example.com. That is written at various sections of my web site. ONLY, if you have an occasional weather or market question, I am more than happy to respond and help you if I can.
Please see my Best Weather Spider at the BOTTOM OF THIS REPORT and a quick discussion of a few markets.
A Look at Hurricane Harvey And Price Impact To Natural Gas And Gasoline
Gasoline prices soared on Monday, due to the “psychology” of something similar to what happened with Hurricane Harvey in 2017. Shut-down in oil platforms can sometimes help nearby crude oil prices and pressure the deferred. However, the thought right now is that demand destruction and less use of crude oil is what traders are looking at.
The reduced inputs to those Gulf refineries resulted in an increase in crude inventories.
The natural gas market has been rallying on the psychology of Laura but also the hot summer and the technicals of the market,. A big factor has been the lower rig counts and ideas the economy comes back online due to Covid-19. Since 2005, however, most Gulf hurricanes result in lower, not higher prices in natural gas, after the fact. This is because of potential demand destruction from rains and the fact that most natural gas production is now inland (shale), not off-shore.
In contrast to natural gas sold off on demand destruction (below), look at how gasoline prices spiked with Hurricane Harvey in August 2017. This time of the year with people driving (COVID-19 aside), demand for natural gas tends to be higher. A supply disruption can cause the market to soar. Natural gas prices could begin to sell off if Laura goes further west away from the main pipelines and Gulf rigs. That could also occur if the outlook is a bit cooler heading into September.
West African Cocoa Weather Showing More Crop Stress
Cocoa prices rallied a few weeks ago on the weaker dollar and premature concerns about stress to crops in west Africa. The demand side of the equation has been in question, which is a bearish sign. However, the weather in West Africa has become potentially bullish.
One can see the dry weather and crop stress (red) that has developed in west Africa. Again, as I pointed out a few weeks ago, this is normally their dry season now. Rains often pick up in September. If September is dry, then the end of the main crop could be hurt and the beginning of the mid-crop in Ghana and Ivory Coast.
Similar La Nina Years and September-November Rainfall Trends for West African Cocoa and Brazil Coffee
Climate Predict (below) shows “potential” September-November rainfall trends for West African cocoa and Brazil coffee. While coffee prices are rallying now on tight nearby certified stocks and an increase in global demand, this early study shows generally a good start for the new coffee bloom this fall (Brazil spring).
Notice, too, that rainfall trends can be as much as 5-9″ below normal in parts of West Africa. This is one reason why cocoa prices rallied on Monday.
What is the forecast for winter for natural gas and various other commodities? What do other teleconnections such as a lack of sea Ice over the arctic, etc. have on long-range weather? Is this forecast for cocoa and coffee (below) written in stone? Stay tuned deeper this fall for new weather updates from me.
Global approximate rainfall anomalies when looking “solely” at similar La Nina’s (checked boxes)
A new update from my software (above) suggests generally good weather for the early coffee bloom in Brazil by October-November but potentially some dry weather concerns for West African cocoa.
Cotton Prices Soar On Tropical Storm Laura And Other US Weather Problems
The ongoing drought in Texas and western Oklahoma has US cotton yields falling. At the same time, the record heat in California has lowered crop ratings. You can see above the lower US crop. In the world scheme of things, however, China, Pakistan and China crops are ideal. The question is the demand side of the equation and what happens with China in the weeks and months ahead. What is also to be hurricane Laura was a major factor in the cotton market’s big move up. I mentioned Sunday night that I thought cotton prices might explode. However, very often heavy rains in the Gulf this time of the year causes more a PSYCHOLOGICAL REACTION than the reality of further crop damage.
Best Weather Spider
Our Best Weather Spider was a bit bullish gasoline against crude oil. Unfortunately, I did not recommend this trade on Sunday night, even though I did say that I thought gasoline would outperform crude oil. This reaction may just be a short term knee jerk reaction. Demand destruction for crude oil means that the bullish, very short term bull spread in October vs. December crude may not work, and we would prefer to basically scratch this trade.
For soybeans, we will maintain the short Nov. bean position from $9.12 on the spreadsheet. This week’s crop did come down for both corn and soybeans, as I mentioned both last week and Sunday night. This was due to dryness and recent wind damage in the western belt.
(Sometimes it is important to read between the lines “if you are an experienced trader”, as again, I said on Sunday night, when in fact soybeans were lower, that “I thought corn and beans would head higher into what I thought would be a friendly weekly USDA crop report from the recent dry weather in the western corn belt and wind damage”)
Unfortunately, cocoa weather is friendly but we have no new recommendation at this time. Traders may have been stopped out late last week on the demand BS and other nonweather factors. Cocoa prices are now soaring on the dry weather in West Africa—too bad
With respect to cotton, here too, I mentioned Sunday night that I thought cotton prices might soar on the psychology of hurricane Laura. Again, we are trying to gain a medium perspective except for short-term traders who subscribe to my daily commodity weather services and likely took advantage of my sentiment, early Monday morning. Big global cotton crops and possible harvest pressure could still create a bear market later in cotton, sometime this fall. Confidence is not super high on this suggestion, so only March Long puts in cotton with limited risk, was a recent recommendation. US weather is bullish, but global crops and weather are slightly bearish and on the spider, below. Right now, being long the March puts on the spreadsheet is only out $200/contract and we will wait to evaluate things in another week or so.
For natural gas, I have an “O” neutral on the spreadsheet. There may be a bearish reaction as Laura hits the Gulf and there is demand destruction. Also, there should be some cooler Midwest weather in the 6-10 and 11-15 days. I have a feeling that natural gas prices could break fairly hard after Laura goes by. I normally do not make recommendations with a “0” but feel the spider could trend closer to a -2 within a week.
I am going to recommend selling September natural gas on an over-reaction on these storms and also the chances for cooler weather in some key consumption areas. So on the spreadsheet will be adding selling the October natural gas. Obviously, with lower rig counts, the chances for more storms down the road and heat out west, this may be a bit risky, but I think natural gas prices might sell off some once this storm makes landfall and there is demand destruction.
NEW TRADE IDEAS
Aggressive traders sell September nat gas futures. The reason I am not recommending call options for more conservative traders is that most of my research still suggests some hot September weather for parts of the eastern and southern US. But the Midwest will be cooling off after this storm. If natural gas can break 10-15 cents after this storm later this week, I would take it. (My video above said I was not going to recommend this trade. For conservative traders, that is true. There is too much going on right now.)
Aggressive traders can sell December cotton on over-hype over this storm causing damage in the Gulf. However, the US crop has been coming down due to heat and drought from Texas and Oklahoma to California, while world crops are doing well.
Short Dec. cotton and Short Sept. nat gas will be added to this spreadsheet even though my video did not really advise this for conservative trader. (It is not on here currently). This is for aggressive traders only as there are some other bullish factors in these two markets, other than the weather and strong technical considerations on the charts. Nevertheless, there may be too much hype over these hurricanes and an overbought situation.
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