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Happy Thanksgiving (and we need it, what a messed up year), to all of my US Clients
Natural Gas: Short term cold spell, Covid vaccine helps prices, maps trending colder for the eastern U.S. into early December
I remain “cautiously” bearish natural gas on the weather, versus very bearish near the $3.30 area, three to four weeks ago. Traders booked profits on the short January $3.70 call earlier this week, of about $1700 a contract. However, the market is way oversold and with winter still ahead of us and some cold and snow in the east, this market may rally in the short term
Conservative traders who like ETFs may be in the inverse, bearish natural gas ETF (KOLD). The trade was up 15-20%, but due to the recent natural gas rally, is up about 3-5% as of this writing.
A change in the very warm November outlook with at least one Ohio Valley snowstorm and temps falling to below normal helped natural gas rally earlier this week. (Map below of November 29th-30th storm). Some cold weather will prevail in the eastern US in early December, but I do not think it is enough to get a major rally in natural gas, stay to $3.50-$4.00, but the market has had a huge short position.
Very warm weather this past week (above) means this week’s natural gas EIA could be bearish vs the 5 year average.
Even though there is some cold next week in the Deep South and Ohio Valley, a return to normal to warm weather should develop for most natural gas areas deeper in December as I see no signs of the polar vortex coming south. It may be a bit colder than this in the east in early December, but I do not see a longer -term consistent cold weather pattern.
In other words, in my opinion, this market is oversold and a slight change for 1-2 weeks towards colder eastern weather should be enough for short-covering, but until I see consistent cold weather, I will wait to analyze my models next week to make a new trade recommendation
Coffee: Vietnam may turn wet again for harvest, while too much rain in parts of Central America
A weak tropical system east of Vietnam may bring wet weather again, following drier weather that helped pressure Robusta prices, again. Most of this summer and fall has seen Typhoons hit Vietnam that has a caused some quality loss. Dry weather is needed now for Robusta. This, plus some dryness in Brazil and wet weather in Central American could keep coffee prices from falling very far.
The Weather Wealth spread-sheet (bottom of the page), sold the March $1.10 coffee put on Monday and is long the conservative ETF (JO), for the last two months or so, longer- term.
While many models are dry for Brazil coffee, I do think that in about 10-15 days, northern Brazil will begin to get some rain due to what we call the MJO. Notice, how this map below is wetter than the models above
If it were not for this model showing important rains in about 11-15 days, I would be more bullish coffee. This market is biding its time and while there are some weather concerns still in Central American from too much rain and Vietnam again within a week or so, I would prefer to see more consistent heat and dryness in northern Brazil to get super bullish coffee.
South American Weather: Big time rains for southern grain areas; drought expands north affecting oranges, sugar, soybeans, and maybe coffee, but La Nina ridge may break down by 11-15 day
Everyone has been asking me about the grain market and this recent up move. Indeed, much of it has been inspired by the “demand side of the equation,” but also early worries about the drought in the north that is forming. If it were not for excellent drought easing rains that are coming to Argentina and S. Brazil the next 2 weeks ( up to 2-4″) of rain, I probably would have been on board for this recent rally.
I do think that coffee prices could begin to rally a bit later on some crop issues and orange juice may be a good longer- term buy due to the potential of Sao Paulo’s orange crop being reduced further.
The next 10 days are stressful for Brazil soybeans and corn, but important rains are coming to some key areas, later. So from a weather perspective, be careful being long corn and beans just on all of this chatter about South American weather problems. I still think it is possible some sell-off in corn and soybean prices could occur over the next week or two due to important rains. If it were not for the demand side of the equation, I might have recommended a selling position in corn and beans. If you are playing the bull South American game, just be careful.
NEXT 10 DAYS RAINFALL TRENDS—Good rains coming to dry Argentina and S. Brazil corn and soybean areas
Rainfall expands north for a week or so by early December
By early December, see how the dry areas up north begin to get some important rains (green). One reason, why I was reluctant to buy into all of this LA NINA HYPE, just yet for South American corn and beans
Fuel Cell : Stock soars on more of a green economy coming
This was written more than a week ago by me when the stock (NASDAQ: FCEL) was at 4. Sunday night, I. mentioned this stock in my main report to you and the market exploded; up more than 50% on Monday in one day. This company will be a leading carbon capture firm and a lead player in the hydrogen cell space.
Wheat: Global production problems still occurring, but rains hit the Plains helping pressure wheat prices on Wednesday
Monday’s US crop ratings showed a 6% decline in the crop, even though some important rains have occurred from Kansas to N. Texas. The Argentina crop has been dropping and I am still concerned about some 60% of the Russian wheat crop, planted in very dry soils.
Rains have been above normal in the plains the last few weeks (green), yet the US crop is still coming down in ratings, which is a bit of a surprise. Not all La Nina events suggest reduced wheat yields in the U.S., so stay tuned for more of my reports and some trade ideas in wheat, in the months ahead.
The Russian drought continues and is a factor for wheat prices to rally back some
While the Aussie crop is huge, this is being offset somewhat in the Southern Hemisphere market as the Argentina wheat crop has been hurt by drought and below normal rainfall the last few months. Rains coming to Argentina now are too late to help wheat but will be good news for corn and soybeans
Even though spring weather will be the key next year to this market, I still like the long wheat ETF (WEAT) for conservative traders, which is up about 5% since my recommendation a couple of months ago. For other traders, I am going to recommend a conservative position buying July KC wheat, but as a hedge for downside protection, selling the December $6.05 CBOT wheat call against it. This offers at least 22 cents of downside protection, which is more or less like 1/2 of a conservative futures position. So with moderate confidence, we are recommending buying into the sell-off today.
Cocoa: Civil unrest in West Africa, weaker US dollar, and a squeeze play by Hersey, helps prices soar, but weather remains bearish into winter
I will update on Sunday night or Monday my winter outlook for West African cocoa, but I do not see any major weather problems right now.
I will update the Weather Wealth Spreadsheet on Sunday night with some futures and options trade ideas and which trades are open.
The short natural gas ETF (KOLD)—Low-Moderate confidence. This position has been open for a couple of weeks and confidence was lowered from high to low-moderate due to the eastern cold coming, but I do not think the cold is longer-term
The long coffee ETF (JO) longer-term–Moderate confidence. This trade has been open for two months, but we need to see more weather problems in Brazil and there are rains coming in 11-15 days. A weak La Nina should mean a slight reduction in global coffee production, deeper into 2021
The long wheat ETF (WEAT) longer-term—Moderate–Confidence This trade has been on for 3 months with potential La Nina crop concerns in Russia and possibly the US, later
Long the stock Fuel Cell (FCEL)—High confidence– which I discussed Sunday night and soared 50% this week
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