WHAT IS +GLAAM AND WHY IT HAS CREATED A BUBBLE IN SOME COMMODITIES?
May 16th, 2021
IN THIS REPORT:
Introduction on why some Ag Commodities have reached their highs, for now
What is Global atmospheric Angular Momentum (GLAAM) and why weather turned more bearish for some ag commodities
Are we in a bubble in commodities? for some agricultural products, i think we are
Drought easing for Texas helps to pressure cotton prices
UPDATED WEATHER FORECAST FOR SEVERAL CROP GROWING AREAS AND COMMODITIES
WHY CAN’T COFFEE MAKE NEW HIGHS? I’m STILL BULLISH ON FURTHER WEAKNESS
WEATHER WEALTH GENERAL TRADE IDEAS AND MARKET SENTIMENT
After a stellar rally in old crop corn and soybeans (which pushed up new crop December corn and November soybeans), a combination of barge traffic issues on the Mississippi last week, a huge net long position in the grain market (making it subject to profit-taking), but also improved weather for many drought-stricken areas in the Midwest and Texas, helped to create a massive sell-off in some commodities last week.
My Wednesday a.m. YouTube video came right out and said that I was quite confident that the new crop December corn would be under pressure soon. I advised that readers with some profits in the soybean ETF (SOYB) might consider that the USDA report could be a “buy on rumor, sell on fact” situation. Indeed, this has happened. I also felt confident, last Monday, that improved weather for U.S., European, and Russian wheat might also create a sell-off
Could corn and soybeans make new highs? From here on out, it will depend on spring and summer weather and what 2021 crop prospects are in several countries, especially the United States. No question the Brazil drought and this could still support old crop July corn on further breaks due to historically tight stocks, but the weather-related markets of December cotton, December corn, November soybeans, and July and December wheat are seeing improved global weather in the Northern Hemisphere. For this reason, I remain mostly bearish in several of these new crop commodities.
show chart of grain commodities
WHAT IS GLAAM AND WHAT IT SAYS ABOUT LA niÑa
Angular momentum is a variable of central importance to the dynamics of the atmosphere both regionally and globally. Moreover, the angular momentum equations yield a precise description of the dynamic interaction of the atmosphere with the oceans and the solid Earth via various torques as exerted by friction, pressure against the mountains and the nonspherical shape of the Earth, and by gravity.
I will discuss more of this in a video by Wednesday or Thursday. In a nutshell, when global atmospheric angular momentum (GLAAM) goes positive it signifies a change in the Trade Winds and increased chances for rains for northern Brazil as well as parts of the U.S. cotton belt, corn belt, and spring wheat belt. In other words, “positive GLAAM” represents neutral to El Niño type conditions.
WHEN DO BUBBLES HAPPEN?
While inflation fears have sparked a historical rally in copper, aluminum, and some agricultural commodities, the recent market action last week in corn, cotton, and a few other markets represent “too big of a long position” and some improved weather in some areas. I will discuss more about “bubbles” and inflation concerns when time warrants within the next week or two.
In general, do not believe that commodities have seen a bubble. I am still bullish on commodities, as a whole, and affording a hedge against inflation. However, I am not bullish on new crop cotton, corn, wheat, and soybeans unless we have summer weather problems This does not mean we cannot see some sort of a rally soon in old crop July Ag markets, but I am bearish new crop October-December markets for several commodities, as I expressed last week before the price collapse. If we do see a rally again in July contracts it would pull up the new crop contract months a bit.
HOW LOW CAN DEC CORN PRICES GO WITHOUT A SUMMER DROUGHT?
DROUGHT EASING FOR TEXAS HELPS PRESSURE COTTON
Cotton was far from a bubble this past week, but Texas weather is improving and the market approached an over bought situation. We will need to see some global weather problems for cotton this summer for prices to get back above 90 cents
My BestWeather spider from last Wednesday went from slightly bullish to slightly bearish cotton (-1) due to an easing in the dryness in Texas for cotton as GLAAM goes positive.
Updated Weather forecast for global wheat; U.S. corn belt; brazil corn, sugarcane, and coffee
In my view, and as per my comments last Monday, and again in my video last Wednesday, the weather has turned bearish heading into the growing season for new-crop December corn, July wheat, and possibly eventually November soybeans. I see improving weather, in part due to positive GLAAM in the corn belt, “some” drought-stricken areas in the northern Plains and southern Canada spring wheat areas, and in Europe.
WHY CAN’T COFFEE PRICES MAKE NEW HIGHS?
I mentioned more than 3 months ago that I felt coffee prices would reach $1.50 on the Brazil drought. Prices reached my objective a week or so ago and have since sold off about 8%. Why?
- Too big of a long position by speculators; 2) An increase in short term supplies; 3) Technical considerations on the charts; and 4) Seasonal factors, in which coffee prices often go lower unless there is a weather problems such as a freeze scare before or by June.
Nevertheless, the prospects of a global deficit of coffee, deeper in 2021 and the potential for wet weather and/or some colder temperatures in about 2 weeks will probably keep coffee prices above the $1.35-$1.40 area heading into June.
But notice the black spots on the coffee beans and worsening crop prospects from the drought.
WEATHER WEALTH TRADE IDEAS
GRAINS: MOSTLY BEARISH NEW CROP WHEAT, CORN AND BEANS ON DROUGHT AREAS EASING AND A BUBBLE IN SOME OF THESE MARKETS
When we talked about “bubbles” above, clearly it looks like December corn is one commodity that may be seeing one. The record-long position in the market and the chart here on the left showing that July corn prices may have seen fair value just below $8.00. I mentioned last Wednesday a.m. before the USDA report that I was very confident that December corn is bearish and that Midwest crop conditions will become more important to the market.
While I have discussed a long July-short Dec. corn spread, I cannot say with any great certainty that July corn will go into a major bull market. I am unsure about July corn right now, though any day, prices could also snap back, as the market may be oversold.. For now, I remain bearish new-crop December corn on rallies, in which prices collapsed some 60 cents after my recommendation last week. There is still a $1.00-$1.50 premium, in my opinion, built into the new crop of December corn. If the Midwest crop fares well this spring and summer, Dec. futures could fall to as low as $4.00. China, Ukraine, and U.S. acreage may be higher than anticipated.
However, we got the break I was looking for in some of these commodities and I would not necessarily be selling in the hole right now, as old crop July soybeans and July corn may see a rally on tight stocks.
With respect to wheat and soybeans, there are a host of outside market factors, inflation fears vs improved global weather for these markets. I remain in the neutral to the bearish category in wheat and new-crop November soybeans. I actually recommended last Monday morning that I was bearish new crop wheat again. Prices have collapsed.
My spider had a +2 (bullish) sentiment in soybeans recently, but last Wednesday’s video clearly said to “be careful” and possibly take some profits on the long soybean ETF (SOYB), as the market may have already built in the incredible demand and tight stock situation.
Finally, though there are still concerns for North Dakota and Canada spring wheat areas, with some rains in the forecast deeper into May, I cannot see anything more than possibly a short-term rally, if we get that. I mentioned last week I saw the drought easing a bit for spring wheat areas, deeper into May. Hence, I am bearish this market.
SOFT COMMODITIES: BEARISH NEW CROP COTTON BUT STILL CAUTIOUSLY BULLISH COFFEE; UNSURE SUGAR
I would remain long the coffee ETF (JO). At one point, it was up about 20%. I also like being long coffee by being short September $1.30 put options. It is possible that wet weather in Colombia or Central America may cause logistical shipping and harvesting issues within weeks. My bias is also to buy any further weakness in July coffee with moderate to high confidence.
In sugar, at one point traders may have been ahead $1,000 a contract being long July sugar on the Brazil drought. The outside markets and just technical liquidation pressured sugar late last week. Also, there is rain in the forecast for Brazil, but that is not for another 6-10 days and there has been irreversible damage to the crop. I would not let this trade turn into a loser. The Brazil Real will also play a role. Confidence is lower after being bullish because of rain for Brazil next week.
The weather has turned bearish for the new crop December cotton. It is a long growing season and many things can happen. Unfortunately, I saw rain for Texas last week but did not recommend selling the market (way too much stuff to watch). My bias is on the bearish side in call options or futures on any price rally.
NATURAL GAS: OTHER FACTORS, NOT WEATHER AFFECTING PRICES FOR NOW
Seasonally this market goes lower deeper into May. I mentioned “moderate confidence” at best, possibly selling this market around $3.00, I think 2 weeks ago. Inflation fears, lower U.S. natural gas stocks are bullish this market. Temperatures in the 80s and 90s for a few days later this week, may inspire some more of a rally in this market (as you can see below, temps 5-10 degrees above normal in some areas by this weekend), but this is only an excuse and not a major factor in the market and the heat will probably not last or be that expansive. I think there are “psychological worries” about another active hurricane season and also a storage deficit of 3.3%. Weather will become much more of a factor by summer, so stay tuned.
Right now, there are other markets such as coffee and corn that I have had more confidence in trading on the weather.
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