ARGENTINA RAINS, ROBUSTA COFFEE SOARS, AND NATURAL GAS BOTTOMS ON EASTERN COLD
December 22nd, 2020
PLEASE WATCH VIDEO ABOVE
Hi Everyone, I think you will find this video interesting. Normally, I send out my 2nd weekly WW report by Wednesday or Thursday, but with maps looking wetter for Argentina next week and with a holiday-shortened week, I thought you would enjoy this (oops) I said Robusta natural gas (funny)—no, coffee, of course
PRESENT OPEN TRADES ON SPREAD-SHEET
Snow to hit some wheat areas next week
SNOWFALL COULD EXCEED 6″ THE NEXT 2 WEEKS FROM TWO STORMS IN AREAS SHADED IN BLUE. SOME AREAS MORE THAN A FOOT. BIG SEVERE WEATHER OUTLOOK IN THE EAST BY Christmas Eve FIRST
Coming moisture in Russia and Kansas snows next week may soon cause profit-taking and a wheat sell-off. The spread-sheet has a conservative position on long wheat at this point and has for weeks. Nevertheless, again, it is not really until next spring when the weather is more of a factor in wheat futures.
After closing out a winning wheat trade in October, our advice was to buy July KC wheat in late November at $5,67 and sell the March $6.05 call at 22 cents. As of this writing, July KC wheat is 585 and the March call option at 29 cents. So this trade is up about $500. While short-term weather may be looked at a bit more bearish within a week, we are keeping a more medium-term view in wheat and since we have the short March call option on, gives downward protection over the next 2 months in the wheat market. This is a very conservative trade with limited downside risk the next 2 months and total profit potential somewhere around $1000. If it were not for the short March call position, I probably would have been tempted to take some small profits on long July KC wheat due to the maps, above.
South American Weather is still NOT a big deal for soybean crop, yet. Argentina grain areas to get good rains by Dec 30-Jan 1st
Maps turning wetter for South American grains, again, as I pointed out a week or so ago. One reason why I initially recommended a short position in soybean call options, but other factors are bullish grains. Nevertheless, if these maps are correct, look for possible 20-30¢+ soybean break from any new high made here. Obviously, the charts are dictating a play in grains right now. This can also be said of the weakening US dollar, higher palm oil prices and Chinese demand. Weather is not an immediate factor.
Other than Matto Grosso, a primary soybean area in Brazil, most other soybean areas have seen decent rains in the last 10 days, and more coming. I am concerned about the lower quality Robusta coffee crop that is north of the Arabica areas being too dry.
NAO index turning negative has helped natural gas prices rally on occasional cold and stormy pattern
Above is a screen capture from Jim Roemer’s CLIMATE PREDICT WEATHER PROGRAM. It shows January temperatures based on specific La Niña events with a -AO/NAO index and a positive EPO index). A positive EPO index is a cold, stormy pattern near Alaska. this often brings warm weather to US natural gas areas, such as in November when I was bearish. However, when combined with a warm block near Greenland, this is a potentially colder solution for some US natural gas areas for January (blue).
My bias is a “cautious friendliness” towards natural gas, on breaks. Although, I am not adding new exposure on the WeatherWealth spread-sheet, for now. This is because I do not necessarily see major, sustained cold weather. Last week’s temps (below) were not that cold again, so this week’s EIA may not be bullish, but there is enough cold air around that nat gas prices should not fall out of bed. In other words, I came close to recommending selling put options last week, as I was no longer bearish, but prices have already rallied a bit on the cold, since then. Though a long way away, I am pretty confident based on my program above, that the month of March will be cold.
Too wet for Colombia and Vietnam Coffee in January
I repeat: without the good rains for Brazil coffee (except northern Robusta areas), coffee prices explode. Nevertheless, wet weather issues could mount for Robusta, as we head into January.
I remain bullish Robusta coffee
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