I will be talking about Solar Activity in my report Sunday night/Monday a.m. and updating about South American weather and natural gas temps for January and my in house software.
You have some clowns out there that do not believe in a warming planet and keep touting these ridiculous cycles. I am going to discuss a lot about this in future reports, off and on this winter.
Have a nice weekend, Jim
Natural Gas:
Eastern snowstorm, another cold snap around Christmas, watching the Ao Index
The image above shows temps as much as 20 degrees above normal across the N. Plains last week and warm nationally. We need to see extreme sustained cold to see natural gas prices back above $3.00-$3.20, I think natural gas trading and the weather forecast going forward is much more difficult than it was the last 2 months and my previous bearish attitude.
Notice (above) how the negative index becomes more neutral towards the end of the month. This may mean that one more cold snap over the Midwest and East in about 10 days will ease with a normal to warmer solution for most natural gas areas in January.
A cold snap before and just after Christmas with temps in the single numbers and teens in some areas may cause some short covering in natural gas at some point, but I need to see consistent major cold and snow cover to get super bullish (stay tuned)
The Arctic Oscillation is negative that will result in another cold snap around Christmas for the main natural gas regions. Notice how all models have it mostly negative through January. While most of my in-house long-range weather software suggests NO sustained cold weather, the AO index being negative is a bit worrisome and I will discuss this more early next week.
Coffee:
Good rains coming to Brazil, but weather problems in Central American and Vietnam continue, help prices break resistance
Coffee prices have broken through resistance due to some weather problems. Again, if it were not for good rains coming for Brazil, I would even be more bullish. Nevertheless, we caught the lows in Robusta coffee a week ago with a buy recommendation and still short March coffee puts which are profitable.
Rainfall over 150% above normal in Sao Paulo and parts of Minas Gerias, otherwise I would become even more bullish coffee than I am.
Rainfall will average more than 200-300% of normal for the Vietnam Robusta coffee harvest in the next 2 weeks. This is bullish
Cocoa:
Weak La Nina and Negative AO index is good for global crops this winter
Negative Arctic Oscillation Index, which has to do with a warm block over the N. Pole will bring occasional cold snaps to western Europe and the eastern United States later in December and in parts of January. When this happens, there are not strong Harmattan winds in west Africa. This, combined with a weak La Nina signal bodes mostly favorable for west African cocoa, this winter. This is the opposite, of last year’s positive AO index, a cold vortex at the N. Pole and a warm winter in much of Europe, and moderate to strong Harmattan, especially in Ghana, last January, and February.
The weather is a bearish aspect to the cocoa market in my opinion, on rallies (No change in my comments)
Sugar:
Strong Seasonal To Be Long Sugar, but Longer-Term, La Nina May Bode Well for 2021 Production
Sugar prices had trended higher over the past two months to a 9-3/4 month nearest-futures high Nov 17 on concern that Brazil’s dry conditions may curb sugarcane yields and reduce Brazil’s sugar production. However, I have been forecasting improved Brazil weather for the last few weeks.
Irregular rain in Brazil’s sugar-growing areas was keeping soil moisture levels below normal. Maxar recently said that Brazil’s sugar-growing regions had received only 5%-25% of average rain in the past few months, leaving crops “extremely dry.” But most of my research suggests improved conditions
Great rains in Sao Paulo and the drought easing in Thailand have been background bearish factors for sugar. The table above shows how buying sugar around December 14th and exiting in mind January has worked 14 of the last 15 years, but this is not all-weather right now and I will do more longer-range weather outlooks for sugar in due time.
Cotton:
Lower Indian crop, But Mostly Optimism Over Vaccine & Weaker Dollar, Has Been Supporting Prices
The cotton market continues to experienced follow-through buying as traders are still operating off the bullish USDA data of last week, as well as the COVID-19 vaccine victory. Spot March cotton posted another set of new highs in price as well as a settlement. Such action can only affirm in the minds of traders and speculators, that long is the way to be positioned. Currently, cotton’s bull market turned eight months old in December.
The U.S. Dollar Index posted new lows for its moves as it remains in a steep downtrend. The dollar, among other markets, is also awaiting the Federal Reserve’s decision on future monetary policy. That announcement comes tomorrow. Interest rates are expected to be left unchanged. A general consensus among traders reflects their beliefs as domestic and world cotton stocks tightens, that the market may continue to find support next year.
Gujarat-based agriculture experts have recommended farmers to hold their cotton crop and sell it after January 2021, when the prices of the fibre are expected to rise.
Torrential rains received in third week of October, have damaged the crop to a large extent
Indian cotton is currently the cheapest in the world and this has triggered new prospects for exporters
Flooding rains hurt the end of the cotton harvest last October with 400-600% of normal rainfall. This is typical of La Nina
Cotton is one of the few Ag commodities that follow trends and technical analysis, very closely
Grains:
Some Minor Concerns Developing In Argentina, Brazil Mostly Good Shape, But Outside Markets, Demand, Argentina Labor Strike helping prices
Uncertainty over the impact of this month’s weather will likely hang over the markets for a few more weeks, Some crop losses are expected, but the situation in South American is very variable. It is a huge country and while there are some dryness concerns in Matto Gross to soybeans and Argentina is getting dry again, but there is NO extreme heat in Argentina for at least two weeks, and good chances for rain later this week in Central and northern Argentina. Depending on how much rain falls in Argentina, this may result in profit-taking in soybeans before the weekend. Brazil looks to get good rains for the next 2 weeks.
Demand is really the driving force in the corn and bean market right now. There is a good rain event coming later this week for central and northern Argentina with .40-1.50″ of rain
Grain prices have been volatile since Russia proposed a wheat export tax and grain export quota to cool domestic food prices. On Tuesday, the prime minister signed orders to implement the new measures.
Euro model next 45 days suggests reduced crop, but not extreme heat for southern Brazil and Argentina. This is typical of strong La Nina events. The dry European model for central and southern Argentina may have been exciting the corn and soybean market. Notice the crop stress (red) in many grain areas, above. I should caution, however, that while grain traders around the world look at this, these maps are sometimes over-zealous and it is NOT clear cut that we will see anything more than a slight reduction in corn and bean crops.
MY COMPUTER MODELS ARE NOT AS DRY AS THESE MAPS, ABOVE, NEXT MONTH
Brazil getting good rains next 2 weeks again while southern Argentina dry, but no extreme heat yet. So from a weather perspective, there may be some minor crop concerns but nothing major right now.
For the wheat market, I continue to have a cautiously bullish longer-term outlook due to strong demand for grains around the world in a pandemic and post-pandemic world and Russian weather issues. The key will also be La Nina and whether it holds on to hurt US crops later. No question that huge crops in Australia, etc. have been bearish and we are not completely in a weather market right now.
I will update with my own Climate Predict models next week and deeper into the S. American summer (stay tuned)
Weather Wealth Trade Ideas
Please refer to the spread-sheet from last Sunday night’s report and open positions
TRADES ON SPREADSHEET-BELOW
COFFEE
Right now, I have pretty high confidence being long Robusta coffee and staying with the conservative long coffee ETF position JO and short coffee puts
CORN/BEANS
Given market action and some dryness in Argentina, I have low-moderate confidence only being short soybean calls and given the chart situation, etc. It is still too early to gauge completely the impact of La Nina and South American weather but most of Brazil is improving, while there are some minor reductions in corn and bean crops coming from dry Argentina weather. Nevertheless, the spread-sheet is short the March $12.40 call from 25 cents but I would feel more comfortable with this if La Nina was not associated with some reduction in crops in Argentina, which it is, but again most of Brazil, again, will be improving.
A labor strike in Argentina and outside factors with demand continue to support corn and soybean prices. It is possible with good rains hitting C/N Argentina by Friday that some sell-off in corn and beans may occur before the weekend. Medium-term outlooks are dry for Argentina but no extreme heat ( a bit confusing)
RENEWABLE ENERGY
We also have some renewable energy stocks that are quite a bit ahead on the spread-sheet and a few other trades.
NATURAL GAS
After predicting the near-record warm fall back in October and having a couple of good trade recommendations from the short side in natural gas, I am unsure for the moment.
WHEAT
I still feel comfortable with the short March CBOT wheat calls and long July KC wheat with about 25-30 cents total profit potential with nice protection of downside risk with the call option
COCOA
I remain bearish cocoa longer-term with relatively high confidence (no change in my comments, selling the highs again in this market, a couple of weeks ago. This time, in options
