4 am EDT on Monday, June 2
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Introduction:
I am getting inundated with questions from farmers and traders in Australia to Canada as the world’s weather is going wild again. The Indian Dople has gone negative, we have record heat in Canada and one of the most active US tornado seasons on record. Currently, we have El Niño neutral conditions, but depending on where you are, some countries’ weather is acting like an El Niño, and in others, La Niña. This is affecting the oats market more than any other.
My next potential concern is it being too wet for the US hard red wheat crop (so much for all of this bogus talk 1-2 months ago of a drought). Plus “possible” harvest delays or minor quality issues for some of Brazil’s southern coffee regions and some sugar cane areas next week.
I will get to some of your questions later this week or next week. In the meantime, here is a quick analysis for each market I follow.
Roemer
Natural Gas: The market fell 15% last month due to cool weather. Pre-summer hedge buying and worries about a potential mid-June hurricane help prices rally back.
Since my Weather Spider predicted cool May weather and became bearish a couple of weeks ago, prices once again sold off nearly $5,000 per contract. Natural gas prices are recovering on Monday due to:
A) Pre-summer “what if” buying in case it turns hot;
B) New tensions overseas between Russia and Ukraine creating concerns about European gas imports;
C) Models showing a tropical storm or hurricane in the Gulf. However, right now, I am not buying into this as any big deal and it probably will not happen.
Coffee: My highest confidence trade being bearish two-three weeks ago. Some possible minor concern for Brazil’s harvest delays.
Two weeks ago, my bearish call in the coffee market was the trade of the spring; other than short wheat a month ago and short natural gas in March and early April. These three trades alone could have brought in over $10,000/contract, depending on if you did futures, ETFs, or options since March.
This story from Reuters (below) is now “after the fact.” It is my job to anticipate things before the news services publish them. Robusta coffee prices have collapsed 12-15% in just a few weeks since my bearish discussion.
While I am bearish on coffee in the long term and have been disagreeing with all of these “bulls” talking about frost scares in Brazil, etc. I am a bit concerned about some heavy rain that may cause a few harvesting or quality issues, deeper into June.
Sugar: New tensions between Ukraine and Russia help crude prices rally. Some potential harvest delays in Brazil
I became cautiously bearish about sugar more than a month ago on ideas of a big Thailand crop and a good early monsoon for India. However, prices are following the crude oil market more than anything.
Heavy rainfall next week will delay Brazil’s sugar harvest but be good news, later for the 2026 crop.
Cocoa: While a bit early, my suggestion of tight supplies and seasonal bullish factors have helped prices rally back
While my Spider was bullish a week ago, the return of good rains for West Africa may prevent a major rally in prices. Stocks remain tight but questions about the demand side of the equation and a potential improving main crop later this year are to be noted.
Not the bullish temperature score (+2) I mentioned a week or two ago in the face of falling prices. The bullish crop score (+3) is from a poor mid-crop hitting the market.
Wheat: Flooding rains & severe weather in the southern U.S. beginning to cause disease issues and quality concerns
My last big trade in wheat was from the short side in April when I saw improving rainfall for plain wheat crops and a decent Russian crop.
While seasonally wheat prices go lower, the combination of some drought areas to Canada’s spring wheat belt, wildfires, and more heavy rains coming to Kansas, Texas, Oklahoma and the Delta is creating bullish, short-covering concerns in the wheat market.
Corn: Cool weather and average early US crop conditions not a concern to market just yet
Cool-wet weather has created slightly lower Midwest corn crop prospects. In addition, flooding rains in the deep south have slow planting in some states that normally produce less production in Kentucky and bordering states, etc.
Nevertheless, more than a month ago, my Spider painted a cautiously bearish attitude toward the new crop of December corn due to excellent Midwest rains until I saw sustained heat and dryness there.
Even Michigan is seeing a near-record number of tornadoes and concerns about it being too cool and wet for their corn crop.
Droughts and floods hit Australia
A mixture of droughts and floods in Australia is causing some concern for wheat and canola crops.
Source: The Guardian
In my opinion, it’s a combination of natural climate variability and human-induced climate change. Global warming, along with the phases of ENSO, IOD, and the Antarctica Oscillation Index, can create conditions conducive to both droughts and flash floods. Deforestation and soil degradation can also exacerbate drought conditions by disrupting the water cycle and reducing the soil’s ability to retain water.
It was the warmest May on record for parts of southern Australia.
I mentioned a week ago that the possibility of a weak La Niña later this year, plus the Indian Ocean Dipole going negative, “should improve” wheat crop prospects for much of Victoria and New South Wales, later this year when the crop comes out of dormancy.
Spring wheat futures pop on concerns about dryness in Canada and wild fires
I will take a look later this week or next week about Canada and the northern Plains spring wheat areas. In the meantime, some concerns about just mediocre US spring wheat conditions, fires in Canada, and the charts have helped prices rally.
WeatherWealth Trade Ideas
Coffee was my number one trade two weeks ago recommending selling the market. Some of you emailed me that you sold futures, though for the most part, I have suggested only selling out of the money calls longer term. If you did sell futures, you would be ahead more than $6,000 a contract since my Spider became bearish. I would book that profit for now.
Otherwise, longer-term, traders may be short the December $4.50 call option from more than 2 months ago and ahead more than $2,000 a contract.
I am friendly with wheat right now on new tensions in Ukraine, too much rain in the southern US, and fires in Canada. I have no new advice, however, as the market has already rallied due to the big short spec position.
Short December corn from a month ago and ahead $500-$1,000 a contract.
Soybeans I am not watching beans at the moment.
Natural gas I have no new advice right now. This was one of our best markets all winter long catching multiple moves up on two polar vortexes and then the massive move down in prices during March and early April on weak demand.
In the sugar market, I advised possibly buying the October 17¢ put a month ago with prices around 18¢ or selling futures. My confidence is low in the short-term but moderate, deeper into the summer and fall.
Cocoa prices are too volatile right now with multiple factors, so I have no new advice.
For cotton, with more Trade Tariff concerns and the drought easing in Texas, as I predicted two months ago, I have no interest in recommending a buy. I will have to study China’s weather, etc. later. I am not sure if massive flooding in the Delta may be an excuse for a short-term rally.
