The Third Year of La Niña is Only One Reason Why Many Commodities Have Bottomed
by Jim Roemer – Meteorologist – Commodity Trading Advisor – Principal: Best Weather & Climate Predict – Publisher: Weather Wealth & Climatelligence
Evening Report – July 8, 2022
Please watch our video at: https://www.youtube.com/watch?v=lWd1qkT5lJg
The rally back in corn late this week has been strictly due to:
- 95-105°F heat that will hit the western corn belt next week, and
- an oversold market.
In addition, new weather problems for wheat in Europe and Australia have also helped corn futures rally back, following a major washout this past week on improving U.S. weather and the stronger dollar. The trade will react violently to weather forecasts Sunday night and Monday (Please see the video to learn more).
Following a “buy-on-rumor / sell-on-fact scenario” after Thursday’s USDA report and improving U.S. weather, prices have soared back on concerns for mid-July heat. China’s cancellation of several major grain cargos coming in from the U.S. was also a major factor in the nearly $2 break in soybeans in just a few days. Given potential recession fears and La Niña weakening deeper into 2022, the chances for a rebound in global soybean production could be bearish longer term. However, we must first deal with summer weather and potential crop problems in the western corn belt.
After riding the bullish wave higher in wheat on global weather problems and Russia’s war on Ukraine, we recommended to Weather Wealth clients to sell deferred call options in wheat when prices were over $12 (more than a month ago). Why? An overbought market on inflation and Russian concerns, U.S. harvest pressure, and improving weather in Canada and Russia, vs. a year ago. However, now there are concerns with a drought in western Europe and flooding rains in Australia (as addressed in the video above).
A rebound in global oat production from improved weather recently caused a major sell-off in this market. This map was from about a week ago. While normally, good moisture bodes well for spring wheat and oats, a very cool spring and early summer with snow and cold rains in some areas could actually hurt some crops in parts of Saskatchewan and Manitoba;
This market is often most susceptible to the whims of the global economy and what the U.S. dollar does. Now it is possible the trade focuses on the potential for a weak Indian Monsoon and the Texas drought that may lower global production later this summer.
The stronger dollar and big west African production (due to La Niña) have helped pressure prices by some 20% over the last few months. Although not a major factor, too much rain in Ghana is causing logistical issues in moving cocoa along the supply chain. In my opinion, it will take a full-fledged El Niño, not La Niña, to garner a major rally in this market, which may be oversold at present.
While tight stocks and past weather problems do exist for coffee, the market knows this already. A lack of Brazil frost talk this time of the year, the weaker Brazil Real, and a stronger dollar have been bearish factors. (Video above talks about La Niña, Vietnam, and Robusta coffee). The one problem area I see is it being too wet for Colombia’s coffee which may further lower production. There is a high correlation with mid-late summer corn belt weather when certain La Niña events cause flooding in Colombia.
SUGAR: This market has been following the Brazil Real and crude oil sell-off, south. Higher crude oil prices often mean a switch from sugar cane to ethanol production to offset higher energy costs. A lower Brazil crop is bullish, but weather conditions in India and Thailand (#3 sugar producer) will be critical to this market over the next three months.
The southern Plains drought could cause more cattle to come to market and be short-term bearish. HOWEVER, in the longer-term picture, it could reduce supplies and lower production. There is a high correlation between Plains droughts and the cyclical nature of cattle prices.
While not usually a weather-reactive commodity, of course, what happens with the Indian Monsoon can actually have a significant effect on Q4 gold demand in India and the Middle East. (If you are not familiar with this topic, do an internet search on “gold and India’s wedding season”. For now, the stronger dollar and recession fears have been directly responsible for the collapse in metals. I advised clients two months ago about potentially buying the inverse gold ETF (GLL). Another reason was that gold is not the safe haven investment it once was, 20-30 years ago when ETFs began offering alternatives. In today’s world, we have the whole cryptocurrency gambit out there, siphoning off the once staunch gold bugs, and hoarders of other metals, both precious ones, and “strategic” ones.
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Thanks for your interest in commodity weather!
Weather Wealth & Climatelligence
Mr. Roemer owns Best Weather Inc., offering weather-related blogs for commodity traders and farmers. The Weather Wealth blog, including both short- term and long-term forecasts and trading ideas, are accessed at https://www.bestweatherinc.com/
He also is co-founder of Climate Predict, a detailed long-range global weather forecast tool. As one of the first meteorologists to become an NFA registered Commodity Trading Advisor, he has worked with major hedge funds, Midwest farmers, and individual traders for over 35 years. With a special emphasis on interpreting market psychology, coupled with his short and long-term trend forecasting in grains, softs, and the energy markets, he established a unique standing among advisors in the commodity risk management industry.