The iPath Bloomberg Grains ETN (JJG) has soared on a combination of stronger China demand, devastation brought by the Iowa wind storm three weeks ago, and recent dry conditions.
Natural gas (UNG) prices have fallen back after our forecasts two weeks ago that although Hurricane Laura would be stronger than anyone else predicted, it also would cause more demand destruction and also help bring cooler weather into the US.
Cocoa prices (NIB) are soaring on a six-week dry spell that looks to continue in West Africa. I talk more about this weather and La Nina and its impact on markets in my weekly video for Seeking Alpha at the end of this article.
How will a developing La Nina affect these and other markets? For one, it may set the stage for higher prices for many commodities, deeper into 2020 and 2021.
A weak La Nina will bring good harvest weather for Canada and most of the Midwest corn belt. While short-term conditions for corn and soybeans have deteriorated, long term this good weather will be bearish.
While Australia should have a great wheat harvest, weather issues could be developing in Argentina. A stronger La Nina could lower both South American and US crops.
Our proprietary system CLIMATE PREDICT (above) shows the developing La Nina (dry weather (red) for West African cocoa) helping cocoa prices soar. Notice the dry conditions the last month over much of the Midwest. That's been helping to lower corn and soybean crop prospects.
SOURCE: NOAA VEGGIE INDEX
Argentina developing dryness is typical for La Nina
As for natural gas (UNG)? The coldest winters for US natural gas and heating oil regions usually occur with a negative QBO and a La Nina. I'll explain QBO another time.
Harvest pressure in Canada and the US come later in September and October could cause corn (CORN), soybeans (SOYB), and Wheat (WEAT) to sell-off. However, longer-term the potential La Nina event and a historical look at crop cycles portend well for grain prices into 2021 as South American may have weather problems. We would wait for a harvest low in most grains later this fall to look at the side of the all-grain ETF (JJG).
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