What La Nina May Mean For Nat Gas And Other Markets

Aug. 31, 2020 2:54 PM ETCORN, NIB, UNG, WEAT2 Comments6 Likes
James Roemer profile picture
James Roemer
1.7K Followers

Summary

  • As I predicted, nat gas (UNG) has fallen after Hurricane Laura. Cool-weather vs other non-weather-friendly factors.
  • JJG (All Grain ETF) is up on a combo of weather impacts and China.
  • Dry weather is fuelling cocoa (NIB) prices.

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.

The drought in Iowa the last month or so has finally taken its toll on corn and soybean crops. However, getting bullish grains ahead of the US harvest, on this major rally may be a mistake.

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.

La Nina's Potential Impact

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.

SOURCE

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.

Conclusion

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).

To learn more about how the weather is affecting global commodities, why natural gas (UNG) prices have collapsed, and how La Nina is affecting certain markets, see my weekly video update here.

This article was written by

James Roemer profile picture
1.7K Followers
Jim Roemer owns the site (www.bestweatherinc.com) offering FREE and SUBSCRIPTION BASED weather-related blogs for commodity traders and farmers. He also is co-founder of CLIMATE PREDICT, the most detailed and accurate long-range global weather forecast tool. He was one of the first meteorologists ever to become an NFA registered Commodity Trading Advisor and has worked with major hedge funds, Midwest farmers and traders for over 30 years. His unique ability to forecast both short and longer range weather trends, with a special emphasis on interpreting market psychology and major market moves in grains, softs, and the energy markets, has made him a global industry leader in the commodity risk management industry.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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