Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
Trading Crude Oil ETFs in Foreign Currencies: What to Focus On - 22nd Sep 21
URGENT - Crypto-trader event - 'Bitcoin... back to $65,000?' - 22nd Sep 21
Stock Market Time to Buy the Dip? - 22nd Sep 21
US Dollar Bears Are Fresh Out of Honey Pots - 22nd Sep 21
MetaTrader 5 Features Every Trader Should Know - 22nd Sep 21
Evergrande China's Lehman's Moment, Tip of the Ice Berg in Financial Crisis 2.0 - 21st Sep 21
The Fed Is Playing The Biggest Game Of Chicken In History - 21st Sep 21
Focus on Stock Market Short-term Cycle - 21st Sep 21
Lands End Cornwall In VR360 - UK Holidays, Staycations - 21st Sep 21
Stock Market FOMO Hits September CRASH Brick Wall - Dow Trend Forecast 2021 Review - 20th Sep 21
Two Huge, Overlooked Drains on Global Silver Supplies - 20th Sep 21
Gold gets hammered but Copper fails to seize the moment - 20th Sep 21
New arms race and nuclear risks could spell End to the Asian Century - 20th Sep 21
Stock Market FOMO Hits September Brick Wall - Dow Trend Forecast 2021 Review - 19th Sep 21
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Two Ways to Profit From La Nina Seasonal Weather Shift

Commodities / Agricultural Commodities Oct 27, 2011 - 09:17 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleJack Barnes writes: If you follow the commodity markets, you know that weather can have a dramatic effect on your investments.

A flood, drought, hurricane, tornado, or even something as simple as the changing of the seasons can be a game changer.


For example, flooding along the Mississippi River earlier this year damaged roughly 3.6 million acres of U.S. cropland. Arkansas lost about 1 million acres, with Illinois, Mississippi, Missouri and Tennessee also affected. The floods hurt about 2 million acres of cornfields, affected upwards of 40% of the nation's rice crop, and drove wheat prices to historically high levels.

Surprises like these aren't confined to the United States, either.

Thailand this year experienced its worst floods in more than a half-century. Thailand is the world's largest rice exporter, and flooding may have wiped out as much as 14% of the country's paddy fields, potentially erasing the predicted global glut.

Meanwhile, droughts in China- another major rice producer - affected 16.1 million acres of farmland.

As a result, rice, a food staple for half the world, has been this year's best-performing agricultural commodity.

You might say that weather is impossible to predict, but you'd only be half right. Modern meteorology, while by no means perfect, can give us an idea of what to expect from shifting weather patterns. And if you know what to look for, you can cash in on some amazing trading opportunities.

For instance, right now, there's no weather pattern more vital - and potentially profitable - than La Niña.

La Niña is characterized by unusually cold ocean temperatures in the Equatorial Pacific, compared to El Niño, which is characterized by unusually warm ocean temperatures in the Equatorial Pacific.

During a La Niña year, winter temperatures are warmer than normal in the Southeast and cooler than normal in the Northwest.

In fact, La Nina is what brought dry winter conditions to China's grain belt and extreme rains to Australia earlier this year.

And it's not done yet. So here's what you need to know going forward.

What to Expect
The last La Niña slowly ended in the spring of 2011 only to restart again this fall, skipping the typical counter cycle warming period called an El Niño.

This weather pattern will affect prices for rice, wheat, soybeans, corn, and other crops, as well as natural gas. So understanding it is paramount to commodities investors.

The world has been in a La Niña, or at least a colder anomaly period, since spring of 2010. The expectations now are that this weather pattern will continue until the spring or summer of 2012.

This is going to have a real and serious impact on different markets around the world.

Right now, according to National Weather Service (NWS) projections, heavy rainfall will continue along the coast of the Pacific Northwest, while the eastern part of the United States will remain colder and dryer than normal.

This isn't good news for Texas and other parts of the Midwest, where it could seriously impact the winter growing zones for fresh vegetables and wheat.

So we will want to keep an eye on two key areas.

The first place to look at will be the U.S. winter wheat production regions of the Great Plains. These areas are susceptible to spring flooding issues during snow run off periods.

A colder, wetter winter in prime wheat crop growing areas will see the estimated crops yields drop over the winter-spring period. It could also delay the planting of next season's corn or bean crops, as farmland must first dry out before planting can begin.

The second area to keep an eye on will be the lower production of fresh winter veggies that will be coming out of Texas this winter. The water supply issues there are becoming extremely painful during this multi-year drought, with inflationary food prices in the United States a key issue.

This will also affect California. A draught in Texas, and possibly Florida, would leave California as the last of the winter breadbaskets producing a normal winter crop of veggies for domestic consumption.

Now let's look at how La Niña will affect energy markets.

La Niña and the Natural Gas Market
Natural gas historically has had its best seasonal pricing strength in the wintertime, when demand exceeds supply capacity. This is why the United States has the largest natural gas storage facilities in the world. We need to meet peak demand with natural gas that was stored during the summer fill months.

However, this winter may be different. The second year of La Niña should make it warmer than usual in the regions that consume the most natural gas.

Additionally, a significant number of natural gas wells have been drilled this year, with capacity held off until pricing improved. These wells are typically completed and hooked up to the pipeline as soon as possible. But this year, summer prices were so low, so some companies elected to hold the first flush production for higher price points.

I expect that the U.S. energy companies will bring on a surge of natural gas production this winter that will keep prices below normal winter rates. We will want to skip the natural gas pricing game this winter, as I expect continued weakness in the near term.

I believe this will change once the United States is closer to exporting natural gas via liquefied natural gas (LNG) cargos in 2015 or so. These cargos should help raise overall U.S. natural gas prices while helping to actually lower LNG prices globally.

How to Profit
Now that you know what to expect from La Niña, here are a couple of investments that will help you profit from it:

•The Sabine Royalty Trust (SBR) (NYSE: SBR). The company collects the income from the royalty and mineral interests of the Sabine Corporation. The trust has an average yield of 6.1% over the last five years, with a current yield of about 6%. A strong, steady high-yield investment that pays a royalty-based cash flow from trust holdings is a safer way to play natural gas and oil price volatility.
•The iPath DJ-UBS Grains TR Subindex ETN (Amex: JJG). The Grains total return sub index is an exchange-traded note designed to mirror the movement of corn, soybean, and wheat futures contract. I expect this ETN to move higher this winter as La Niña further reduces crop yields.

Source : http://moneymorning.com/2011/10/27/...

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in