El Niño has become stronger again, preventing any major, sustained cold weather for key natural gas regions
natatravel/iStock via Getty Images
El Niño has become stronger again, preventing any major, sustained cold weather for key natural gas regions natatravel/iStock via Getty Images
There have been some incredible moves in energy and agricultural commodities the last month or so. Most notably based on the weather, cocoa (NIB), and natural gas (NYSEARCA:UNG). These two markets have gone in opposite directions.
Disease issues brought on by wet summer and fall weather in 2023 initially hurt the West African cocoa crop. Now, a dry, dusty Harmattan Wind is playing additional havoc on cocoa crops. The question becomes, at what point will demand be hurt by the most impressive, historic cocoa move in history.
The historical price move in cocoa (Weather Wealth newsletter)
The spider in our newsletter gives fundamental and technical trade sentiment for 6-10 commodities. For example, in cocoa, two weeks ago the global crop score was about a bullish as it could get (+3), while the commitment of traders (anti-herd mentality; too many specs long the market) is bearish at a -4.
A look at agricultural commodities (Markerviewer & Weather Wealth newsletter)
So let's turn our attention to the natural gas market (KOLD). This video illustrates why winter has turned out so warm again for the U.S. and Europe, following a brief "Polar Vortex" short-covering rally three weeks ago. The video talks also about El Niño and why it may not weaken as quickly as others feel.
El Niño is getting a bit stronger again (NOAA & Bestweatherinc.com)
Unfortunately, there has not been a cocoa ETF, such as NIB, since last June when it was retired. Otherwise, this would have been a home run. There are, however, cocoa futures and options, which have been our most profitable trade for clients. A bit risky to buy now? Perhaps, but using various bullish call option spreads might work.
With respect to natural gas, my video above also discusses the 2020 warm winter analog and when prices fell as low as $1.60, before a late May rally. It is possible, however, that a snowstorm in the Northeast this week and an oversold market could create a bit of short-covering.
However, El Niño and record warm global oceans should prevent any significant, major late winter cold spell. Selling natural gas prices at these levels is a bit risky, but I do not see a longer-term bull market.
Jim Roemer.