Third Year Of La Nina And Possible Influences On Commodities (NYSEARCA:UNG)

La Niña and what cycles say

Here comes the third straight year of La Niña. From what I can gather, there is a definitive cycle of three consecutive La Niña years. They appear to occur about every 20 years. (However, once in recent history, they did occur in a 10-year cycle in 2010-2012).

1. 1. Dustbowl years of the mid-1930s;
2. 2. The 1954-1956 period when droughts were frequent for Plains wheat and occasionally in summer in the corn belt;
3. 3. The 1973-75 La Niña events had either corn belt frosts, planting delays severe summer grain droughts;
4. 4. 1998-2000 La Niña events which generally had good summer weather for grain crops and were an anomaly in the cycle with respect to droughts;
5. 5. 2010-2012 which was the “Arab Spring” and frequent droughts in Russia and/or the United States; and
6. 6. (Finally, today) – If La Niña continues into the early autumn of 2022, this will be the third straight year.

You can see below that this present La Niña is the strongest of any recent La Niña heading into the summer. This is quite unusual because La Niña often weakens before summer.

I will be looking at many other climatic variables and recent global weather patterns to predict summer weather and price patterns and trade strategies for my clients

The third straight year of La Nina and what often happens with commodities

I examined the years 1956, 1975, 2000, and 2012. My analysis derived a set of the most likely outcomes, as follows:

• Dryness for the western corn and soybean growing areas; and
• Texas cotton, but good rainfall for Canadian grains. Right now, however, most Midwest conditions are optimal for corn and soybeans;
• Continued wet weather concerns for spring wheat in the northern Plains;
• Normal to wet weather for most Indian sugar cane areas but potential dryness for Indian cotton in Gujarat;
• Drought may continue for Texas cotton;
• Dryness for west African cocoa (This is a bit surprising, given that it is usually El Niño, not La Niña, that causes some dryness in west Africa). However, right now, things are pretty ideal for west African cocoa;
• Potential wet weather problems to the Colombian coffee crop (as shown by the map below. The rains in South America may also eventually benefit sugar cane;
• No additional frost for Brazil coffee and improved global weather later may be bearish prices longer term;

• Hot summer for 70% of U.S. natural gas areas with the western drought continuing to aggravate most hydropower operations.

While the above-mentioned discussion portends a potential additional bull market for grains and some other commodities, a trader needs to focus on the short-term outlook for the month of June. For example, an over-zealous natural gas market on potential European import restrictions from Russia is being offset by some cooler June weather for some key U.S. natural gas regions.

Conclusion

Many commodities like crude oil (USO), cotton (BAL), and soybeans (SOYB) remain in a bull market due to tight stocks, inflation fears, and weather problems such as the Texas cotton drought. However, even with La Nina and the above mentioned potential summer forecast, it will take consistent major heat, in my opinion, to see new highs in natural gas prices (UNG), and corn (CORN).

I think that later this year and into 2023, we will see a cooling off in many commodities and global weather patterns, as well, may settle down. However, some of the important weather related topics are shown on the front page of my newsletter Climatelligence below.