It’s The Weather Stupid

I was the in studio guest host on Stuart Varney’s show back in early December. They give each person in the studio one minute to talk about a topic they are focusing on. For me, I felt the story in 2011 was going to be Agriculture.

There was already unrest brewing in the Arab world, and the initial spark was high prices of commodities. Now, it’s finally time to see if farmers will respond to supply and demand, and the price.

No secret to anyone, the cotton market ($TT_F) has been on a tear.
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14% more acreage will be devoted to cotton this year.

March 31 is the date that the USDA will put out reports on planting intentions of grain farmers($ZS_F, $ZW_F, $ZC_F, $ZO_F $MON).  CME Group‘s Daily Livestock Report ($HE_F, $LE_F, $SFD) says, “the USDA forecasts from the Outlook forum indicated that: corn acres are expected to increase by 3.8 million acres  or 4% from the previous year; soybeans acres are expected to increase by 0.6 million acres or 1%; wheat acres are expected to jump 3.4 million acres or 6%; and finally cotton acres were expected to increase 2 million acres or 19%.”

All this is well and good.  But bear in mind that this is a La Nina year.  La Nina years generally are characterized by dryer conditions in the midwest. Here is a comparison of the last four La Nina cycles
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In really bad La Nina years, there is a drought. The La Nina cycle this time is not as strong and seems to be transitioning to a La El Nino cycle. So, maybe this summer no drought.

The weather is a key concept to keep in mind when trading all these commodities this year. A prolonged hot and humid no rain cycle might cause grains, cotton, and meat to spike.

That being said, early in the morning they were talking about cotton acreage planted on a radio station. If you follow Peter Lynch’s adage about cocktail party talk and bull/bear market cycles, it would mean the top is in for cotton!

Started doing these little vignettes from the floor of $CME, let me know what you think.

Thanks Business Insider

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