(UNG) (CORN) (SOYB) (NGF25) (ZCH25) (ZSH25) (KCH25) 

“Are colder weather maps for natural gas trading full of post-Thanksgiving Day Stuffing?”

Weekend Report: November 29 - December 1, 2024

• La Niña is unlikely to form, potentially benefiting natural gas prices while supporting strong South American corn and soybean crops.

• Despite recent natural gas price recoveries, high inventory levels, and ample supply limit bullish potential, demand-driven rallies are necessary.

• Cold early winter forecasts may keep natural gas prices stable, but significant bullish movements require multiple positive EIA reports.

For over 8 months, I have believed that La Niña would not form, disagreeing with all standard computer models that NOAA and dozens of weather forecast firms use to make long-range weather predictions. Indeed, many firms are now backing off on the La Niña scenario. This may have potential "slightly" bullish implications for natural gas and the “United States Natural Gas Fund” ETF  (UNG), and certain heating oil spreads, while probably meaning great South American crops for corn (CORN) and soybeans (SOYB).

Drought-easing rains from an El Niño neutral phase have helped many agricultural commodities. However, the coffee market continues to soar on previous irreversible damage from drought. Coffee prices (KC1:COM) have returned a remarkable 20% in less than two weeks.

The image above illustrates the lack of cool ocean waters over the equator. Hence, no La Niña is likely for the next few months (El Niño neutral=La Nada). The warming you see in some areas is a direct effect of both man-made global warming and underwater volcanoes.

Anyway, the next potential bull market in commodities might be in natural gas, which can be played via the leveraged ProShares Ultra Bloomberg Natural Gas ETF NYSEARCA: (BOIL). Natural gas prices would have a much better chance to rally sharply if natural gas stocks were below (not above) the five-year average.

Please review the risks of leveraged ETFs as explained in the linked SEC bulletin before placing any trades in this product. These risks include extreme volatility, time and volatility decay, and the real possibility of losing all of your investment. The normal risks can be exaggerated with single-commodity ETFs such as this. Only experienced traders who fully understand the risks should trade them.

A cold early winter, but keep in mind the bearish fundamentals in natural gas

Here are the factors that will create enormous volatility in natural gas prices and are not necessarily bullish:

• Prices may have rallied too fast, too quickly, on the forecast for a cold late November and early December given the very large stock situation. U.S. natural gas stocks are still smartly above the 5-year average.

• Commercials are not panicking (there's a ton of supply) as they are in cocoa (CC1:COM) and coffee futures, where crop conditions in Brazil and West Africa remain poor.

• Remember, with Ag commodities, production getting reduced helps prices rally. However, with natural gas, there are no shut-ins unless we have wells freezing in the Gulf or a major hurricane causing rigs to falter or transmission issues. In other words, a rally has to come from demand, not natural gas production issues.

• No Squeeze: A squeeze occurs when there is a lack of deliverable supplies and producers, end users, and buyers worry about getting a particular commodity. They then buy futures to offset the risk of sharply higher prices. Once again, coffee and cocoa futures are a perfect example. There is more than enough short-term supply given the cold weather with prices at $3.50 in natural gas.

Two weeks ago, my forecast for a cold December helped to jump-start the natural gas market. I doubt with this forecast we will see January or February natural gas below $3.00 at any time soon. This is the first time in at least 3-5 winters, I am "cautiously friendly" natural gas. For most of the last few winters, selling call options, buying puts, or selling futures have been the play.

One can see the warm block northwest of Alaska that will likely remain throughout much of December (negative EPO INDEX).

CONCLUSION:

Given the stock situation being much tighter for heating oil than for natural gas, a cold-snowy eastern U.S. winter may have only limited bullish effects on natural gas prices and more bullish heating oil spreads. We need to see multiple bullish EIA numbers for natural gas prices to rally over $4.00-$4.50. There is probably a 50-50 chance this could happen later in December or early January, given my forecast above.

The safest way to play extreme weather and natural gas market volatility is by using certain option spreads.

Our WeatherWealth newsletter  (get a free sample here  https://www.bestweatherinc.com/membership-sign-up/  ) was bearish natural gas the last two winters with various option strategies. How about now? What did we advise our subscribers 2 weeks ago that the bottom was in for natural gas prices and how to trade it?

Here are some of the headlines of our WeatherWealth newsletter in the last few weeks that cover not only natural gas but all agricultural commodities:

Thanks for your interest in commodity weather!

Mr. Roemer owns Best Weather Inc., offering weather-related blogs for commodity traders and farmers. He also is a co-founder of Climate Predict, a detailed long-range global weather forecast tool. As one of the first meteorologists to become an NFA registered Commodity Trading Advisor, he has worked with major hedge funds, Midwest farmers, and individual traders for over 35 years. With a special emphasis on interpreting market psychology, coupled with his short and long-term trend forecasting in grains, softs, and the energy markets, he established a unique standing among advisors

in the commodity risk management industry.