(SBV24) (KCZ24) (OJX24) (ZSX24) (ZCZ24) (CANE) (TAGS) (SOYB) (CORN) (NGV24) (NGX24) (UNG) (BOIL) (KOLD) 

“The record summer +NAO index and its impact on the weak hurricane season and commodities”

by Jim Roemer - Meteorologist - Commodity Trading Advisor - Principal, Best Weather Inc. & Climate Predict - Publisher, Weather Wealth Newsletter 

• Weekend Report - September 6-8, 2024

The NAO (North Atlantic Oscillation Index) is one of the most important teleconnections to predict winter weather for the natural gas market. It has to do with how surface pressures fare over Greenland and the Azores to the west of Africa.  When the NAO is negative in winter, this means high pressure over Greenland that can sometimes bring onslaughts of cold winter weather to Europe and/or the U.S. 

However, the positive NAO index also helped us predict record midwest summer grain crops for corn and soybeans and will have implications for soft commodities in the months ahead. The record-warm Arctic combined with mostly a positive NAO index (low pressure off Greenland and high pressure over the Azores) has resulted in several warm winters in a row.

A trader could have sold natural gas at some point in time in November or December in each of the last three to four years and made 30-50% on his/her money by March.

Anyway, the NAO index also has some influence on U.S. summer grain weather and soft commodities, as well as repercussions for the Atlantic hurricane season. Models have been overzealous, forecasting potential hurricanes due to all this African dust you see in the image below.

Shown below are four graphic images I put together:

• (upper left)  A negative NAO index results in below-average African dust and often an active Atlantic hurricane season when an “El Niño neutral” or La Niña is present.
• (lower left)  The NAO index has hit a record high this summer at 3.15
• (upper right)  The correlation of a +NAO (shown on my weather forecast program ClimatePredict) depicts that total Atlantic Cyclone Energy and the number of strong storms are below normal. This is in contrast to NOAA as well as many other entities out there who wrongly predicted a few months ago, one of the strongest hurricane seasons on record.
• (lower right)  Low pressure over Greenland responsible for the +NAO 

So… how can the NAO index give clues about commodity weather? Take a look at the correlation for September rainfall over northern Brazil when the NAO is positive. There is a negative correlation with rainfall. This implies the severe drought continuing for key Brazilian sugar cane crops, coffee, and orange production areas. OJ prices are making all-time highs on the combination of Florida's lowest crop in decades, and also a 25% reduction in Brazil's 2024 crop. The 2025 crop may see more of the same.

Soybean traders will also be watching Brazil's planting weather in another few weeks or so. A severe drought is unusual if La Niña forms in northern Brazil, but deforestation of the Amazon is offsetting some standard climatological signals.

Of course, the NAO is only one of many teleconnections. See how my program has 28 of them. These helped me “second guess” standard computer models last June in predicting that La Niña would not form this summer and the Midwest would have huge corn and soybean crops.

• What is my forecast for the important October coffee bloom in Brazil?
• When, if at all, will the sugar market begin to respond to the drought?
• Which trading strategies am I employing in futures or options for WeatherWealth clients?

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Thanks for your interest in commodity weather!

Jim Roemer, Scott Mathews, and The Weather Wealth Team 

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.

Trading futures and options involves a significant risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of future results.