The December Polar Vortex And Its Impact On Natural Gas And Wheat

A major change in the U.S. weather pattern ignited natural gas (UNG) prices late last week and early this week as the odds increase of a polar vortex heading south before Christmas. This is something that I predicted for Weather Wealth clients last week as prices (BOIL) collapsed below $6, due to the very warm fall and early December.

Here is a video I did on December 7th before the explosion in natural gas prices.

Now we alerted clients on Sunday that the wheat market (WEAT) sold off too far and a combination of these four factors should help prices the rest of the month. They are:

A) A drought in the Plains is the worst in 20 years for this time of the season.

B) A hard freeze may aggravate Nebraska to Kansas and Oklahoma crop situation next week.

C) Seasonality in commodity prices. In this case, notice how the new crop July KC wheat almost always rallies this time of the year.

D) Long-term chart patterns. Take a look at how KC wheat prices hit a 2-3 year trend line before soaring early this week.

When trading commodities, high confidence trades occur when at least three or four of the scenarios listed above, line up simultaneously.

Conclusion

Natural gas prices have taken note of the extreme U.S. cold, but we have to remember that supplies are not that far below the 5-year average and LNG exports to Europe have not picked up yet. In addition, this Thursday’s EIA should be bearish given all the recent warmth. I do not see prices going anywhere close to $8-$9 again.

In the case of the grain market and particularly wheat and even (CORN), growing weather problems in the U.S. and Argentina portend higher winter prices. There could be bullish plays in some commodity ETFs such as (TAGS).