TRADEWINDS
The Source for Grain and Energy Markets
VOL. 19 NO. 4
A Very
Warm
March
But It Might
Not Last!
ALSO IN
THIS ISSUE...
• Analog Years Based On
March Warmth,
Dryness...page 2
My seemingly “eternal” search for
viable analog years will continue
again this month. It has been an
awfully long time since I have found
even one analog year that seemed to
be doing a halfway decent job of
modeling current weather for the
United States. My analog years from
last month, namely those years in
which the NAO was negative for
every month during the December
through March period, fairly miserably as this past month was quite
warm for most of the nation (especially in the west; see the figure
below) while I was forecasting a
pretty chilly month of March (especially in the west). Of course, not
helping matters was the fact that
model forecasts for negative NAO
APRIL 2004
values in March
failed to verify; the
March value will
clearly be positive.
Where does that
leave me with
regards to analog
years this month?
Actually I have
Craig Solberg
more analog year
possibilities than I have had recently,
given that we saw some pretty notable
and unusual March weather conditions. As stated above, March was
warm in much of the Nation, and
especially in the west; that’s my initial
source for analogs. Very dry weather
in the Southeast in March is another
area where I will look. Though the
March NAO value of positive was not
Notably warm weather was recorded over much of the Nation this past month. No more
was that the case than in the western United States, with dozens of record highs sent
during the month in states such as California, Nevada, Utah, and Arizona. Combining this
warmth with the fact that this looks to be a “La Nada” year will serve as the basis for
analog year studies this month.
• Weather Outlooks for April
And May...page 4
• Preliminary Summer Temperature Outlook...page 4
page 1
what I expected, looking at years
when the NAO was negative in
December-February before going
positive in March has to be considered. Taking a look at what weather
conditions tended to be like in years
without El Niño or La Niña will be
reviewed. Finally, identifying years
just before a sunspot minimum will
also be presented.
Warm March
Analog Years
Very few places in the United
States recorded below normal temperatures this past month. When you
have a situation like that, one has to
start considering the possibility that
the month was among the warmest
ever recorded for the Nation as a
whole. When one considers how
warm it was in western and southwestern parts of the Nation (most
places in that area averaged better
than six degrees above normal on
temperatures for March), I think that
indeed we will put March of 2004 in
the record books as one of the warmest ever for the Nation as a whole.
Exceptionally warm March periods
Fig.1: The dry weather in the Southeastern United States this past month was probably
close to a record-setter and thus will be used as a source for analog years. Wet weather i
the Nation’s midsection is alsonotable and might also be a source for analog years.
have not been real common over the
past 50-60 years. March of 2000 was
very warm, as was March of 1986;
otherwise, all of the other very warm
March periods for the Nation occurred before 1950 (those years were
1905, 1907, 1910, 1918, 1921, 1938,
1945, and 1946).
As noted above, the most abnormal
of the warm was in the West and
Southwest regions; both areas should
have recorded one of their ten warmest March periods on record. Years
which very warm March conditions in
the West region would include 1997,
1994, 1993, 1986, 1978, 1972, 1934,
1926, 1910, and 1900. For the Southwest region, years with similar
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WEATHER CONDITIONS AND THEIR EFFECT ON COMMODITY PRICES. ALTHOUGH TRADING FUTURES OFFERS AN OPPORTUNITY FOR
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THE READER SHOULD BE AWARE THAT THE HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS.
UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE TRADES
HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF
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page 2
weather were 1999, 1997, 1989,
1986, 1972, 1967, 1934, 1910, 1907,
and 1900.
Southeast Dryness
Analog Years
As is shown in figure #1, March
was a very dry month for the southeastern part of the nation. States such
as Alabama, Georgia, and South
Carolina recorded virtually no rain
during this past month. Years with
similar light rainfall totals would
include 1985, 1967, 1955, 1945,
1925, 1918, 1916, 1915, 1910, and
1907.
NAO Analog Years
Looking for years in which the
NAO was negative for December
through February before turning
positive in March are pretty rare;
1956 and 1959 are the only years that
enter the mix. Keep in mind that this
is a data set that only goes back to
1950, or about 50 years less than the
data set from other years that I am
looking at this month.
“La Nada” Analog
Years
Years since 1950 in which there
was neither an El Niño or a La Niña
(i.e. “La Nada” years) during the late
winter and early spring months are
1952, 1954, 1960, 1961, 1962, 1963,
1967, 1968, 1977, 1979, 1981, 1986,
1990, and 1994. Determining which
years were La Nada years before
1950 is more difficult due to lack of
data.
Years Before A
Sunspot Minimum
We are getting fairly close to our
next key point in the sunspot cycle, a
sunspot minimum that is forecast to
occur as early as late next year or as
late as 2007. Since 1900, similar
periods in the sunspot cycle are 19101913, 1920-1923, 1930-1933, 1941-
1944, 1951-1954, 1961-1964, 19731976, 1983-1986,, and 1993-1996.
Analog Year Choices
And April/May
Weather Outlook
In my mind, the two years that
stand out as the best analog year
choices right now are 1910 and 1986.
1910 was a year that was very warm
in the Nation in March (especially in
the West and Southwest), it was dry
in the Southeast in March, and
matches well with our current position in the sunspot cycle. Whether it
also matches this year with regards to
the NAO is impossible to say. Based
on historical SOI data, it looks like La
Nada conditions were recorded
during the winter and early spring of
1910 before La Niña developed later
in the year; not a perfect match to this
year but at least we have seen positive
SOI values as of late (more on that in
just a moment). 1986 was also a very
warm March for the Nation (with the
warmth especially notable in the West
and Southwest. It was a relatively dry
March in the Southeast (though not
among the ten driest ever), it was a
year with La Nada conditions in the
spring, and it is a decent match with
regards to sunspot activity.
The problem that I am faced with
this month with regards to these years
is that they recorded vastly different
weather conditions during the spring
and summer months. April and May
of 1910 featured a pretty fare amount
of cool weather, while that same
period was fairly warm in 1986.
April/May of 1986 was wet in the
western Corn Belt (wet enough to
produce a very slow start to spring
planting in that area), while that same
area was fairly dry in April/May of
1910. The summer of 1986 featured
above normal rainfall for most areas
east of the Rockies, with above
normal temperatures in the western
third of the Nation and in the Southeast. The summer of 1910 was quite
dry in the northern half of the Corn
Belt (one of the driest summers ever
in Iowa) and most of the Plains while
it was quite wet in the Southeast;
temperatures were modestly below
normal over most of the Nation.
Judging by the temperature maps
that I am presenting in figure #2, the
reader can obviously see that I am
using 1910 as the primary analog for
the forecast for the next sixty days.
Based on the look of the weather
maps as we went to press this month,
the warm April outlook for the
eastern half of the Nation (as would
be indicated by the 1986 analog) does
not look like it is going to verify. The
1910 outlook does appear to be rather
reasonable, and thus it may very well
be the best fit.
With that in mind, here’s what I
expect to see over the next 60 days
with regards to major crop areas of
the United States:
CORN BELT: Except for areas
near the Ohio River, I would not look
for planting delays of any magnitude
for this spring. A bigger problem
might be cool temperatures that delay
seed germination and early crop
growth. The soft-red winter wheat
crop should be well-watered...maybe
even too much rain in places.
NORTHERN PLAINS SPRING
WHEAT...This area is in better
condition after good rains in late
March, but overall will continue to
have problems with a lack of soil
moisture. Rapid planting likely under
warm and dry conditions.
PLAINS WINTER
WHEAT...Weather maps were
suggesting excellent rains for the start
of April for especially the southern
half of the region. Driest part of the
area, namely northwestern Kansas
and points northward, may continue
to struggle to see the rain that the
crop needs over the next 60 days.
DELTA COTTON...There could
be delays in planting this spring
because of above normal rainfall, but
the bigger problem may very well be
cool temperatures that delay seed
germination and retard early crop
growth.
page 3
April Temperature Outlook
LEGEND
-4 to -6
0 to +2
-2 to -4
+2 to +4
0 to -2
+4 to +6
May Temperature Outlook
April-May Precipitation Outlook
Below Normal
Above
Normal
Below
Normal
Fig. 2: Temperature and precipitation outlooks for the April and May time period.
WEST TEXAS COTTON
AREAS...Excellent pre-plant moisture suggested for this area in early
April. Should be rapid planting in
May as conditions dry out and warm
up.
Thoughts On The
Summer
My preliminary “guess” (and that is
really just about what it is...a guess) is
presented in figure #3. Obviously I
am discarding the “cool summer” of
the 1910 analog year when making
that outlook. We need to keep in mind
that we remain in the position in the
sunspot cycle where warm summers
for the Nation are fairly frequent.
With the Southern Oscillation Index
positive in February (and slightly
positive in March as well), in my
mind that opens the door to the
page 4
PRELIMINARY Summer Temperature Outlook
Below Normal
Above
Normal
Fig. 3: Call the above outlook as little more than a guess at this point, given that I am
still not especially happy with analog year choices right now (not metioning the fact that
the start of summer is still two months away). I tend to believe that the summer will be
warmer than normal though, given our current position in the sunspot cycle and the fact
that we have already posted a positive monthly SOI value this year.
“possibility” of drought problems in
the Midwest this summer (which one
would think would be accompanied by
at least some heat). Finally, a study that
I am working on right now suggests
some correlation between warmth in
the western United States in the
spring (such has been the case so far
this year) to be followed by warmth
in the eastern United States in the
summer. I’ll have more on that next
month...especially if April is as warm
in the western United States as I
expect it to be in April.
TRADING STRATEGIES FOR APRIL
Soybean Strategies
July 14, 1988 was the last time that a nearby soybean
contract traded above the ten dollar level...until this past
month, that is! March 18 was the day that the May
soybean contract climbed above ten dollars, and the
market was able to stay above that level through March
30. History has proven that, whenever nearby soybean
prices trade above ten dollars, they often do not spend a
lot of time above that level. However, I think that we
have the fundamentals necessary to keep nearby soybeans above ten dollars for quite a long period of time.
As was the case in February, robust demand and South
American weather concerns were the key reasons for
the higher prices. The soybean market took the opinion
in late February that prices had rallied high enough to
cut off export demand; however, more than once during
March we saw weekly export sales approaching ten
million bushels. Export inspections through late March
were running only about 12 percent below a year ago
versus a USDA forecast of a 15 percent cut; keep this
pace alive through the end of the marketing year, and
the USDA would have to boost their export forecast by
25 to 30 million bushels. That does not sound like
much, but it most certainly is given current soybean
supply tightness. The Census Crush number for February was just slightly below a year ago, and the total
amount crushed for the first half of the marketing year
was almost exactly the same as the year-ago amount.
With the USDA forecasting a 150 million bushel yearto-year reduction in the crush, the rationing task ahead
of the domestic soybean market is simply staggering.
With regards to South America, production estimates
continue come down...to the point where there is
realistic talk of a sub-50 MMT Brazilian crop. The
USDA’s early March estimate of 59.5 MMT was
quickly dismissed as unrealistic. Late March estimates
by Safras and Mercado calling for a crop of just a little
more than 52 MMT were treated as “old news”, so that
shows how low some think the crop actually is. Consider this point...the last time that Brazil had a crop
disaster was 1990/91. If yields this year are as far below
the long-term trend as they were last year, then a sub-50
MMT crop does look to be very much attainable. While
weather conditions improved during March for harvesting in northern growing areas of Brazil, southern areas
continued to suffer from extensive heat and dryness.
That heat and dryness was also a big problem in Argentina, so crop estimates there continue to fall (with most
currently considering a crop of no more than 34.5 MMT,
or at least 2 MMT below the current USDA number).
Interesting to note that the first 4% of the Argentine
soybean harvest was said to be producing yields of 25%
below last year. If that trend continued throughout the
harvest season (admittedly a very big “if”), Argentine
production could conceivably come in below 30 MMT!
Bulls were hurt by the USDA numbers of March 31.
The USDA estimates that there were 906 million bushels
of soybean in the United States as of March 1, which
was 39 million bushels above the average trade guess
and 2 million bushels above the highest trade guess.
With regards to acreage, the USDA estimated that
farmers will seed 75.41 million acres to soybeans this
spring, almost exactly 2 million acres more than a year
ago and about a million more than the market had
looked for. So the USDA “found” about 40 million
bushels of soybeans that the market had not accounted
for. As stated above, the combined crush and export
pace so far this year are running better than 100 million
bushels above what the USDA is currently expecting.
Thus, even with these “found” bushels, we still have
ourselves quite a rationing task to accomplish if we do
not want to run out of soybeans. The 40 million bushels
of soybeans that were “found” would equate to about 1
MMT; the USDA is currently more than 10 MMT too
high on their South American production forecasts.
Bottom line...these extra bushels that were “found”
really does not change the overall tightness of
soybeans...at least in my opinion.
• Traders bought May $10 calls in early March at
around 30 cents and are ahead $850 as of this writing (the market fell just 8 cents short of our profittaking level this past month!). Hold these positions,
letting them expire worthless on April 23 or exiting
and taking profits that same day.
page 5
Corn Strategies
New crop corn futures pushed above the three level
during March as the market tried to keep pace with
soybeans and tried to keep farmers interested in planting
corn in the United States this spring. No changes were
made whatsoever on the domestic corn supply/demand
numbers in early March USDA crop report; ending
stocks remained at 901 million bushels. On the world
scene, ending stocks of 67.79 MMT was up about 0.5
MMT from the February figure but was still easily the
lowest level in recent memory. Very bullish numbers for
new crop corn from the USDA on March 31. The USDA
expects farmers to plant 79 million acres to corn this
spring, about 1.25 million less than the average trade
guess, a half million acres below the lowest trade guess,
and only about 250,000 above the level of a year ago.
Such a figure would equate to a 2004 U.S. corn crop of
about 10.1 billion bushels (assuming a national yield of
141.5 bu/ac, second highest on record next to last year).
That crop would be 300-600 million bushels below what
demand would be like for next year, and would mean
another serious cut in ending stocks levels. Keep in mind
that this assumes a pretty good corn yield this year; what
happens if yields are sub-140 bu/ac or (heaven forbid)
something like the 129.3 bu/ac crop of two years ago?
Exciting times in the corn market are ahead of us!
• Traders are long December corn from $2.67 and
are ahead $1800 as of this writing. Raise stops on this
position to $2.92. Raise stops to $3.08 if December
futures trade to $3.20 or higher. Objective on the
trade is a move to $3.28.
Wheat Strategies
With the Plains winter wheat crop breaking dormancy in March and with the wheat market coming to
the realization that the crop there remains in exceptionally poor shape, the wheat market posted excellent
gains this past month from the March 12-forward time
frame (after early month action took the new crop
months in Chicago to their lowest level since the end
of last year). End of March crop ratings found the
Kansas crop rated at 28% poor/very poor, with the
Colorado crop rated at a staggering 61% poor/very
poor. (Weekly ratings will resume in early April, a time
when national winter wheat crop ratings will resume
as well). With corn and soybean prices so high, there is
a good chance that some of the very poor winter wheat
acreage will be ripped up in coming weeks, with
farmers planting corn and some soybeans in place
(obviously hoping for better rains in the weeks ahead).
Demand for wheat improved in March as well, with
China starting to ship out some of the wheat they
bought earlier this year, Iraq starting to buy wheat, and
the U.S. getting Egyptian business that in recent months
had strictly been going to the Australians. The March 31
numbers for wheat from the USDA were largely neutral
to a little friendly. Wheat stocks of 1.019 billion bushels
was at the low end of trade expectations. All wheat
acreage of 59.462 million acres was about 400,000 less
than the average trade guess. Winter wheat, other spring
wheat and durum acres all came in slightly below the
average trade guess.
• Raising stops on our long Kansas City wheat
position was the wrong thing to do, as traders were
stopped out of that position with a loss of $300 before
the market rallied later in the month. No advice in
wheat this month. The market in my opinion is too
high to sell, but I would like to be closer to the start of
winter wheat harvesting before contemplating a
potential top for the market.
Natural Gas Strategies
Though it was a very March month of March for the
bulk of the Nation, the natural gas market actually was
able to trend higher for most of March before prices set
back some from March 18-29 (before roaring higher
again on March 29). It is a market that is largely
following the direction of the oil markets right now,
and very strong action in that sector has prevented any
sort of a sell-off in natural gas futures. With draws out
of storage expected for the EIA reports to be released
on April 1 and April 8, chances are good that we will
page 6
end the withdrawal season with storage levels very close to
1.0 tcf. Cool weather expected for April will likely keep
injection rates sub-normal. The less that can be injected
now, the more the market will be wary of heat waves this
summer in the Northeast.
•No advice in natural gas this month; very little
weather being considered by the market right now (and
that should continue in May). There will be opportunities to trade this market this summer, especially if
injection rates for the remainder of spring remain low.
Cotton Strategies
A very bearish acreage number for cotton from the
USDA on March 31, coming in at 14.4 million acres
versus trade guesses that did not top 14 million acres
and versus acreage of 13.48 million acres last year.
Such an acreage figure would equate to a U.S. cotton
crop of around 18.75 million bales this year, which still
Corn: Area Planted by State and United States, 2002-2004
State
IL
IN
IA
KS
MI
MN
MO
NE
OH
SD
WI
US
2002
11,100
5,400
12,200
3,250
2,250
7,200
2,800
8,400
3,250
4,450
3,650
78,894
2003
11,200
5,600
12,400
2,900
2,300
7,200
2,900
8,100
3,300
4,400
3,750
78,736
2004 % Change
11,200
100
5,600
100
12,500
101
3,000
103
2,350
102
7,400
103
2,950
102
8,000
99
3,400
103
4,450
101
3,650
97
79,004
100
would probably be a million bales less than demand.
• No advice in cotton this month, but there will
likely be opportunities to trade this market from the
long side in months ahead if we perceive that weather
problems will develop.
Soybeans: Area Planted by State and United States, 2002-2004
State
AR
IL
IN
IA
KS
MN
MO
NE
ND
OH
WI
US
2002
2,950
10,600
5,800
10,450
2,750
7,200
5,050
4,700
2,670
4,750
1,540
73,963
2003
2,920
10,300
5,450
10,600
2,600
7,500
5,000
4,550
3,150
4,300
1,720
73,404
2004 % Change
3,050
104
10,300
100
5,450
100
10,700
101
2,700
104
7,700
103
5,100
102
4,650
102
3,700
117
4,350
101
1,700
99
75,411
103
All Wheat: Area Planted by State and United States, 2002-2004 Cotton: Area Planted by State, and United States, 2002-2004
State
AR
CO
IL
IN
KS
MN
MO
MT
NE
ND:
OH
OK
SD:
TX
WA
US:
2002
950
2,375
660
340
9,700
2,040
900
5,790
1,650
9,080
860
6,200
3,030
6,400
2,450
60,318
2003
700
2,630
850
460
10,400
1,877
960
5,290
1,900
8,630
1,060
6,600
3,028
6,600
2,400
61,700
2004 % Change
720
103
2,317
88
1,000
118
430
93
9,900
95
1,627
87
1,050
109
5,270
100
1,950
103
8,440
98
900
85
6,400
97
3,220
106
6,100
92
2,280
95
59,462
96
State
AL
AZ
AR
CA
GA
LA
MS
MO
NC
SC
TN
TX
US
2002
590.0
223.3
960.0
690.0
1,450.0
520.0
1,170.0
380.0
940.0
290.0
565.0
5,618.5
13,957.9
2003
525.0
218.0
980.0
700.0
1,300.0
525.0
1,110.0
400.0
810.0
220.0
560.0
5,620.0
13,483.1
2004 % Change
550.0
105
222.6
102
1,050.0
107
760.0
109
1,350.0
104
600.0
114
1,100.0
99
410.0
103
790.0
98
260.0
118
590.0
105
6,116.0
109
14,401.6
107
page 7
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