WEATHER: The weather gods are set to keep having an outsize impact on capital markets. The La Niña weather phenomenon is now forecast for a third straight northern hemisphere winter. This would be only the third ‘three-peat’ on record and threatens even more disruption to global agricultural supply. High-for-longer commodity prices are a challenge to lower inflation and emerging market consumers. But is a positive from fertilizer (like MOS) to ag equipment stocks (like DE). Similarly, the Atlantic hurricane season is likely to accelerate after its quietest start in decades. This remains a potential threat to tight US refined oil product markets, like gasoline. Higher prices could help refiners, from Marathon (MPC) to Valero (VLO), but hurt consumers.
CROPS: La Niña tends to boost Atlantic hurricane activity, worsen US droughts, and cut South American crop yields. This could tighten ag markets, from wheat to corn and soybeans, that have only recently seen prices ease back. This also comes against a backdrop of 10-year low US stocks and falling crop yields in many regions. Price weakness has been driven by strong Russian harvests, renewed Ukraine grain shipments, the US dollar rally, and global recession fears. Around a quarter of all calories are traded internationally today making the impacts global.
HURRICANES: The current Atlantic hurricane season has been the quietest in decades. It has seen only two hurricanes, Danielle and Earl, so far. Neither came ashore in the US. Last Saturday was the traditional season peak. But the season does not end until November 30. The risk of a pick up from here is large, with a forecast for five direct hurricane hits (see chart). Tight US oil products, from gasoline to heating oil, remain in focus. 40% of US refining capacity is on the exposed US gulf coast, and was significantly disrupted in the latest 2021 hurricane season.
All data, figures & charts are valid as of 13/09/2022