It's Logical

Cold Weather Freezes Orange Juice Demand?

Back in December, when we were experiencing super warm weather, I suggested a natural gas short trade for a 5 day period. This 5 day period saw one of the greatest declines in natural gas for the year.

Now, what to do when the weather is so very cold?

The answer is not obvious at all, but when you think about it, makes perfect sense: When you wake up like me on one of these frigid days in Chicago, where we have seen the temperatures below zero for many consecutive days, you may reach for a hot cup of coffee, but you may not even think about drinking an ice cold orange juice.

Sure enough, when I checked out the facts with my Market Information Machine, I saw that when it is super cold in Chicago in January or February (as defined by 5 consecutive days where the low temperature In Chicago is less than zero, then there is a high probability that orange juice will decline over the next four weeks. The average decline is almost 10%.

Looking out farther, we see the peak of the bearish edge occurs 53 trading days later. According to the 8 previous occurrences of this event, EventEdge indicates that JO has shown a very strong bearish edge that peaks 53 trading days after the event. JO declines in 100% of the cases (8 of 8) by an average of -14.1% relative to the close on the event date. This edge can be seen in this chart, which plots the return of the Orange Juice futures (rolling to the next contract in the series as needed) looking forward from the event date.

So, I’d go short the OJ futures outright, using the July series (the March contract will expire on Friday, February 16,  so I would stay away from playing this month) or buy the 180 July puts which are trading at around $8  (translates into about $1250 per option contract).

You can’t do anything about the weather, but you certainly can profit from it. For more history based trading ideas, and for the research tools you can use to find them, check out LIM's MarketHistory.com, which uses the Market Information Machine (MIM) to perform this sort of research.

Veterans' Day in El Nino Years, and Soybean Prices 6 Months Later

The US Weather Service has made it official: We are now in an El Nino year. These years, in which the temperature over the Pacific Ocean is warmer than usual, can wreak havoc with the weather during the upcoming growing season.

Dramatic Impact of El Nino Weather Patterns

Since 1970, we have seen El Nino years in 1972, 1976, 1982, 1987, 1991, 1996 and 2002. In every single case, Soybeans were higher from the close on Veteran’s Day in these years to the close of Soybeans 6 months later.

Remember the drought in 1988? The average up move was a whopping 42%!

Soybeans have been on a tear lately. I’d use any significant pullback to load up  on July Soybean futures and/or buy some  out of the money vertical call spreads. Again, I’d use the July series and would  go long, for example, the 7.00 calls and short the 7.60 calls.

Soybeans are one commodity that has not really participated yet in the commodity boom. Their time is nigh!

The Soybean's time is nigh!