Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
What Did Crude Oil - Platinum Link Tell Us Last Week? - 17th Jul 18
Gold And The Elusive Chase For Profits - 17th Jul 18
Crude Oil May Not Find Support Above $60 This Time - 17th Jul 18
How Crazy It Is to Short Gold with RSI Close to 30 - 16th Jul 18
Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18
Stock Market Uptrend Continues, But... - 16th Jul 18
Emerging Markets Could Be Starting A Relief Rally - 16th Jul 18
(Only) a Near-term Stock Market Top? - 16th Jul 18
Trump Fee-Fi-Foe-Fum Declares European Union America's Enemy! - 16th Jul 18
US Stocks Set For Further Advances As Q2 Earnings Start - 15th Jul 18
Stock Market vs. Gold, Long-term Treasury Yields, 10yr-2yr Yield Curve 3 Amigo's Update - 15th Jul 18
China vs the US - The Road to War - 14th Jul 18
Uncle Sam’s Debt-Money System Is Immoral, Tantamount to Theft - 14th Jul 18
Staying in a Caravan - UK Summer Holidays 2018 - Cayton Bay Hoseasons Holiday Park - 14th Jul 18
Gold Stocks Summer Lows - 14th Jul 18
Trump US Trade War With China, Europe Consequences, Implications and Forecasts - 13th Jul 18
Gold Standard Requirements & Currency Crisis - 13th Jul 18
Focus on the Greenback, Will USD Fall Below Euro 1.6? - 13th Jul 18
Stock Market Outlook 2018 - Bullish or Bearish - 13th Jul 18
Rising Inflation is Not Bearish for Stocks - 13th Jul 18
Bitcoin Picture Less Than Pretty - 13th Jul 18
How International Observers Undervalue the Chinese Bond Market - 13th Jul 18
Stocks Trying to Break Higher Again, Will They? - 12th Jul 18
The Rise and Fall of Global Trade – Redux - 12th Jul 18
Corporate Earnings Q2 2018 Will Probably be Strong. What This Means for Stocks - 12th Jul 18
Is the Relative Strength in Gold Miners to Gold Price Significant? - 12th Jul 18
Live Cattle Commodity Trading Analysis - 12th Jul 18
Gold’s & Silver’s Reversals’ Reversal - 12th Jul 18
The Value of Bitcoin - 11th Jul 18
America a Nation Built on Lies - 11th Jul 18
China, Asia and Emerging Markets Could Result In Chaos - 11th Jul 18
Bullish Gold Markets in the Big Picture? - 11th Jul 18
A Public Bank for Los Angeles? City Council Puts It to the Voters - 11th Jul 18
Yield Curve Inversion a Remarkably Accurate Warning Indicator For Economic & Market Peril - 11th Jul 18
Argentina Should Scrap the Peso and Dollarize - 11th Jul 18
Can the Stock Market Close Higher For a Record 10th Year in a Row? - 11th Jul 18
Why Life Insurance Is A Must In Financial Planning - 9th Jul 18
Crude Oil Possibly Setting Up For A Big Downside Move - 9th Jul 18
BREAKING: New Tech Just Unlocked A Trillion Barrels Of Oil - 9th Jul 18
How Trade Wars Penalize Asian Currencies - 9th Jul 18
Another Stock Market Drop Next Week? - 9th Jul 18
Are the Stock Market Bulls Starting to Run? - 9th Jul 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

US Hot Dry Summer Forecast Bullish for Energy and Agricultural Investments

Commodities / Agricultural Commodities Apr 25, 2008 - 12:52 PM GMT

By: Joseph_Dancy

Commodities Best Financial Markets Analysis ArticleSeveral of the sectors we are invested in are extremely weather dependent. The fortunes of the firms in these sectors will hinge to some extent on weather conditions 3-6 months in the future. Firms operating in the agriculture sector are the obvious ones that will be impacted by weather conditions. Less obvious is the impact weather has on the natural gas sector.


Much of the new electrical generation capacity that has been added to the grid in the U.S. in the last decade is natural gas powered. Due to environmental and cost concerns such plants were preferred over coal or nuclear installations. In the summer air conditioning loads put a strain on generating capacity. Natural gas ‘peaker generating plants' are put online to supply the incremental electrical capacity to meet demand.

Long term weather forecasting has been aided recently by the use of supercomputers, as well as quantitative models that have been fine-tuned over the years. One model was recently featured in an article in Der Spiegel. It uses a supercomputer located in the U.K. to digest millions of pieces of observation data. They then run forty-one simultaneous simulations using input data that varies slightly.

Over time the results from the forty-one models begin to vary – sometimes significantly. But at some point the models point to a general consensus, especially when some of the outlier results are excluded. Using statistical measures of the variance of the results, and the consensus conclusions, the model has been quite accurate – a major improvement in mid-term weather forecasting.

Running the latest data in the U.K. supercomputer, the model is now forecasting a hot summer for Western North America (see map). If so, this has bullish implications for the natural gas market. Since extreme heat and drought conditions tend to have a high degree of correlation historically, the heat also has implications for the grain harvests in the U.S. Abnormal heat in the Gulf Coast and Florida areas can also add energy to tropical storms formed during the ‘hurricane season' which begins July 1 st .

The National Weather Service (NWS) also has a mid-term model that forecasts conditions several months out. Data from that model, and the model design is entirely separate from the U.K. supercomputer model. The National Weather Service model also forecasts hot and dry conditions this summer. The model outputs for the June, July and August months (periods when air conditioning loads will generally be at their peak) are set out below.

The NWS chart on the left is the temperature forecast. Based on the last 30 years of data the models expect an above average probability that temperatures in the Western and Southeastern U.S. will be above normal (as delineated by the ‘A' meaning above average and the brown coloration).. The chart on the right is the forecasted precipitation levels. Compared to data in the last 30 years it is expected that we will see below-average rainfall across a band in the Northern U.S. (as delineated by the ‘B' and brown coloration) – including across the corn and wheat growing states of Colorado, Nebraska, South Dakota, Iowa, and Wisconsin.

While by definition all models are not entirely accurate, the statistical methods they utilize indicate that (1) we have an above average chance of a hot summer in North America, with (2) a potential of below average rainfall in important agricultural areas.

Both conditions would be bullish for our energy and agricultural heavy portfolio.

By Joseph Dancy,
Adjunct Professor: Oil & Gas Law, SMU School of Law
Advisor, LSGI Market Letter

http://www.lsgifund.com

Email: jdancy@REMOVEsmu.edu

Copyright © 2008 Joseph Dancy - All Rights Reserved

Joseph R. Dancy, is manager of the LSGI Technology Venture Fund LP, a private mutual fund for SEC accredited investors formed to focus on the most inefficient part of the equity market. The goal of the LSGI Fund is to utilize applied financial theory to substantially outperform all the major market indexes over time.

He is a Trustee on the Michigan Tech Foundation, and is on the Finance Committee which oversees the management of that institutions endowment funds. He is also employed as an Adjunct Professor of Law by Southern Methodist University School of Law in Dallas, Texas, teaching Oil & Gas Law, Oil & Gas Environmental Law, and Environmental Law, and coaches ice hockey in the Junior Dallas Stars organization.

He has a B.S. in Metallurgical Engineering from Michigan Technological University, a MBA from the University of Michigan, and a J.D. from Oklahoma City University School of Law. Oklahoma City University named him and his wife as Distinguished Alumni.

Joseph Dancy Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules