- To kick off our 2018 reports we have spent the break looking at a number of somewhat controversial topics that might (or might not) impact agricultural crops, commodities and prices in the future.
- Sunspot activity has reached close to zero in December 2017, and when this occurs there is typically a significant change in weather patterns thereafter. Thee first major weather event will likely be a major El Niño, amplified during minimal sunspot activity. Our current La Niña in not (yet?) a major weather event, and looks as if it could well dissipate before the winter is over. However, the La Niña pattern can, and is, producing record cold temperatures and snowfall in many areas, typical of zero sunspot activity .
- The 2020/2021 season has the potential for a major La Niña event, which could leave us all wishing for a return to mild conditions as record low temperatures and snowfall hit the northern hemisphere. This is leaving the spring and summer of this year, 2018, as a transition from minor La Niña to major El Niño, which (if correct) will set off major weather events in Asia towards the end of the year and into 2019.
- The transition period has potential to create a very warm, hot and dry spring in the US and a very hot and dry early part of the 2018 summer. This will be a period of irreversible crop damage, particularly as we enter the period with very low subsoil moisture levels. With an empty water tank, the negative effects will be amplified. The last three seasons have seen ample ground water allowing the crops to better handle and periods off adverse and dry conditions. This luxury will not be available in the coming year.
- That said, the big upcoming issue will be a severe drought in Asia, particularly China in late 2018 and 2019, leading to severe negative crop production impact, which could lead to something of a famine in Asia.
- Grain markets will continue to build their lengthy base into the spring, assuming S American weather remains favourable, which will likely be a last chance opportunity for consumers to take cover prior to “lift off”. The difference from current conditions to the volatile and severe weather events and approaching El Niño pattern will have to be seen to be believed.
- Afterwards, the most likely pattern is for a “slingshot” reversal from El Niño to a major La Niña in the 2020/2021 timeframe setting off the largest freeze and severe conditions seen in a lifetime. Current crop genetics have limited ability to withstand such conditions. All of the above elates to the current reduction in sunspot activity and its impact upon the weather on our planet.
- Aside from weather, we saw the US$ bear waking up as 2017 ended leaving a very bearish monthly and yearly close. The potential downside in the US$ Index is to target 85 from the current 91-92 level, and we see this spring as the likely timeframe. This will introduce inflationary expectations back into the commodity space for the first time since around 2010. There are trillions of dollars underexposed in the commodity space, and when the bull trend is eventually recognised we could well be in for an explosive move. If we look at how some 500 million dollars has been willing to follow the bitcoin spree, possibly just to avoid the current monetary system, any food shortage fears could well produce a huge rush to own the ultimate life sustaining asset – food. The bitcoin volume will seem small in comparison.
- Algorithms and high frequency traders have pressed the current be a market to extremes, they will do just the same to the upside when momentum swings. They have no regard for bull or bear, just the prevailing trend, until such time as it either fails or becomes not worthwhile.
- 2017 has been a year of no major volatility in any meaningful way, we see 2018 as changing this, and we see this volatility attracting much attention.