Derecho lifts corn and bean oil prices; Hurricane Beryl curbs natural gas prices
July 17, 2024
Key Observations:
Two days ago, a derecho storm barreled through the heart of U.S. corn country. Wind gusts with the force of a Category 2 hurricane splintered roofs from barns, tore through row crops, and mangled farm equipment. At least a dozen tornadoes touched down in northern Illinois, according to the National Weather Service office in Chicago.
The extent of storm damage on crop production is unknown. But the unnamed event arrives with U.S. corn progress on sampled acreage (92% of total) at 68% good or excellent just before the storm vs 57% at that rating a year ago, according to USDA. Any disappointment in expected above-normal supply growth likely boosts price. We still like the risk setup for owning corn and soybean oil futures.
Meanwhile, the unplanned curtailments in exports through the Freeport LNG terminal caused by Hurricane Beryl are depressing prompt NYM gas futures prices as traders now assign higher value to the U.S. inventory path than to either supply discipline, supply risks on next hurricane activity, or strong domestic and export demand.
This is not unreasonable in the short term. U.S. gas stocks are substantially above normal and expected storms are projections not realized outcomes. However, the contrarian will likely successfully fade bearish greed here. Institutional investors are now dumping nearby positions at prices not far above the marginal cost of opex in a market seeing booming power demand. Unwise.
Source: CBT, NYM, USDA, Bloomberg, Blacklight Research.
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