How do global wars usually affect commodity prices?

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This report below is an excerpt from Jim Roemer's unique WeatherWealth newsletter. Mr. Roemer has been a meteorologist and commodity adviser to major hedge funds, ag and energy commodity traders, and hundreds of farmers for 38 years. Feel free to download his free (sample) EL Nino report here or receive a 2-week complimentary trial period.


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The headline of Mr. Roemer's latest WeatherWealth newsletter


Wars and geopolitical conflicts in the Middle East and Russia can significantly influence the prices of cotton, crude oil, and gold globally due to supply disruptions and shifts in demand:

Cotton:

  • The Middle East is not a major cotton producer, so the direct impact is limited. Indirectly, higher crude oil prices due to Middle East tensions can raise production costs for cotton. This would be a factor during planting season, but now now.
  • The main reason for cotton prices selling off is global harvest pressure and China’s demand slackening off. This is in the face of further global water problems. I see China’s cotton crop falling more.
Crude Oil:

  • The Middle East supplies a significant portion of world crude oil. These conflicts are creating more of a psychological impact on supply than anything else. If the situation in Gaza eases for some reason, crude oil prices could tank and this will affect other markets.
Gold:

  • Political instability and war tend to increase gold’s appeal as a haven for investors. Tensions and conflicts involving major oil producers like Russia and the Middle East often boost gold prices.
  • The stronger dollar and higher interest rates could cap rallies in gold “if” (big if”) the situation in the Middle East and Ukraine eases at some point; something I certainly will not predict, of course.


Coffee:
  • The geopolitical uncertainty and financial market volatility sparked by the conflicts in Ukraine and Gaza helped strengthen demand for coffee as a haven commodity investment.
  • This speculative demand and a big short position in the market are helping prices. While there is also some talk about the extreme heat and dryness in the Amazon due to deforestation and climate change, the weather forecast is not conducive currently for any weather problems for Brazil coffee. This may be a bearish factor, later. I will have more detailed El Nino studies, again later.



Grains:

  • Russia and Ukraine are major global exporters of grains like wheat, corn, and barley. Armed conflict between them directly disrupts grain shipments. However, the early summer price spike in wheat was more psychological than anything else. I don’t think this is a major issue for the grain market currently.
  • The Middle East is a major importing region for grains. Conflicts there do not directly reduce grain supplies but can constrain demand if economic turmoil ensues.
  • During the Arab Spring uprisings, disruptions at Middle East ports constrained grain imports and caused price spikes.
  • Even the threat of conflict can cause volatility, grain markets are sensitive. Actual armed conflicts lead to even larger price spikes due to disrupted production and exports. However, the present rally and soybeans is due more to an oversold market, and since the market already built in harvest pressure.
  • The South American weather will be much more important than the war in Gaza and Ukraine so stay tuned for the next few months.



Cocoa:

  • The main cocoa-producing regions are West Africa and Latin America. So conflicts in the Middle East or Russia do not directly affect crop levels.
  • However, conflict and instability can have indirect impacts on cocoa:
  • Higher oil prices due to disrupted Middle East supplies can raise production/transportation costs, passing costs to consumers.
  • Conflict uncertainty can boost commodity speculation, driving up cocoa futures prices beyond supply/demand fundamentals.
  • Disruptions to shipping or insurance could constrain export capacity from major producers like Ivory Coast. Recently, the main disruption has been from wet weather and harvest delays in West Africa a key reason for my previous bullish attitude.
  • Embargoes, sanctions, or supply chain issues involving conflict states could limit access to fertilizers, machinery, etc. Needed for cocoa farming. This happened earlier this year not due to war, but from post covid supply issues.
  • Overall, while cocoa production itself is not directly impacted by geopolitical conflicts, there are potential indirect effects through higher costs, speculation, and consequences of global economic sanctions or trade disruptions. This is part of the reason for the recent rally in prices, as well as crop problems I have talked about for months.







Natural Gas:


  • Russia is one of the world’s largest natural gas exporters, mainly supplying Europe. Armed conflict and sanctions can severely restrict this supply. This is why natural gas prices last September spiked to $10, as well as last summer’s, 2022 global heat waves.
  • The Middle East countries like Qatar and Iran also export significant liquefied natural gas (LNG). The present GAZA Conflict and instability in the region pose risks to LNG supply chains. (see the natural gas price chart above)
  • Reduced global supply from disruptions leads to spikes in natural gas prices, as Europe scrambles to find alternatives and bids up prices for non-Russian gas. However, our market in the U.S. will be linked more to the weather and that is what I want to stick with.
  • Additionally, oil and gas markets are linked, so crude oil price spikes due to Middle East tensions feed into higher natural gas prices as well.


Sugar:

  • Of course, neither Gaza nor Ukraine is a major sugarcane/sugar producer, so direct supply is not affected significantly.
  • However, conflicts can indirectly influence prices:
  • Disruptions to port, shipping, and insurance infrastructure due to regional instability could constrain export capacity from major producers like Brazil, Thailand, and India. Right now, it is the expected announcement from India of export restrictions (not war of course) and very wet weather in Thailand that has helped prices rally again.
  • Also helping prices is the present oil price spike. This can feed into higher transportation, fertilizer, and production costs for sugarcane crops, pushing prices up. However, the main factor of higher oil prices is the “psychology” is increased ethanol production at the expense of sugarcane.

  • Broader economic sanctions related to the Russia/Ukraine war or Middle East conflicts could restrict access to equipment, machinery, and inputs needed for sugarcane farming. However, this would not be a factor until planting, next spring.
  • At times, speculative trading linked to uncertainties has also caused some volatility in sugar futures prices.
  • Overall, while the sugar supply itself is not directly impacted, the secondary effects through costs, infrastructure, and speculation have helped prices increase again.
  • What will El Nino bring in 2024? Stay tuned. I will do some longer-term studies when time warrants.
SUMMARY-- We have been bullish on cocoa futures for months on global weather problems, while sugar has also rallied.

Any easing in the Mideast tensions would send crude oil and gold prices falling sharply. We are advising clients to take some potentially pretty nice profits long cocoa for now.

For now, we are watching global weather for coffee, natural gas, and grains and will be offering trading strategies in options and ETFs for WeatherWealth subscribers shortly.
 
This is a pretty wide ranging topic.
But I have read that the end of WWII in Europe was presaged by the D-Day invasion.
There are actually interviews of German troops who were present to receive this invasion.
In unision, all those men reported, that the Allied troops brought NO HORSES with them.
It was a shocking realization for the Germans.
Meaning that, Germany had a very significant energy deficit, compared to the Allied forces.
Energy, best as liquid and portable diesel, is the goal line for any nation going to war.
June 6, 1944 (D-Day) is the day that Germany realized that they had lost the war.
There would be as one more assassination attempt on Hitler, with a wide range of support, including war hero Field Marshall Erwin Rommel.
Rommel was so loved by the Command that he was allowed to commit suicide, in lieu of having his entire family murdered.
Bottom line, portable energy is the life blood of war.
 
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NATURAL GAS

Too much vital information is not shown

- It doesn't show LNG Supply by various countries.
and the impact of Russia shutting supply to the EU is not shown

- US NG price- data about the relationship between weather and NG price
not shown

- intercorrelation between crude oil and LNG is also not shown
.....


Management-by-Fact/data
data/charts/graphs are important to support Management by Fact.

Executive Summary is OK but if it is not supported by facts/numbers,
it will be of not much interest to the audience.


_______________
 
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Hello Sir,
Thank you for your comments.

I have advised major natural gas traders, producers, etc. for years. I am well aware of the fundamentals. I did not mention LNG, weather, etc. Because this is only an excerpt from my newsletter.

I was lucky enough to call for the major bear market last winter in natural gas on the over-hype over the Ukraine war as many European utility companies and end users already bought enough supplies. Then the winter of 2022-23 was warm in Europe and the U.S., and they were left holding the bag with too many supplies.

Hurricane Katrina was another big move I called, but obviously, shale production over the last 20 years makes Gulf hurricanes a very minimal short-term play and not a big influence on production.

My newsletter WeatherWealth covers a ton about natural gas fundamentals and all Ag commodities each week.

Thank You
Jim Roemer
Meteorologist/Commodity Trading Advisor
Best Weather, Inc.
 
%%
Strange chart;
J Rogers book Hot Co................downtrendning oil chart, adjusted for inflation. Not sure that helps me. Good downtrend in gasoline, i usually try to buy more average [for my 4 cylinder LOL]in hurricane season Did make a bit on Hurricane Hydrocarbons even though that co got taken over.
Good wartime pattern in oil liquidation only.
88% sell on DEC copper, i may sell some by or after DE 25th LOL[barchart.com] Going up more in back months now, may not sell so soon .
Good point on hurricanes+ hydrocarbons , but i always remember the REALTORS wife\ she ran out of gas trying to game a low price, her husband said. The evil empire Romanian ruler he ran out of gasoline+ got executed , no wonder, he tried to micromanage it, trapped by his own over stupid = regsLOL:D:D
 
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