We had a great vacation in St. Petersburg and it’s good to be back in the office. Sorry for the delays in any communications I might have missed while out. Between that and attending to my wife while she recovered from a skull fracture in early April, it’s been a hectic six weeks since heading out to the MPACT convention in Indy last month.
On the docket today is the latest update from the National Weather Service’s Climate Prediction Center. They are now 65% certain of El Nino patterns setting up THIS SUMMER and 78% certain October through January. In the graph below, the horizontal access includes three month subsets, with the letters corresponding to months. For example, the first subset listed says AMJ, which stands for April-May-June.
The MJJ, which is May-June-July, shows a nearly 60% chance of El Nino conditions arising during this time frame.
What are typical El Nino conditions? In the summer and fall, it means more rain and it will mean good to great crop yields. In the past, this has translated into huge crop drying years, the most recent El Nino hitting in 2009..that was a mild El Nino and there are some people saying this year’s El Nino could be significant, along the lines of the 1997-1998 event.
If you still have such records, it might be good to look at your Fall 1998 / Winter 1999 volumes to see what you did compared to the norm. I am still of a mind to be more than covered for the fall with optionality to roll those volumes forward. Typically, I’d also say to not go too long 1Q15 as an El Nino can mean lower than normal Heating Degree Days in the Midwest, but I think we’ll see a repeat of wet barrel crunches this coming year, even though I think they will be less severe than last year’s spike up to $5.00. There are a lot of people buying contract for next year and a good number of people are turning to financial products to protect them to the upside…those people will still need physical product and that is what will create the wet barrel spikes.
On the whole, I’d wager you will move less volume 1Q15 than 1Q14, but the trick will be how much less? And even if we don’t have as significant demand this coming winter as we did last year, it still doesn’t mean we won’t see spikes. Wet barrel demand still seems likely and like we did one year ago at this time, our company is beginning to add length to our position for the winter.
The set up right now is interesting to me. I went back and looked at a market report that I sent out on 5/21/13 and 5/23/13, and you can click on those links and read them. I save the market report emails I send out at www.propanebuzz.com, just so I can go back and analyze things and look for patterns. The following line is from the 5/21/13 report:
“There is a set up scenario for a wet barrel crisis in the trading community if we get ANY level of grain drying and/or an early cold snap.”
I spent an hour on a webinar yesterday with Argus. Most of what they said are things we have rehashed dating back to last winter, relating to the perfect that hit the industry in 2013-2014. They are of the opinion that we could see a repeat of last year’s price spikes, too…and they form their opinions by talking to traders throughout the community.
I’ll have another report next week laying out some items from that webinar in addition to a recap of notes I took from a lengthy conversation with our traders, whose opinions last May were dead on reads of the market for the winter that was still six months away.