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ihtractortherap
Senior Contributor

Time: weather

Time
What do you make of this strong ,el nino talk. Any drought cycles coming in this summer of 16??
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5 Replies
timetippingpt
Honored Advisor

Re: Time: weather

I'm not a drought cycle guy. As long as El Nino lingers drought is almost impossible according to the work I've read. Of course, that is kind of silly, in C-IN we have had about 1.5" since August 1st. Pretty good drought, just timed about perfectly. It is when El Nino ends, the flip to La Nina, that is a reasonably high risk window for the weather pattern to be tough on the midwest. 1988 was just such an event. So, we wait and watch.

 

Also, note almost all droughts start in NC/SC the preceding year. Those states are not at all in a drought, so odds favor none in 16. But these are just odds. It is the "outlier" that is where the money is made. The computers all know the averages, but, they cannot play the outliers. Only real men can do that. :-)

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hardnox
Advisor

Re: Time: weather

FWIW, which is next to nada, the current SOI looks most like '82-'83 at this point.

 

Way too early but if it would be a little on guard should it really blow out and then collapse in late winter.

 

https://www.longpaddock.qld.gov.au/seasonalclimateoutlook/southernoscillationindex/soigraph/index.ph...

 

1983 featured slow planting progress and then fierce heat after the 4th of July.

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Jim Meade / Iowa City
Senior Advisor

Re: Time: weather

As I recall, the ntion of the drought starting in the Carolinas is a favorite line of Elwynn Taylor.  The other drought started in Wisconsin, if I recall correctly.

 

I'm not sure how the drought cycle correlates with the SOI.

 

I probably can't do much about growing crops in a SOI change-over period, but it would be good to get smartt on how to market in those conditions.  Maybe a synthetic put?  :Smiley Happy

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hardnox
Advisor

Re: Time: weather

My problem with that is that I like to leg it on by buying the calls near a seasonal low point and sell the futures into it on a seasonal rally.

 

I'm not confident of a rally anytime soon although we should surely get a SA weather scare, at least, sometime.

 

Still looking lower for now, primarily becasue of the weighgt oif the whole commodity complex. I'd probably be more interested if I saw what might be a final washout in the CRB but then I might be starting from a lower level.

 

For now I think ratio put spreads in the May (not likely to keep them forever) to help with the patience problem.

 

BTW, as Ken noted, the nice fall has depleted soil moisture a bit. Way too early to make anything of it but one of the strong correlations for El Nino is drier than normal for the ECB. All to be revealed in due course.

 

http://www.qtweather.com/showImage.php?url=http%3A%2F%2Fwww.cpc.noaa.gov%2Fproducts%2FSoilmst_Monito...

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hardnox
Advisor

Re: Time: weather

BTW, the legged put spread thing is feeling a lot like back in the bad old days- it is a good strategy but if you get caught and don't get it completed the additional hit hurts when you're already facing tight margins.

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