The Power of Weather: Commodity ETFs & ETNs Global Interdependence Center February 18, 2015
James Roemer ŠCopyright 2015 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.
Outline Natural Disasters &Commodity Price Moves Long-Range Weather Forecasting for Commodities Developing a Commodity ETF/ETN Program When to Exit a Commodity Position
Outlook for Commodities in 2015 Conclusion
©Copyright 2015 Cumberland Advisors®. Further distribution prohibited without prior permission.
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Natural Disasters & Price Moves • Between 2010 and 2014: 168 “billion-dollar” disasters worldwide • >10 major weather related Commodity price moves
Source: Weather Underground ©Copyright 2015 Cumberland Advisors®. Further distribution prohibited without prior permission.
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Long-Range Weather Forecasting • Solar cycles and global ocean temperatures
Source: NOAA Satellite Information Service ©Copyright 2015 Cumberland Advisors®. Further distribution prohibited without prior permission.
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Long-Range Weather Forecasting (cont’d) • Finding “analog” years (example: 1995 and 2003 for 2015) -19.77%
Source: NOAA/Earth Systems Research Laboratory ©Copyright 2015 Cumberland Advisors®. Further distribution prohibited without prior permission.
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Long-Range Weather Forecasting (cont’d) • The El Niño/La Niña Effect
Source: Barrons and NASA ©Copyright 2015 Cumberland Advisors®. Further distribution prohibited without prior permission.
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Developing an ETF/ETN Program • How to beat the index: be selective and maintain cash
Source: Invesco.com ©Copyright 2015 Cumberland Advisors®. Further distribution prohibited without prior permission.
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Developing an ETF/ETN Program (cont’d) • Midwest drought BUY Teucrium ETFs (CORN) & (SOYB) Summer 2012: Outperformed most other Commodity ETFs by at least 15%
Source: The National Drought Mitigation Center and Teucrium ©Copyright 2015 Cumberland Advisors®. Further distribution prohibited without prior permission.
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Developing an ETF/ETN Program (cont’d) • Cool summer, no hurricanes, rebound in crops Summer 2013: BUY inverse Natural Gas ETF (DGAZ), many ETFs down 10-15%
Source: DTN/ProphetX ©Copyright 2015 Cumberland Advisors®. Further distribution prohibited without prior permission.
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Developing an ETF/ETN Program (cont’d) • Winter Polar Vortex Winter 2013/2014: BUY Natural Gas ETF (UNG), up 35%
Source: DTN/ProphetX ©Copyright 2015 Cumberland Advisors®. Further distribution prohibited without prior permission.
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Developing an ETF/ETN Program (cont’d) • Brazil coffee drought Winter 2013/2014: BUY Coffee ETF (JO), up 40%
Source: National Weather Service Climate Prediction Center and DTN/ProphetX ©Copyright 2015 Cumberland Advisors®. Further distribution prohibited without prior permission.
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When to Exit a Position Commitment of Traders (CME)
Source: CME, Teurcium and USDA ŠCopyright 2015 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.
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When to Exit a Position (cont’d) Psychology of markets: Examples of market bubbles
Soybean prices 2012
Tulip prices 1636
Source: DTN/ProphetX ©Copyright 2015 Cumberland Advisors®. Further distribution prohibited without prior permission.
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2015 Outlook • Crude Oil: Fewer U.S. rigs, Libya, cold winter Price range $35-$65 • Cotton, cocoa, soybeans: Analogs, lower global production Bullish in spring or summer
• Coffee: Brazil crop may have been hurt by dry January vs. lower Brazilian Real Bearish and remains volatile • Sugar: Remains bearish; if El Niño Prices will bottom this summer
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2015 Outlook (cont’d) • Cattle: Rebuilding of herds, warm winter, Texas drought easing Longer-term bearish • Gold, silver, copper: China’s economic downturn, strong US$ Longer-term neutral to bearish • Natural Gas: Cold winter, active hurricane season, areas of hot weather this summer May spark rally (but large shale production prevents bull market)
©Copyright 2015 Cumberland Advisors®. Further distribution prohibited without prior permission.
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Conclusion • Weather has impact on Commodity fundamentals and prices • Many Commodities still bearish for 2015 • Accurate weather forecasting benefits an actively traded ETF program • Other factors to consider: – Non-weather fundamentals – Market psychology – Technical signals
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