Cold Weather, Hot Markets

As subzero temperatures spread across much of the United States this week, many people hunkered down, but commodities traders were very active. A wide variety of commodities are temperature sensitive, causing many market watchers to keep an eye on the mercury this weekend.

Natural Gas Heats Up

As homeowners fired up their furnaces this week, more than half of them were using natural gas to heat their homes, increasing demand for the fuel. As forecasts began calling for colder temperatures last week, natural gas prices rose to an eight month high, peaking out Friday over $4.44 per million British thermal units. Prices have risen $1.06 (+31%) since early November.

Weather Sows Concerns for Wheat

Unlike corn and soybeans, which are planted in the spring and harvested in the fall, most of the US wheat crop is "winter wheat" which is sown in the fall and harvested in the early summer. While this presents an opportunity for some farmers to plant two crops per year, it also means that their wheat crop is susceptible to wild winter weather.

Although wheat is a cold weather crop, it does best when covered with a light blanket of snow, which insulates the plants. Some areas of the Great Plains lacked the protective snow blanket when severe cold hit this week, which could lead to "winterkill" of the developing plants. Unfortunately for many farmers, they may not know the extent of damage from this storm until next spring.

Despite the potential supply threat, prices dropped this week, with December Chicago wheat falling to a new 18-month low on Friday at $6.20 per bushel.

Livestock Markets Frozen

Cold temperatures and wintry weather present a series of complications for livestock producers, not least of which is that the animals' health can be put at risk by severe cold. It can be deadly to truck cattle or hogs to slaughterhouses in subzero temperatures, and snow can block roads as well, causing short-term shortages of pork and beef.

Cold temperatures also make it difficult for animals to gain weight and maintain their body temperature, causing them to eat more. Since corn and soybean meal are the primary sources of feed for livestock, those markets can see an increase in demand.

As of midday Friday, the February cattle and hog markets were shaking off the snow, trading lower in price at $1.33 and $0.87 cents per pound, respectively.