As many Americans are bunkering down while temperatures drop, commodities traders are watching markets heat up. Exceptionally cold temperatures, especially when they occur at unusual times, can cause rapid movements in a number of markets. Extreme weather can damage plants, affect livestock's appetites, and even halt trucks, trains, and barges.
Wheat Prices Pop
While most of the US corn and soybean crop is already harvested, wheat farmers have much of their crop in the field. The most common varieties of wheat grown in the United States are known as winter wheat, which is planted in the fall, becomes dormant during winter, grows in the spring, and is harvested in early summer.
To survive cold winter temperatures, wheat ideally needs a blanket of snow to protect the immature plants. Unfortunately for some wheat farmers in Colorado, Nebraska, and Kansas, temperatures are dropping rapidly without snowfall, leaving their crop exposed. This can lead to "winterkill" which damages the plants and dashes farmer's hopes for a good spring harvest.
As a result, plummeting temperatures have caused a red-hot rally in the wheat market, with the growing Kansas City wheat crop hitting a two-month high, trading Friday at $6.15 per bushel.
Cattle Charge Higher
Live cattle prices made new contract highs Friday morning as traders bought cattle out of concern that the deep freeze across the Great Plains could cut into beef production. When temperatures drop, animals have to expend more energy keeping themselves warm, which causes them to eat more and gain less weight. In some extreme cases, too-cold temperatures can prevent transportation of cattle or even kill the animals, which reduces market-ready meat.
As a result, live cattle prices made new contract highs Friday morning, pushing over $1.70 per pound.
Natural Gas Can't Warm up
Despite the blisteringly cold temperatures, natural gas prices fell this week, disappointing investors who had bought the fuel.
Over the last few weeks, many traders watched the weather forecasts and bought natural gas in expectation of higher demand and prices. Unfortunately for them, temperatures are expected to warm up again next week, and gas inventories are still climbing, which caused prices to plummet to a two-week low Friday at $3.94 per million British thermal units.
Likewise, heating oil prices fell this week, nearing a four-year low as global oil production continues at a rapid pace.