Energy Market Spike from Threatened Hurricanes Would Drive Corn and Sugar Prices Higher Due to Increased Ethanol Demand

Consumers’ Pocketbooks Bear Brunt of Major Storms

With the official start of the hurricane season Today, Friday, June 1, financial market analysts are busy crunching numbers and researching various scenarios to gauge which markets might be affected by a major storm and to what extent. If the busy 2007 hurricane season predicted by hurricane experts actually plays out, the major storms could have a dramatic effect on numerous global markets, says Jim Wyckoff, senior markets analyst with TradingEducation.com.

Wyckoff says that the potential impact from any major hurricanes striking U.S. soil is best summed up by one word: "Hurricaneomics®.” Coined by Louis Mendelsohn, a well-known technical analysis software pioneer, Hurricaneomics® looks at the economic effects directly exerted by hurricanes on global financial and commodity markets. For more information visit www.hurricaneomics.com.

Mendelsohn suggests that a major hurricane or other similar natural disaster affecting an important region of the United States such as the Gulf Coast sets into motion a domino effect that can ripple quickly through today's globally interrelated markets thereby affecting geographic regions and populations far removed from the hurricane's actual path.

Indeed, stock and financial markets would be impacted by a direct hit from a major hurricane striking a large metropolitan area of the U.S. such as the Southeast or the Gulf region. Additionally, commodity markets, particularly energies, grains and livestock would also be significantly affected.

Wyckoff argues that the most immediate direct impact of a major hurricane in the Gulf of Mexico would again be on the energy futures markets, with natural gas the first to feel the brunt of the storm. "Any activity that involves heating or cooling, or transportation or shipping by air, rail or truck will get more expensive, which affects consumer costs for all kinds of products nationwide," said Wyckoff.

One example of a "hurricaneomic" effect, given the current emphasis on energy and environmental conservation due to global warming, efforts at reducing dependence on Middle East oil, and already high energy costs is that higher crude oil prices due to hurricane-damaged refineries or oil shipment interruption in the Gulf would be to make ethanol even more attractive as an alternative fuel. This would immediately increase demand and drive prices higher for corn and even sugar, both of which are major sources of ethanol. Higher corn prices also mean higher costs for livestock feed, which in turn results in higher consumer costs for meat and groceries. Depending on the severity of the damage to energy industry infrastructure or extent of supply disruptions, the ripple effect throughout the financial markets and the economy can be substantial.

"Investors and traders should be extra cautious heading into this hurricane season," said Wyckoff. "They should not be lulled by last year's relatively quiet hurricane season."

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