Apr 16, 2017 - Weekly Commodity (Oil stock decline, bearish Wasde report but huge net short in corn and wheat, no sweat future for sugar)

The highlights of the last week are decline in oil invetnories and oil supply and demand getting closer to balance. In the Agricutural sector the long awaited WASDE report didnt surprice rather confirm expectations however concerns regarding heavy raining in Argentina closer to the weekend pushed prices of Soybean and corn higher. Indian suagr imports caused cautious correction but prices couldnt clos the week above 17 cents.

Crude oil had a great week after API and EIA both reported decline in oil inventories in line with expectation of a seasonal drop as refinery demand picks up. The move was supported also by rising geopolitical tension. The Paris based IEA when in its monthly report the agency said, the oil market is getting close to balance but expects global production to rise due to rising US production. Based on Baker Hughes report, US producers launched another 11 oil rigs last week taking the total US rig count to 683. Due to weaker than expected demand growth in Russia, India and several Middle east countries, South Korea and US, the IEA revised its 2017 demand growth from 1.4 mb/d to 1.3 mb/d. However as global stocks declined , according to the report “it can be argued confidently that the market is already very close to balance“.

As the market seems to be a little overbought after breaking the key resistance zone 50-52 and also uptrend line. On its way WTI prices rose from March bottoms to April tops in only 3 weeks 15%. Now a possible pullback to the up-trend line could offer a great buying opportunity. Key points to watch will be:

• Regular reports from API and EIA inventories
• Situation US/Syria/Russia/N. Korea
• Opec meeting on May 25 to consider extending output cuts beyond June

Grains had a mixed week after the hedge funds turned net bearish on the sector according to CFTC COT report. In USDA WASDE report published on Tuesday, US corn ending stocks estimates remained unchanged and wheat ending stocks estimates were increased by 30m bushels. The global ending stocks forecast for both increase by more than 2mil MT each. Export sales were just below the expected range for corn while at the upper end of expectation for wheat. In case of wheat there are concerns regarding slow pace of shipments. Here could come a negative surprise in the coming weeks as due to slow export shipment the USDA may be forced to downgrade its export estimates. Both grains saw intensive buying (or short covering) after the WASDE report however wheat gave back part of its gains before weekend 

The USDA soybeans ending stocks estimates were higher by 10 mil bushels to 445 mb, which was more than expected. Also world ending stock estimate was higher than in March by more than 5%. However the prices bounced back the same day as bears lost strength. The dramatic change in the mood on Soybean market came on Friday as weather concerns in Argentina got more spotligth.

According to US Department of Agriculture's Brasilia bureau strong corn harvest is expected in Brazil and end stocks in the country should jump as much as 70%. There are some concerns regarding the weather in Argentina as more than 1m ha of cropland was flooded. The most rain hit areas last week were already flooded so the impact of current heavy rains will be limited and as dry wheather is expected in the coming weeks the harvest will most likely continue soon.

This seems that the current picture is supporting the bearish positioning of hedge funds. However traders should be careful a skewed exposure to the downside often results in high volatility due to surprise news. And we all know from history that negative wheather surprise is a matter of time after such a long period of good weather conditions.

The last commodity we follow the last weeks is raw sugar where there is a huge head and shoulders confirmed after last Friday bulls faild to break above the descending neckline. After the price of raw sugar in NY jumped above 17 cents per pound this attracted seller and sugar was down again well below 17 cents. On reason why the mood turned little bullsih was the Indian government decision to approve duty free import of 500k MT which is much ess than expected. Another reason could be that Sugar options are expiring on Monday and as a large number of ITM puts should be expired this can result in profit taking lifting the prices higher. Money managers keep 105k lots short but net positioning is still 43k long so no danger of short squeeze at the moment. 

Good Luck and remember to watch your risk and be consistent

Mr. Tech Man

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. 

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