Commodity markets were hesitant last week,
looking for direction. After Macron’s win in French Elections the hot topic is
gone and traders could again focus on the fundamentals of their markets. We had
oil reports from API, EIA and IEA all of them supporting the crude oil bulls
ahead of OPEC meeting on 25thMay. The WASDE report on the other
hand gave some stable picture on the agricultural market, so again the weather become
a key factor as stocks change little. And with sugar at ethanol parity sideways trading could be the case for some time.
Oil traders were looking for any positive
news sell off after previous week and awaited OPEC meeting. And the good news
came when both API and EIA showed drop in US inventories around 5mil. barrels
and minimal change in gasoline inventories. The key question is however how
much will the next period of oil production cut (if agreed btw OPEC and
non-OPEC producers) will affect supply amid rising US production. One promising
sign is that crude oil stocks of OPEC members declined during the last few
months (one of the reasons the agreement didn’t have significant impact on
supply as members used this period to empty their stocks). However it will be a
challenge to offset the rising US production which grew close to 10mil bpd and
also Nigeria and Libya are rapidly increasing their production.
For grains there was a big week as the USDA
released its crop estimates in WASDE report. While the previous week was more
about grain buying, last week was more about consolidation. Wheat traders got a
little too optimistic and on the tornado news from US Midwest probably more
shorts were also covered than it was justified. The main thing we need to keep
in mind that there is a lots of grain stocks and hence any rally without a long
term and stable fundamental support will be short-lived. Therefore we are
looking for weather shocks (as it was for example the tornados in Kansas) which
are technically supported by price action to go for short term profits. Of
course each of these rallies can be the start of a new bull market, so you can
keep some chips on the table however beware no big trend will not start without
fundamental support.
As the wheat sowing conditions improved in
the US and the late April cold and snow didn’t cause as much damage as
previously feared, the attention turned to corn and also soybeans. The reason
is that the weather forecast for the eastern corn-belt turned wetter for the
next two weeks and this is raising concerns over corn planting. While this
could be viewed as bullish for corn on the other hand it could be bearish for
soybean. The reason is that farmers may switch to a crop which can be
slightly later planted and hence could result in more soybean seeding. Soybeans
are already pressured by big South American harvest and poor US export figures
and this would be another hit for the soybean complex (bean, meal, oil).
Prices of raw sugar in New York fell to one
year low in May and are close to the level called ethanol parity. This is the
price level below which Brazilian sugar mills consider sugar as less lucrative
to produce than ethanol. In the recent month there was however an opposite
shift, sugar mills turned to more expensive sugar. However as this was in
process for some time and it’s unlikely there will be a quick change in
production back to ethanol. This can keep sugar prices at depressed levels for
extended period of time trading sideways with a floor for NY raw sugar around
15 cents and top around 16.50 cents.
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.
Contact:
landoftradingATgmailDOTcom, Blog: landoftrading.blogspot.com
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