May 21, 2017 - Weekly Commodity - Oil traders waiting for Opec, rain challenging US crops , sugar rejected ethanol parity

Last week the US and Brazilian politics were making the main headlines. Continuous weakening of US dollar supported commodities while the depreciation of Real had a negative effect on sugar, coffee and soybeans. The weak Brazilian real caused a liquidation of 5mil. tone of soybean stocks in only one day. Raw sugar got extra support on Friday from the rains forecasted for the cane crushing regions of Brazil. Crude oil prices supported by oil minister statements (Saudi Arabia and Russia) regarding OPEC production cut extension. The US farmers keep fighting their battle with cold weather and high moisture, corn sowing still below average. 

Crude Oil

The oil market is now focusing on the upcoming OPEC meeting (25th May) where countries producing oil and Russia are expected to agree on an extension of the production cut by 6-9 months. The expected positive outcome of a production cut extension and the increasing demand are the 2 main factors that can help to recover the oil prices. The production cut up to now however didn’t decrease supplies as OPEC members  were emptying their oil reserves which are much lower now. This means the extension would bring a real drop in oil supply this time and in combination with the expected increase in demand for 2H this could cause a signficant rise in oil prices. I will publish a deeper, fact digging article later this week ahead of the OPEC meeting.

Technically WTI closed the week above psychological $50 level and if you are not log yet, probably you could still think about going long or start to build a long positions as in case extension the price can easily break out from the flag and reach new highs in the $60/b area. The tricky part here is the impact of US shale producers hedging activity usually pushing prices down. Even this will effect mostly the longer expiries (1+ year from now) I would probably take some profits around January highs ($50/b) if the closest contracts reach it.

Corn

The grain market is focusing on the North American weather still as current moisture is hitting two crops the same time. While the wheat harvest is just starting, the rain and cold weather may cause potentially yield and quality problems as well as spreading crop disease. However it's hard to assess the damage at this phase. Corn sowing is slowed down by moisture and as I mentioned earlier there are fears if the rains will not stop the farmers will eventually switch from corn to soybean which could be planted a little later.  This could result in jump in corn prices and further drop in soybean. Also don't forget the huge corn net short in hedge fund positioning, which could result in a short coverage and jump in prices.

Technically we saw a false break to the downside from the triangle on Corn chart. There is a higher short squeeze potential in the corn makret (MM increase their already huge net short positions more than expected) that could be triggered by further sowing delay and hence farmers shifting potentially to soybeans. This may also trigger a bear run in Soybeans breaking down through the October lows.

Sugar

The last week in the Sugar market was more about Government crisis in Brazil than the fundamentals. Due to the weakening of Brazilian real the Sugar prices slid down toward 15 cents levels. However at the end of the week sugar prices recovered above 16 cents again due to further rain forecasted in the cane growing regions of Brazil. The other supporting case for sugar is that the market reached the 15 cent ethanol parity zone in Brazil below which it’s more economic for mills to produce ethanol instead of sugar.This could eventually result in less sugar production as expected.

Technically there is some upside potential short term to retest the H&S neckline and the last low before the sell-off at 18 cents. There is a high probability of range trading for several weeks between 15-17 cents until the market start to sell again. The Brazilian ethanol parity will provide strong support @15 cents until the cane crush season is over.

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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Apr 23, 2017 - Weekly Commodity (Commodities under pressure)

The commodities had a rough week as Bloomberg Commodity Index fell 2.5% percent in only one week. The already nervous markets were we had a serial of negative news in several commodity sectors caused that Money Managers cut some of their elevated exposures ahead of French Presidential Election on Sunday. Some of the bad news were the 1.5mil barrel rise in US Gasoline inventories, rise of US oil rig count, the bigger than expected wheat planting in Canada, huge stocks of wheat in the black sea region and the improving weather conditions in South America.

CRUDE

As geopolitical worries are fading oil prices fell more than 6% last week on concerns that US crude production rise will offset the impact of OPEC’s output cut. We have seen the biggest weekly drop in a month with oil loosing 2% just on the last trading day of the week. Key data that forced out investors of their bullish bets ahead French Elections were:

• EIA Weekly Petroleum report first didn’t move the market much due to the headline decline in US crude inventories by 1.0mil barrels. However soon after the sell-off started as the total gasoline stock increased by 1.5 mil barrels. Refineries increased operations as they are running at 92.9% of their capacity vs 91% a week which should be supportive to the prices.
• Baker Hughes US Oil Rig Count released on Friday showed an increase again the 14^th consecutive week which means the US production will most probably grow further. The US crude oil output was rising the last 9 months and its now at the highest level since August 2015. This in big part offsetting the OPEC output cut

What could support oil is an extended production cut from the OPEC and Non-OPEC countries on their meeting on 25th May. However there are already speculations that due to the positive effect of OPEC output cut on the US shale producers there will be no extension. Also the expected seasonal decline in crude inventories in April-May should bring support for Crude. Another support may come from Iran after the country cleared his tanker storages and its exports are expected to significantly decline in May.

GRAINS

The grain sector is really out of investors favour. After a promising week the sector got further hits this week. Main drivers of the sell-off were:

• Canada reported bigger than expected wheat and canola planting which could have direct impact on US market.
• The improved weather forecast will help South American grain producers. Despite the earlier fears of destroyed production in Argentina and some areas of Brazil, it seems that the damages were less significant. In Brazil after soybean harvest is almost finished and corn harvest behind the door, there are growing concerns of insufficient storage places which is a repeating problem of the countries farmers. What is fuelling these worries is that corn and soybean prices in Brazil are below production cost and farmers are not willing to sell their production at current prices.
• The similar situation could develop on Eurasian wheat markets. According to the local USDA office in Russia and Ukraine, the production will not drop enough to offset huge stockpiles built up during last season in the region. When the new harvest will need storage place, farmers will likely throw the old stocks on the market which will bring further pressure to wheat prices.

While there was seen some profit taking at the end of the week, the outlook seems to be still strongly bearish. The near record net shorts of hedge funds are still keeping alive the story of possible short squeeze if any meaningful change in weather will appear.

SUGAR

According to USDA local office in India despite the rebound in production by 18% this year, India will keep importing sugar the next season too. The increase in planting will be most probably offset by the rising demand which will keep the country being next importer of sugar the next season too. Brazil is also still in focus due to the ongoing cane crush in the country where a record sugar production is expected despite a decline in sugar cane production.

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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Apr 10, 2017 - Weekly Commodity - Grains decline on strong USD ahead of WASDE, Oil bulls revival on Syrian attacks

The strong dollar continued to be a moving factor last week but the market also digested the Prospective plantings report and the US strike in Syria helped the oil bulls to regain power. This week we will be watching closely the April USDA Wasde report on Tuesday where a slightly higher ending stocks of grains are expected. Later the API and EIA crude oil reports could give the oil traders some kind of direction for the coming weeks.

Oil

The last week we started on a mixed tone as while API oil stocks showed a surprise decline of 1.83M barrels the EIA crude inventories increased by 1.58M Barrels. The market got a boost on Thursday after US attacked a Syrian military airbase which helped the WTI Crude close the week above 52 level. Overall positive bias was supported by Canadian news too, where 2 oil producers had to cut production due to plant fires. The Baker Hughes US Oil Rig Count continued to grow however and this calmed the mood on the market at the end of the week.

Grains

The market is waiting for the WASDE report published on Tuesday ET 12:00PM and market participants expect another bearish report in terms of increase in ending stocks of Corn, Wheat and Soybeans too. To the bearish view also adds the concerns regarding US-Mexico and US-China trade relationship. Mexico aims to decrease dependence on US Grain by considering buying some tariff-free corn from Brazil and Argentina. Heavy shorting of corn and wheat however keep open a possibility for a major short squeeze. Especially wheat could be in focus as concerns regarding insufficient moisture in US and Europe are rising. US Soybean exports to China are on the other hand beating government forecast however there are fears that many of the export order could be cancelled. The soybean positioning of hedge funds is much more balanced than corn and wheat and with all the rising planting area, huge stocks and fear regarding cancelled exports creates a room for further decline. While Chinese grain imports are rising, it’s not the best time for US farmers ahead of harvest and favour the South American producers instead.

Sugar

As I wrote about sugar last week, the situation is not changed much. Despite the Indian government has slashed import duty on raw sugar to 0% the reality is that this is only for a fraction of the amount needed to be imported, indicated by the Indian Sugar Mills Association. We are at the beginning of the cane crash season in Brazil with good weather forecast and mills favouring sugar ahead of ethanol. Therefore despite the expected lower cane crushing the sugar production will most probably rise compared to last year which will maintain pressure on the sugar market.

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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