May 28, 2017 - Weekly Commodity - tough week for commodities, crude, industrial metals, soybeans down, corn and wheat traders still hesitant

Last week the Bloomberg Commodity index fell 0.8%. One of the reason was that traders were disappointed not getting any juicy surprise from OPEC on Thursday. While precious metals gained, industrial metals fell on both supply and demand news and downgraded China. Soybeans dropped on possible decline in imports to China and Sugar fell on surprise year on year rise in Brazilian sugar production. Corn and Wheat still waiting for direction as Crop Progress report on Tuesday will show where the sowing and quality estimates are currently. So plenty of interesting topics, let’s look deeper at some of them.

Crude oil

The market participants were disappointed by the OPEC agreement despite the fact that the headline news came out as expected, the cartel extended the output cut by another 9 month. However this was already well priced in and there were no more buyers to jump on after the announcement and investors took some profits after the rally of the previous week. The market was waiting for something more, some positive surprise not mentioned earlier, like a deeper cut or a limit to exports as we mentioned in our Story of the Week piece. Still, the agreement will limit crude supplies more than in the first half of the year due to higher demand and lower crude stocks expected. So now after the market digest over the weekend the agreement we can easily see a continuation of the Friday rebound.

My key note on this is while US shale is more effective and can further increase production, the pace of increase will slow down next year. On the other hand the next year for Saudi Arabia is very important due to the planned Aramco IPO, and they are too smart to let crude stay where it is now.

Corn

The indecision in the corn (and wheat) market lasts for 5 weeks already and this is clearly visible if you look at the weekly candlesticks, small bodies, long shadows… So what’s next? Well the coming week will be important as the USDA will release its Crop Progress report on Tuesday and the data can cause a volatile reaction both ways. According to the last report the corn sowing was just slightly behind the 5 year average, however there are more and more rumours that farmers needed to replant corn in many areas. Given the huge hedge fund shorts the upside move could cause short liquidation. I will try to find some time to prepare a short overview before the release, what to watch. Short term this is the main data of the week which will very likely move the market.

We also have to take into consideration the excessive moisture on the North America causing problems not only in the US but in Canada too. The market last week ignored the latest Cattle on feed report which came out at 1.85 mil head, which is  11% above 2016. This means the demand side of the corn market is rising.

Soybean

I dont like to write about too many commodities but this time soybean is worth to mention. The complex was hit by rumours that China may cancel imports from US as the soybean crush margins are still negative and the situation is worsening. The crop broke the key support at 930 which opens room to further decline and even the test of 850 level could not be ruled out give the increasing compention fro Argentine and Brazil. 

Sugar

Raw Sugar futures fell to 13 month low after Brazilian fuel prices were cut last week. Lower gasoline prices mean pressure for ethanol prices and this means that the ethanol parity is declining. This is pushing the key support for sugar well below $15 as it makes sugar more profitable for the sugar mills to produce sugar. Adding to this last week, Brazilian sugar mills crushed more cane than expected and produced by 35,000 tonnes more raw sugar year on year during the first 2 weeks of May versus the expected drop of 225,000 tones... Given the weakening real I’m wondering what keeps sugar prices still above $15 (there is no daily price limit on ICE). We maintain our downside view which could be offset by weather shocks of course so proper money management must be in place.

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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May 15, 2017 - Weekly Commodity (crude positions balanced, corn planting delay, sugar at ethanol parity)

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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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 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. 

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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Apr 2, 2017 - Weekly Commodity: Strong dollar, Crude inventories, Opec and USDA report the main topics last week

Strong dollar was a key factor in commodity markets the last week along with Crude oil inventories, OPEC statement and USDA Prospective Planting report. Overall we could see a rather bearish market as a result but if we look at commodities separately, we got a mixed picture.

The Crude oil bears felt the pain when WTI closed above key resistance $50 despite rising inventories as OPEC sources mentioned potential extension of production cut. The expected seasonal decline in inventories in April supported the surge.

Grains had an important week as traders were waiting for USDA Prospective Planting report . Soybeans were sold of heavily due to increase in planned planted area, while Wheat couldn’t get too much upside momentum. Corn, one of the most shorted grain was a different story, as massively closed up the last week testing the earlier broken uptrend line.

Precious metals were led by gold selling which is in correction mode after failed to break above 200 day moving average and the main reason of the weakness is the strengthening dollar, while medium term the European elections (France, Germany) as well as the Brexit theme along with Greece could bring support. Technically a double top is forming and could be traded aggressively at relatively low risk.

Among soft commodities Sugar continued to suffer due to expected sharp recovery in Indian production and still pending theme of Indian imports. On the other side Cocoa found support and seems to be gradually trending higher from the multiyear lows reached earlier this year.

 WTI chart

Corn chart

Sugar chart

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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