Aug 2, 2017 – Weekly Commodity: Good week for commodities but bulls seem to run a little too fast

Last week was overall very good for commodities supported with both weak dollar and fundamentals as the Bloomberg commodity index rose1.8%. However there are emerging speculations that the bull had run a littlebit too fast and some correction could be ahead, which was supported with the price action in the beginning of this week in most of the US traded commodity futures

Crude

The sharp drop in oil inventories reported Tuesday by API and confirmed by EIA next day were the main mover behind the rally last week. On Thursday API also added data about rising demand in July to the highest level this year pace since. Additionally the announced Russia – Saudi oil meeting regarding deteriorating OPEC compliance with output cut agreement helped also the bulls. After the US announced possible sanctions on Venezuela the WTI touched $50 and managed to close above this important level on Monday however yesterday it gave up these levels with a strong reversal technical pattern after API crude oil stocks increased by 1.78mil barrels.

Corn

In Brazil the corn prices paid to farmers in the central regions are at record low and the government announced export subsidies that will make harder for corn futures in Chicago to recover. From EU corn import forecast are at record high when last week upgraded by 3mil tonnes to 15.3mil tonnes and there is also a robust demand from swine and cattle industries. EU “usable” Corn production estimates were cut by 3.6mil tonnes due to heatwaves in Europe.

Colder weather is expected along the Corn Belt the next 10 days that can limit dryness and heatwaves, and this is a price-negative news. In the Crop Progress report the percentage of corn in excellent and good conditions declined just 1% so USDA doesn’t see any huge damage to the crop so far. Overall grain positioning of hedge funds is supporting concerns that further gains are limited (net long in corn is almost 105k lots… but still far from record lvls)

Sugar

There are rumours that only one month supply was left in India and that the government is considering another tranche of tariff free export to ease the shortage. While an increased demand is expected from India the next couple of months, the normal monsoon rains support sugar cane growers.

The Brazilian government cut biofuel tax which makes biofuels more competitive. Therefore demand for ethanol is expected to be higher ethanol which push higher sugar prices to as ethanol parity is will be rising.  Current calculations shows ethanol parity above 14 cents in sugar price terms and it’s expected to rise until the year end.

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 30, 2017 - Weekly Commodity (crude oil indecision, rain hopes for grains and false break in sugar)

Commodities haven’t seen much action last week and the Bloomberg commodity index was moving sideways. There is mostly indecision in the market as investors and traders are cautious ahead of the second round of the French election due to lack of fundamental news. Let’s look at Crude, Grains and Sugar, technical picture reveals surprising possible future scenarios.

Crude

The crude market was looking for direction last week. The reason is simple – all the fundamentals are bearish (rising US rig count, rising US production, decline in crude inventories fully balanced by rising gasoline stock) while there is a possible threat on the horizon as OPEC will meet in 4 weeks to decide whether to extend the production cut or not. What is clear, the market is well supplied and there is needed a strong impulse to motivate more buyers to jump on the already crowded bull boat. However traders seems to be afraid ahead of the French election. Despite a clear Macron victory is expected, there is a small probability for negative outcome and this gives any short term trade a gambling after taste.

Grains

The sector jumped on weather concerns in North America and in Europe but not enough to start a short squeeze on the money manager side. In US Midwest the extensive raining causing sowing delays (most impact on Wheat only 22% sowing completed vs. average 34% for this time of the year) while in Europe is opposite situation. The European commission warned the wheat yields are threatened in many key production regions due to dry weather. Well the only hope for bulls is in the weather as there are huge stocks of grain almost in each part of the world.

Sugar

Falling ethanol prices are currently one of the main drivers supporting the decline of sugar prices. The in the middle of the Brazilian cane crushing season the mills are more keen to produce raw sugar instead of ethanol due to the higher prices. According to USDA bureau in Brasilia, the countries sugar production and export will reach record levels this year despite a drop in sugar cane production. The hopes to see new Indian duty free imports are fading and analysts forecast strong Indian production this year while European refined sugar exports are supposed to rise the second half of the year    

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The sugar market has broken the psychological 16 cents as a result of long liquidation in managed money and this triggered stops that pushed down the prices close to 15 cents per pound. However prices bounced back firmly and closed above 16 cents on Friday. As there are no fundaments supporting the bulls, it was most likely only profit taking and technical buying but after some times bears should take over the lead again if there is no weather surprise.

Technically however there is a strong short term bullish picture, let’s look at the overview:

Weekly chart: Bullish hammer, key support @ 15.36 (61.8%  Fibo) rejected, Bullish divergence on Stochastic, MACD histogram and overbought RSI & Stochastic

Daily chart: Engulfing pattern, Bullish divergence on Stochastic, RSI and triple divergence on MACD histogram and overbought RSI and Stochastic…

...does it look bearish?

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 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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Corn and Wheat at record lows! Is it time to buy?

Crops had a few very rough weeks behind and Wheat hit historical lows while Corn was very close to lows of 2009. Last week the market didn`t react to the heat wave forecast in the US for the coming week but historic lows may seem to be an opportunity to catch the bottom. However don´t forget it`s always dangerous to try to catch the falling knife. Let`s take a look what`s behind the sell-off…

Wheat

USDA projects record yield for winter wheat at record high of 53.9 bushels per acre, 11 bushels higher than last year. Spring wheat yields are slightly above average. If these numbers hold, the wheat production could be 19% higher than the year before. The export demand looks quite good, raised by 25 mil. bushels to 925 mil. which would be the highest the last 3 years, however ending stocks forecast is the highest from 1988 at 1.105 mil bushels. Foreign production was raised 2.7 mil. tons and the effect of good weather conditions almost in all parts of the world couldn’t be offset by the damage caused by the rain in France and drought in Algeria. Very strong supply supported with almast perfect weather is reported from Russia and Ukraine. Unless we will see any supply disruption, huge stocks and expected high yields will probably weight on the price of the wheat.

Corn

In the last WASDE report the Corn production for 2016/17 is projected 110 million bushels higher reflecting the increased planted and harvested areas from the June 30 Acreage report. Despite the decline of Brazil corn production due to early end of raining season in central Brazil, the increased exports still could not offset the rising ending stocks which are projected in US  73mil bushels higher. Global ending stocks are projected at 3.3 mil tons higher mainly increased by Chinese stocks.

Main reasons behind the current negative records:

• Oversupply due to favourable weather conditions in most of the world
• Expected record harvest in US
• Strong dollar

What could change the outlook:

• Traders are closely watching the developing El Nina effect which is delayed. The colder weather with more rain fall expected to hit in mid-August, can cause big losses in key production areas in the US.
• Weaker USD

What to watch in the coming weeks:

• Weather report in key production areas in the US
• Next USDA WASDE report on 12^th August where we should be looking for sign of easing supply or increasing export. However, some analysts are expecting the USDA will raise yields on corn which will add to bearish bias
• COT report, which can give a hint whether the big players start to cover their shorts
• Calendar spread tightening, as if the demand is increasing it often pushes higher the closer delivery leaving behind the longer contracts. And if the contango turns into backwardation, a strong bull could be very close...

Watch your risk and be consistent!

Mr. TechMan

 DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading       teams view on past and current economic and capital market environment. It is not and shouldn´t been viewed   as an investment advice and the creator of this material shouldn´t been hold liable for any loss resulting from       action where despite this disclaimer someone would consider this material  as an investment advice. 

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