July 17, 2017 - Weekly Commodity: Commodities boosted by fundamentals and falling dollar

The commodities tracked by Bloomberg Commodity index (BCOM:IND) rallied 1.1% on mixed to worsening fundamentals and weaker dollar. Speculators cut a significant part of their short positions up to Tuesday but commodity prices surged especially the last day of the week as traders were adjusting positions to the holiday liquidity.

Crude Oil

Oil had a pretty good week. According to EIA weekly Petroleum Status Report, crude oil inventories fell by 7.6M barrels while motor gasoline stocks decreased by 1.6M barrels however both staying in the upper half of the average range for this time of the year.

On the other hand the US production after being flat for a few weeks it jumped 59K bpd last week, which could be simply the result of improved weather conditions in the Gulf of Mexico. However the drop of average number of weekly opened oilrigs from 10.5 in the Q1 to only 7 in Q2 signals it could be a challenge to reach 10M bpd US production around the year turn.

The IEA in his monthly report stated that the compliance of OPEC members with the production cut also decreased to 78% while the non-OPEC countries increased to 82%. In June OPEC output rose by 340K bpd after Saudi Arabia, Libya and Nigeria increased flows. There was not much reaction from the market after these figures  maybe because according to the same report, the world crude oil demand growth accelerated to 1.5M bpd in Q2 after a “lacklustre” 1M bpd increase in Q1.

Technically the medium term picture is still rather bullish to me although crude established a clear downtrend channel. In my view what we see is a countertrend to the main trend forming bullish flag pattern. The upper channel line will be however critical as there is also a very strong resistance zone at $50-52. I expect the prices to test $50 next week. This could be a nice entry for a quick short with a target at $47-45 ahead of the breakout from the channel.

Corn

In the grain markets now clearly the weather is in the drivers’ seat. After 2 weeks of rally the corn bulls gave up their fight. The US Department of Agriculture in the latest Wasde report stuck to the strong corn yields estimates above 170 bushels per acre. This triggered fresh selling right after that money managers went net long in corn. The official estimates were well in contrast with the market expectations (btw 165-168 bushels per acre) and caught traders off-guard.

The US Corn belt weather forecast showing above average temperature for the next week pushed back the bulls in the game. The reason is that the coming week will be crucial for the yields as the corn plants are in the important pollination period and hot and dry weather could be very harmful. The revival of grains was strengthened by the weakening dollar following the soft inflation data on Friday.

The technical picture is rather mixed, still in uptrend but ... the bulls didn’t manage to close above the earlier uptrend line which was followed by a huge red canlde (engulfing pattern). Traders are apparently chasing the news which creates very tough trading conditions with mixed signals. Currently it looks more to the downside but the Friday buying could mean a change in the sentiment...again.  In my opinion there is still a good chance for a rally if price of the closest expiry stay above 360cents per bushel. Here the weather is a key factor of uncertainty and traders are getting more and more nervous which is visible from the long green and red candles following each other.

Sugar

Stronger brazil real (or weaker dollar) and the increased fuel prices in Brazil were the two main drivers of sugar prices which surged last week despite an increase import duty on sugar in India from 40% to 50%. Also worth to mention that Petrobras can from July adjust gasoline prices daily which could eventually mean smaller but more frequent changes and less volatile impact on sugar.

The speculative net short little changed until last Tuesday however I expect some more significant short covering took place towards the end of the week. We will know more next Thursday when new COT data will be released. Although the market may seem to be oversold but there are reasons to be pessimistic. In India the raw sugar production is expected rise by 25% and the refined sugar production from Europe around 20% in 2017-18. This will mean a significant boost to supply and support for bears.

Technically sugar bounced back from 12.50 support and on the daily chart now created an inverse head and shoulder formation. After the outside week (also huge engulfing pattern) 2 weeks ago it seem that a correction move ahead will be confirmed if the inverse HS pattern will be completed. Price targets could be 15.50 (Fibo) 16.50-17.00 (HS depth) however one should be very careful with position sizing as fundamentals strongly support bears in medium term, and with a long position you would trade against the trend...

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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June 11, 2017 - Weekly Commodity: Oil resistant to turmoil around Qatar, Corn on rollercoaster bull and Sugar in consolidation

According to the Bloomberg Commodity Index, commodities bounced back on Friday from lows seen in May after rollercoaster week. The biggest winners are corn and cocoa, were traders focused on weather concerns. Also copper had a good week on technical buying and escalated turmoil in the world’s second biggest copper mine in Indonesia. On the other side it was a bad week for precious metals and crude oil. The later fell after a very disappointing EIA Weekly petroleum report were crude and gasoline inventories increased massively compared to an expected drop.

Crude oil

The oil market had a turbulent week after the production cut extension agreed by OPEC  and Russia didn’t convince the market that it will be enough to bring balance back to the market. This week the pressure on oil bulls increased after the EIA crude inventories were released as instead an expected drop by 3mil barrels they increased by 3.3mil barrels. Moreover fuel stocks also increased by 4.4 mil barrels signalling there is more than enough supply for the upcoming US driving season. The market is driven by a very negative sentiment and if there is even some bullish news, traders are ignoring them. The light at the end of the tunnel is the developing political crisis in the Middle East involving Qatar as the risk of this tension is not priced in at all. The main thing here is that it cause supply disruption in case of war but also this could put the OPEC production cut in jeopardy.

Technically there are two scenarios therefore it's a risky situation. The market is retesting currently the 61.8% level of the rally from last August until January (in case of uptrend the 3rd wave on the chart). Until the 45 dollar level holds, the direction where we look should be the upside. On the other hand the uptrendline is broken and if the $45 is broken we can sea a bearmerket with next support at $40. The question here is how long it will take for the crude to take off from the $45-50 range if ... (next spring could be goal for Russia and Saudi Arabia to lift prices / more here) and how many times will the bears try to test the support at $45 level. At this stage I would definitely not throw away longs if I have them and would be cautious with any stops as these will be possibly hunted below $45. Focus on weekly close.

Corn

After a volatile week in Corn market it seems that hedge funds are losing their nerves. According to CFTC COT report Money managers closed out 38k shorts to 373k contracts. On the other hand they also increased longs significantly by 32k lots in the week ending on 6th June (last Tuesday). With the net short decreased by more than 35% the market seems to be more balanced and this rebalancing probably continued until the end of the week (we will know next Thursday the fresh data).

The hot weather coming to the Midwest offset the bearish reports from USDA last week. The Crop progress report that despite earlier concerns farmers managed to speed up corn planting and the warm weather is helped to develop the crop although there is a delay compared to last year. However the continuation of hot and dry weather (even exceeding 90-100 °F , 38°C) forecasted for this week could decrease soil moisture too much and this can change the situation for corn and soybean. The USDA in WASDE report Friday was rather bearish raising estimates of world corn and soybean stocks but the US corn stocks were left unchanged. Also CASDE suggested that China may see the smallest crop from 2013.

Technically corn broke out from the triangle which was forming for 2 month and holding strong despite a pullback (bearish shooting star) on Thursday. It seems that the uptrend line from last September is the next main resistance as the market could not close above it despite testing twice during the week.

Sugar

The sugar market was consolidating and managed to close above 14 cents. Monday traders will be watching cane harvest data from the Brazilian Sugarcane Industry Association. Analysts expect a 9% drop in the key Brazil Centre South region and also the amount of sugar contained in cane is supposed to drop due to heavy rains. This will add support to the sugar but still plenty of bearish factors weigh.

The Indian sugar lobby is trying to persuade the government to increase import duty on Sugar to 60% from 40% due to the falling prices as imports at 40% duty are still viable. Do you remember few weeks ago the Indians reduced import duty to zero for 500k tones due to domestic sugar shortage, quite a change... Domestic Sugar production is estimated to rise app. 20% this marketing year. Also China introduced duty on sugar imports last month. According to the CASDE report the Chinese sugar imports may fall as much as 300k tonnes. Moreover the EU is planning to boost its sugar export to gain market share after years of isolation from international markets. Moreover European sugar production is expected to rise by 13% this year.

Technically despite a short term support and possible increase in prises we expect Sugar prices to fall further toward the Head and Shoulders price target. However first a correction toward 15 maybe even 16 cents is possible. The question is only how much the prices will rise before they fall again.

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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Feb 9, 2017 - Trade idea UPDATE 2: Corn&Wheat buy orders on rebalancing / closing Corn on time stop

Our Corn orders were executed the next day after the udate 1 and the price development went the first week more or less as expected. We closed the first unit at 369.25 and kept the second unit open. As we did not reach our first profit target at 385.00 we kept our Stop loss at the initial level. The next week the prices dropped and we were almost closed however the position survived and found new buying power. We had a 3 week time stop and yesterday we closed the last position at 370.25. Overall result from the two trades (Wheat and Corn) is close to zero, so at least managed to preserve our capital.

Summary:

Funamental Story: Commodity Index rebalancing in mid January

Technical view: Inverse Head and Shoulders in Corn and Doubtle Bottom in Wheat

ENTRY and EXIT: 

The Wheat long was initiated by a buy limit and was stoped out quickly after January Wasde report.

Corn buy Stop Limit entries were executed only a week later, both Corn units were closed on time stop after 1 week and 3 weeks.

END NOTE: in both Grains the oversupplied market didn't rally as we expected and it went rather side ways. Therefore its time to look for new opportunities...

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 ©2017. 

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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