Today in Commodities: Is 9 Your Lucky Number?

Dollar moves lower for the fourth day in a row, like longs in gold this trade seems to be getting crowded. We are not calling a bottom but we would not rule out a quick snap higher to stop out the late comers. We currently have no currency exposure for clients with the exception of a very light position in a December Euro-currency put spread. Stand aside on new entries in forex for now.

OPEC’s meeting will extend into Thursday. We expect no action taken but with a weakening dollar Crude is theoretically already higher. We remain long with clients in December $75/80 call spreads. If October musters a move above $72 expect $74.50. We bought more December $5/6 call spreads in natural gas for clients Wednesday at $2400. An interim top in gold…perhaps, it is too early to say. December could correct to $970, which was the previous resistance which now will be support. We remain long silver with clients.

For new entries before we potentially get a move to $19/ounce we may get a wash out to $14.50/$15; this would be the new buy window. We suggest March 10′ contracts on new entries. Sugar avoided a third consecutive negative day to fight back and close higher. We suggest using the current set back to be a buyer. We will put in a limit to exit the recent coffee play for clients at 400 points O/B, just better than 150%.

Clients are not filled and need 2/3 cents higher in December to exit. In Treasuries we have some clients long 30 yr bonds; 122/126 call spreads and short long dated Euro-dollars. This sideways consolidation should prove to be an interim top. We are buyers of March corn futures into Friday’s report. Rumors are out there of a smaller yield. One source brought to my attention by a farming client of ours uses satellite imagery and has a projection of 154 on corn. Against the futures we suggest some at the money October puts. Live cattle higher for the third day running, lean hogs higher now for seven sessions. We maintain that commodity portfolios should have bullish exposure in livestock.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

Comments

[bondsarebears:]

154? If that's the flat price they're predicting, I'll eat my business card. We know corn and beans are heading for a high yielding harvest ( bullish on the basis in the country) but 154? We'll wait until Friday.
As for Wheat, I'm am Grizzly.

Sep 09 04:46 PM

[Matthew Bra...:]

154 refers to yield in corn not the price...just to clarify.


On Sep 09 04:46 PM bondsarebears wrote:

> 154? If that's the flat price they're predicting, I'll eat my business
> card. We know corn and beans are heading for a high yielding harvest
> ( bullish on the basis in the country) but 154? We'll wait until
> Friday.
> As for Wheat, I'm am Grizzly.

Sep 09 05:45 PM

[Marco Hickey:]

Good article, I am using the UCO and USO for my oil trades and will remain in the call spreads until: (A) I get called out or (B) the dollar starts to get stronger (which I don't see anytime soon). I am also long the GLD LEAP 2011 50's and have been using diagonal call spreads to create income monthly. As of now I have written the September 98, 99, 100, and 101 against my LEAP GLD calls.

Sep 09 06:08 PM

[Moon Kil Woong:]

The big question now is which spoils faster, hogs and cattle or the green carcass of the US buck? Since the rest of the world is comming out of recession commodities are back in with or without the US participating in the recovery.

What is fascinating to me is those countries that put up protectionist trade barriers and walls are the main beneficiaries. Theoretically this should signal everyone else to do similar things to protect themselves and export their problems. I suppose the US can't do it much since they are having a hard enough time just keeping people from dumping the dollar. If the US blocks their trade why should they even hold US bonds? This puts the US in one of the worst situations of developed nations (save the UK which is ruining their currency and economy with it. I guess they learned something from America after all).

Sep 09 10:43 PM

[BullnBear:]

It looks as though the no action taken approach with OPEC was correct but was fascinates me is that no one is questioning the only 1 million barrel per day over production that is taking place based on last meetings numbers and what I mean by this is that I don’t believe that 1 million is all that’s slipping past.

I’m never happy nor do I sleep well with a short on oil and I don’t believe that right now is the time for this but I do have a feeling that supply is being set up for a bigger dump because of the other deals taking place with Iran, Venezuela, and probably Russia although they aren’t an “official” member.

The oil trade is going to get real interesting going in the 4th and 1st quarters.

Sep 10 12:34 AM

[one eye:]

go.infomine.com/?re=13...

A new physical Gold ETF, will it be the Killer or will it Push Gold through $1,000 decisively.

I'm for Up to new highs.

Sep 10 02:14 AM

[rick12345:]

I don't own gold, but for anyone who does, be well aware that a closing price below 970-975 spells disaster for the precious metal. Resistance breaking at this level means it's bed time for bonzo in my view.
I like your call on oil, but am just a tad concerned about the effect a turnaround in the USD may have on the price. As for NG, I laugh when I hear people saying that the price is headed toward $1, or lower. Understand that producers are under no obligation to sell it at a loss, and as a businessman I can guarantee you, they won't; They'll simply turn off the pipes and go on holidays. Personally, I want to see how the gas price fluctuates over the next week. $2.80 - $2.90 could well be the sweet spot we have been waiting for.

Sep 10 05:42 AM

[NUCLEAR1929:]

how lower $ can go? Stop dreaming, start shorting precious metals

Sep 10 09:13 AM

[Aricool:]

rick12345,

In re your Nat Gas views, I think your they are dangerously over simplistic and not at all rigourous enough to even be taken seriously.

The current pop up is just massive short covering and rabid bull sector rotation desperation. Why can't Nat Gas (NG) go under $2? If most of the producers are 100% hedged for '09 (hence likely why their stock prices are not in the toilet w/ NG price) and they have to produce to keep their valuable leases and we have a 100 year supply, then why stop production at any price when you're getting top (hedged) $ any how??? Someone needs to explain to me why will they given these (and many other simar) factors.

Besides, did you notice that rig counts bottomed in early June and actually started to uptick in July-Aug. Also, day rates never came down enough. Not a good sign if you believe in major production cuts.

Also, if you look at the last recessions NG droped to around $2.5-2.7 in real terms (adjusting for inflation); however, that was when US NG production was believed to have peaked, which is why we later created infrastructure for LNG imports- and those lows were before we became the Saudi-Arabia of NG with massive supplies. So, it would stand to reason that we'll see below $2 easy; esp. since we got so quickly to $2.5 w/o resistance.

Moreover, I'm very concerned about the long term pricing of NG. I'm trying to see it as bullish as you do, but many long-term factors seem like it might keep it very low- not the least of which is LNG imports from Russia and Arabs when NG gets back over $4.

Have a look at the LNG import spike between end '06 and early '07 and it tracks *exactly* with a step down of NG price from 7 to 5. This is insane that LNG could crush prices during a robust US economy. I'm very scared now that with the paltry 2% trend growth expected for the US (and EU?) going forward that they'll dump excess Euro LNG onto the US and repeat that '06/'07 event. This would almost certainly keep NG prices under $4 in the expected weak situation for '10. This is a huge uncertainty in playing '09 weakness esp. if buying into NG driller/services securities to play the "perfect storm" against NG. That is, the LNG would dump just enough supply to easily keep the storage full, thus keeping NG exploration and cap ex down to a minimum, and b/c most NG producers are only partially hedged for 2010 (maybe 30% or less?) then they would get killed in 2010 making there hedged supported stock prices 2009 quite high. This uncertainty really sucks! Can you discount this scenario?

the EU is expected to recover more slowly than the US so why won't the LNG plays dump what ever they can on the US. As I analyze the charts, the LNG chart tells me a very bad story. That is, the June '09 LNG was sold at only ~ $4.3 while volumes where a little above that just before the '06 event (see above) when NG price in '06 was ~7, and then dumped 2X the volume for 6 months and were more than happy to collect only $5 in that time. Again, this was when the EU and US were heading into a peak earning cycle. This tells me that the LNG players will keep US NG prices in the toilet (<$4) until the US (and EU?) are in a full recovery. Very, very bad for NG sector stocks for 2010. Please debunk this gloom and doom scenario! It seems all too possible if the magal V-shape recovery does not materialize in early 2010. Hence, why with a weak EU they'll dump there LNG at a (double? june '09) high rate and keep the US storage near max, thus NG prices in the toilet.

I'd really hate to additionally bet on a V-shape recovery on top of the structural NG risks I've discussed. There are much more (risk adjusted) profitable bets on a V-shape recovery in the market.

Betting on a V-shape recover is over the top for a NG bet at this point. Also, how can you be so sure that that '06/'07 event (see above) won't repeat in 2010?

In summary, NG prices seem destined to go well under $2 well into November, and while it may rebound next year LNG will keep it near $4 and kill/hurt most US NG producers until the economy fully recovers (1-2 years) and get NG price in the $5-6 range.

So, you can try catching a falling knife or put your money in soaring NG stocks which will collapse next year when there hedges are gone and NG is kept too low b/c of LNG. Seems like NG is a bad bet until at least Nov.

Cheers,
Ariel-



On Sep 10 05:42 AM rick12345 wrote:

> I don't own gold, but for anyone who does, be well aware that a closing
> price below 970-975 spells disaster for the precious metal. Resistance
> breaking at this level means it's bed time for bonzo in my view.
>
> I like your call on oil, but am just a tad concerned about the effect
> a turnaround in the USD may have on the price. As for NG, I laugh
> when I hear people saying that the price is headed toward $1, or
> lower. Understand that producers are under no obligation to sell
> it at a loss, and as a businessman I can guarantee you, they won't;
> They'll simply turn off the pipes and go on holidays. Personally,
> I want to see how the gas price fluctuates over the next week. $2.80
> - $2.90 could well be the sweet spot we have been waiting for.

Sep 13 08:36 PM