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Elgrey
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Expat finance professional living and working in Hong Kong.
  • My August-14 And September-14 Strategy

    It is mid of August and here is my plan for the rest of the month and September:

    Heating Oil - as crude oil lost almost US10 off its highs in mid June I guess from a purely technical standpoint this is an overkill and recovery is due. Also, from fundamental side of the board it is smart to buy heating oil before cold times. So I am long heating oil.

    Natural Gas - I was shorting NG since May but now I have a feeling that bear rally is transforming into a neutral pattern. I do not think the injections are sufficient to cover deficit however I do not see much reason for prices to shoot up either - El Nino winters are usually mild ones. With this in mind I wrote out-of-the-money puts and now I have a stragle in natural gas betting that prices will be around USD4 +/-.

    Cocoa - I was wrong predicting CC decline a month ago but I continue to hold the same position. EU grinding report was bearish but market keeps on ignoring it and they talk only about US and Asia reports. At the same time EU consumes the same amount of raw cocoa as States and Asia and global demand for cocoa reduced in 2nd quarter not increased. Crop condition news from Africa support ideas of good main crop. Mid-crop is healthy too. I do not understand all this fuss about growing cocoa prices. Besides there are already news that current prices levels discourage buyers.

    Coffee - same here. Market thinks of a situation which is different from reality. COT report points at bearishness of commercial users and this pointer is way more trustworthy than all the reports from "analysts" about death of coffee crops in Brazil. Do not buy it, sell it.

    Soybeans - every month USDA reports news that smash remaining bulls. My guess is that market has taken main hit already and I am cautious about betting on further price drops. Maybe but not definitely - this is my opinion on further bear rally in soybeans. Bad (bearish) news have been brought in and accounted for - big crop numbers from US and Brazil, good carryover stocks, good weather. What has not been announced loudly yet is astonishing amount of export sales and definitely these guys know what they do. Last time such interest in buying huge amounts of soybeans in July was in 2010 when prices hit the bottom of USD9.00 in June'10 and began recovery from there. So I would think twice. Instead I opened a strangle position in Soymeal - no matter if beans fall, this commodity will be supported by cattle and hogs sectors. Especially from hogs sector that is now recovering from PED virus.

    Lean Hogs - PED virus killed many piglets in early 2014. It takes about 6 months for a piglet to grow into a mighty marketable hog and this explains why current prices of pork are so high. However, PEDV is in the past and farmers will take advantage of high prices and cheap feed to reap extra profits. But this price levels will not last for long and prices been on a steady bearish move for a while. I am shorting LH.

    Aug 13 11:26 PM | Link | Comment!
  • My July-14 Strategy Review

    OK, it is time to review my forecasts for June and July.

    Soybeans - my plan to short beans brought me good profits. Closed position on 1 of August as options I sold earlier lost most the value and keeping position open was meaningless and I bought them back. I still have bear spirit inside me but I want to see WASDE, it is only a few days away.

    Soy oil - prices declined as expected.

    Cotton - same story as above.

    Cocoa - here I am kind of busted for now. Instead of expected decline cocoa added another USD100 to USD3,200. I keep my shorts open and I believe market lost touch with the reality. In brief - we can see news about rising US and Asia grinding numbers but EU grinding numbers declined much stronger and if you add up all grinding numbers for EU, US, and Asia you will see that there is a quarter-on-quarter decline in grind numbers. So demand is not that "out of control" as some like to say. Also, weather news and crop reports from Africa point at good crop numbers and good prospects.

    Coffee - I made good money shorting coffee but last days of July brought me some headache with unexpected price jumps. I still believe that coffee prices should not exceed USD2.00 in a medium term and I do not think market is right when they go wrecklessly bullish simply because some analyst and an export company issued bullish estimates in generally neutral-bearish environment.

    Natural gas - prices dropped as expected. Summer is bad time for bulls, especially mild summer.

    Heating Oil - I opened bullish position in November contract a couple of cents ago. Maybe I was wrong, time will tell.

    Gasoline - still shorting it.

    Aug 05 1:39 AM | Link | Comment!
  • El Nino Further Impact

    A few weeks ago I wrote on how commodities react on El Nino during early stages - summer. Now I want to cover next stage - next 4 months up to the end of December. As before only 4 years - 1982, 1986, 1997, and 2009 will be reviewed and the precautions against results need to be the same - remember, this is a small selection for statistical purposes, expiration bias is possible, past performance is not indicative blahblah and so on...

    OK, results:

    Grains - wheat and corn declined and rose equal number of times. Soybean group (beans, meal, oil) rose 3 time vs 1 decline. I'd say this is rather neutral result. However, assuming this year's drastic drop of beans I do not rule out that the score will be 4vs1 in near future.

    Softs - cotton and cocoa made 3 declines vs 1 growth, coffee was even, orange juice was 3 times green and 1 time red.

    Petroleum group and natgas were even. Metals too.

    Conclusion - there is no clear impact no matter what crowd thinks. One more proof to abandon herd mentality and use own brain.

    Jul 15 4:42 AM | Link | Comment!
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