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Elgrey
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Expat finance professional living and working in Hong Kong.
  • My August, September-15 Strategy

    August is here with us and below are my thoughts for Autumn-September.

    Soy Oil - seasonally BO is falling until early October. I will stick to this plan. BO balance sheet and COT do not show any signals to worry about.

    Gasoline - production of RBOB hits records while crack spreads protect refiners' profits. This is not a sign of price strengthening. Seasonally, the demand should begin to soften - summer driving season is moving towards its end. Not to mention that commercial users buy commodities months ahead so there should not many buyers these days. This is what common sense tells me. I hope I will be right.

    Natural Gas - right now I have bearish position but I think to rebuild it into a neutral strangle. I believe the prices have accounted for larger inventories and now waiting for a spike down to open longs. I am going to keep this position till October-November.

    Lean Hogs - I keep my longs open and believe that current supply and demand situation overextended its bearish stance - recent news revealed that piglets are quite light in weight and inventories are more like 2013 when prices hovered around 80-90 cents per pound.

    Coffee - absence of bad weather events this year secure good crops which add to healthy carryover stocks. This is a long-term bearish factor. Winter in Brazil has just passed its equator so the chances for frost diminish with every day. I think this bearish stance will be here with us till December unless something bad happens.

    Sugar - production in Brazil is somewhat lower than last year but last two years were record-makers so inventories are very plentiful. Plus, India and Thailand have good crops this year. I do not see any reasons why bears should be worried.

    Question marks - grains, cocoa.

    Grains - August is very critical in a sense of crops being harvested as well as insane volatilities after WASDE report. Therefore I am out of the market until WASDE comes live. This time the key variable will be yield per acre and should this value deviate from what market expects we may easily see day limits breached. Overall I am bearish but I do not want to be in the trash situation similar to where I was in the end of June. Hate myself for that. Well... What does not kill you only makes you stronger.

    Cocoa - 2Q 2015 grind reports were very bearish. But I held myself from opening any positions - the crop figures are yet to be known and they can easily turn the tables. Weather news do not offer comfort either - in my understanding pods development requires much more sun light than weather has been offering. This may translate into reduced supply. At the same time port arrivals are on par with last year which is a bearish number. I'd rather wait till October when market knows more about this year crops.

    That is it for now. Stay sharp.

    Aug 03 4:56 AM | Link | Comment!
  • My June, July-15 Strategy Review

    June and July are history now and it is time to draw the line and count gains and losses.

    Wheat and Corn kicked the hell out of me when they rallied. I did not have huge positions but I took some pain - corn stocks figures and non-stop rains in corn I-states were grim for bears so I decided not to try my luck and booked losses. At the same time wheat was a follower, its fundamentals were not that hampered, in fact they remained bearish and its uptrend was nothing but overexaggerated reaction on corn and soybeans bullish figures. So I kept bearish wheat position and closed it after uptrend finished and booked profit.

    Soy Oil - I short it and enjoy the downtrend in it.

    Coffee - pretty much the same as soy oil.

    Among the bets I did not announce back when I planned my strategy for June and July are sugar, gasoline, and hogs.

    Sugar - I am short sugar cause world production figures come very impressive so stocks won't be depleted anytime soon.

    Gasoline - this summer US gasoline production hits new records - over 10,000 thou barrels per day. This is a blast - refineries work like it is no tomorrow and hurry to refine all the oil in the World. This was bearish factor number 1 - supply explodes through the roof. Bearish factor number 2 came after analysis of crack spreads. It appears that present situation is very much acceptable for refiners as gasoline spreads are very sexy. So what does this mean to us, speculators? In Jan-Feb all crack spreads (HO, RB, 3-2-1 spreads) were very poor and it translated into bullish rally - all commercial (drillers and refiners) users did not want to tolerate falling prices anymore and joined forces and changed the direction of the market. Today situation is different - oil is much cheaper in relative terms than gasoline meaning that refiners' profits are safe and they can accept the case of falling oil prices. So gasoline prices have more room to fall.

    Hogs - I am bullish hogs. Yes, that's right - there is finally a bullish bet in the dark kingdom of bears. Here is the reason - hog prices fell 50% from last year and 20% from 2 years ago. Last year industry was hit by PEDv, prices exploded but once PEDv epidemics was over - stocks recovery gave us a huge bearish rally. But the situation now is more like it was 2 years ago with major difference - prices are much, much lower today than in 2013. Besides, cattle prices are way too high now. This is another example of broken market balance. And balances always tend to be restored - nature of things.

    This is it for June and July. I will post my thoughts about future month or two in near time.

    Aug 02 9:12 PM | Link | Comment!
  • My June, July-15 Strategy

    My apologies for skipping May. If only I could load it anew like a saved computer game. Well, what done is done. My big misfortunes were cocoa and hogs - both continued rallies against me and I was taking pain waiting for reversal to quit positions. I managed to do so in hogs without much damage but cocoa drained plenty of my blood. I did not expect so much resistance from bulls but there was the whole chain of misfortunes - first grinders did not confirm drastic drop in demand, next came trustworthy data from researchers about falling production in Ghana. Then after markets digested it and started strong reversal, there was Ghana COCOBOD who came out confirming the researchers figures and markets spiked again. This third move confirmed that market is using any excuse to move higher no mater what - news about good weather in Ivory Coast and good production numbers from them were ignored completely. Plus there started to come worring whispers about slowing Ivory Coast arrivals (not yet confirmed) and dollar weakness continued. This market will reverse but when? Timing is a big question for a derivatives trader, I had two options - roll and sit waiting for reversal or take pain and release arrested margin and trade elsewhere. I chose the latter. Do not know how long this rally is going to take, cocoa market can be cornered because of its small size plus we will have more certainty only after realistic production and demand numbers come which is not going to happen this or next week.

    OK, enough of self-castigation. In June-July I am looking at:
    Wheat, Corn - I have been selling rallies. Sawings, conditions, export sales - everything is in favor bears. But - funds are very much short this market so should they unwind - the damage may be harsh. Therefore I do not have a big heart to have large positions.

    Soy Oil - I am shorting this market. Seasonals are very supportive. There was a strong spike in prices after proposed legislation on bio-fuels and market reaction was too much and too fast. I have a feeling that market will sell this rally.

    Coffee - again stocks, weather, seasonals are bearish here which makes me a bit worried (enjoy it while it lasts cause it never does) so I'd rather sell rallies carefully.

    Natural Gas - same as coffee with the exception that today I have no position but looking for a selling opportunity which is a possibility right now.

    I am interested to see developments in soy and cotton markets but I am on the sides cause fundamentals do not provide me comfort in either direction.

    This is it for June and July. Stay tuned.

    Jun 11 1:35 AM | Link | Comment!
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