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Expat finance professional living and working in Hong Kong.
  • My April-15 Strategy Review

    April is over. Results:

    Wheat - as expected it fell hard - minus 10%.

    Soybean Meal - fell too but less dramatic. Again, as expected.

    Cotton - overall prices rose but trade is very choppy. I've had a short position and size was quite modest and I have no intention to extend or liquidate it. Written calls lose its value gradually.

    Coffee - up and down, up and down - prices stuck in the range. This is OK for me - as an options seller I benefit when prices go in my direction or stuck in range or even if they go slightly against me. This is a forgiving trade style.

    Cocoa - added more than 10% on less than expected fall in demand from grinders. This was my mistake.

    Hogs - another mistake. Bulls were charge this month.

    I did not write about corn in my previous article but I opened bearish position soon after beginning of April and benefited from that.

    Overall, the month was not great because of substantial hits from cocoa and hogs bull rallies. I keep on my bearish positions and I believe that rallies in hogs and cocoa will fade soon. Though it was my mistake to ignore seasonal rally in hogs as I thought good fundamentals from suppliers end would cap it. Cocoa another time proved to be a volatile thing. But looking at fundamentals and monthly charts I do not expect this upturn to be long-lived either.

    May 03 11:32 PM | Link | Comment!
  • My April-15 Strategy

    April is here with us and if you survived Fool's Day without much damage I invite you to place your bets on following commodities. Or, strictly speaking, against them as this month I will be giving entirely bearish calls. I note that being a bear has become a habit of mine and in order not to make it a bad habit I made two bullish bets last month - natgas and soymeal. Natgas was discussed here in my blog, soymeal bet was not as I made the bet later during March and I closed position in the very end of March. I do not like being a bull these days. I think that we have entered in a bearish phase - Bloomberg Commodity, UBS Bloomberg CMCI Composite , RJ/CRB Commodity, Rogers International, S&P GSCI - all these major commodity indices lost 5-6% from 1st of January. And they lost a great deal in 2014. What drives commodities is economic growth which is dismal. At the same time resources prices have reached their highs not long ago. Now think of a wave - it reaches its top and falls hitting the rock bottom and bounces from there. We touched the top when many markets were in a bullish spree - buy, buy, buy - oil, gold, ags, everything was green, green, green non-stop. Now the party is over and we need to restate the status quo - shake off excitement of bull markets, take pain of bear markets and find the golden middle. But we have not touched the rock bottom yet. We barely begin to realize the meltdown. OK, maybe 'meltdown' is a bit of a strong word, exaggeration, but I do believe that the World economy have used up its potential for many years ahead - too much of bad debt, loose regulations, swarm of fruitless investments in projects aka "growing bananas on Mars" and now need to replenish itself. We are in thin years period.

    OK, my thoughts become too lengthy and by the time you finish reading this wall of text April may end. This month I bet against:

    Wheat - reserves are very high, crops in Latin America are high, price differential with corn is nearly USD1.50, currencies of two main rivals Russia and Ukraine are severely under water meaning they will accept any USD price and still benefit from it - all these factors are bearish. Wildcards are planting acres and crop conditions. These wildcards will come into play but I do not expect them to be the tide changers. There is a talk of draught but I do not see much of it when I look and precipitation maps.

    Soybeans - crops in South America are at record highs while their currencies are weak - they will sell at any price and still benefit cause every dollar would give them more pesos and reals than it gave last year. USDA reported stocks of US soybeans 32% higher than a year ago. Now, beans are a wasting asset - think what happens when farmers begin to dump this stock, they can't sit on it for too long. And planting surveys point at high acreage of soybeans coming year too. I see nothing bullish. In fact every small bounce is a selling opportunity. I think USD8.00 price is not a distant dream. In fact we may see even USD7.00 if weather be fine. I prefer to sell Soymeal calls cause they offer better premiums. Soymeal is highly correlated with Soybeans and one needs no big brain to understand why.

    Cotton - my cotton position is not large and my bearish stance is not too firm either. Last crop was high, Chinese and Indian reserves are high. What prevents me from going heavily bearish is the fact that the price is low already, and wildcards are weather conditions and planting acres. But these should be revealed soon.

    Coffee - good rains moisturized soil in coffee growing areas of Brazil. Weakened real may encourage farmers to sell now instead of waiting for currency bounces. However be reasonable - the price is low enough considering the poor state of coffee plants after last year draught and no one can tell for sure what the crop will be, forecasts point at similar figures as last year. Do not go recklessly short. I do not rule out seeing coffee at 1.10-1.20 in coming months but any bad news can take it up easily. Recall 2014. I have short position in July coffee but I hesitate if I want to extend it in September. Time will tell.

    Cocoa - main crop harvesting is over and good, mid crop harvesting is getting closer and expectations are good for Ivory Coast but medium-bad for Ghana. However it should be noted that news about Ghana problems are no longer news. They were news in early February. At the same time weather was quite favorable for crops development during February and March. Important events will be a chain of grind reports to be released in 2 weeks by US and EU processors and Asia processors report will be live 10 days after them. Overall expectations have been bearish.

    Lean Hogs - last Hogs and Pigs report shown increase in inventories comparing to ill last year. This is understandable, PEDv is gone. What should be accounted as well is cheap price of feed grains and weaker commodity markets in general. However I do not expect big moves down as prices came down a lot compared with 2014.

    That is it for April. Good luck!

    Apr 02 12:18 AM | Link | Comment!
  • My March-15 Strategy Review

    March is over and revision of my predictions is below:

    NatGas - I was wrong expecting colder times and higher prices. In fact I was expecting storages to fall below 1,400 Bcf before they begin to replenish but end of March revealed normal temperatures in April and I decided to leave this trade. In March NatGas lost 3% if you compare opening and ending prices, I was betting on price appreciation but I did not lose money, I made 20% on this trade. How? Read Dr James Cordier's book on options selling, answers are there. By the way he is active here at Seekigalpha.

    Cocoa - prices declined even more than I expected and I made good money.

    Cotton - prices dropped severely, then recovered part of damage and declined slightly again. I have been bearish this market so it works fine for me.

    Lean Hogs - prices declined here too and I made money shorting hogs.

    Coffee - good rains in coffee-growing areas in Brazil helped to develop new crops and replenish water levels and kept prices under pressure. Just as I expected.

    Good month. Moving into April.

    Mar 31 11:22 PM | Link | Comment!
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