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Elgrey
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Expat finance professional living and working in Hong Kong.
  • My May-14 (And A Bit Further) Strategy (Add-On)

    Soybeans and Soy Oil - after last WASDE report I added bullish position to my short position and effectively changed it into range bet for coming 2 months. However, I am suggesting to short current rally cause it has no firm ground. My guess that between now and end of July prices will be within USD13-15. I also suggest shorting Soy Oil for the whole summer. Seasonally trend is bearish plus there are plentiful stocks of palm oil, a major rival for this commodity.

    Natural Gas - after last two bearish injections I increased my short positioning on Nat Gas. There is however still a possibility of price hike between now and mid of June from purely historical perspective but with every big injection chances become slimmer.

    RBOB Gasoline - I closed my shorts a few days ago just before prices shoot up. In my opinion this is a false start and I am waiting for prices to pull back to initiate long position. I expect pullback between now and end of June into 2.8+ area.

    May 22 11:40 PM | Link | Comment!
  • El Nino Early Impact

    There is much talk about El Nino lately and its dismal impact on commodities. In this post I will show the impact of El Nino on major commodities during early periods of El Nino (May, June, July, and August) during 1982, 1986, 1997, 2009 - years when last El Ninos originated.

    Before we proceed further let us remember of following focal moments:

    1) Only historical data of contracts with expirations around September is considered. So in October situation could change and October is out of scope.

    2) The goal is to check whether early May price was higher or lower than the price at the end of summer or at expiration date whichever came first.

    3) There is always place for expiration bias - last days of any contract could be very volatile.

    4) There is no intention to see how price behaved in between, so allow for price fluctuations up and down along the way.

    5) Sample of 4 is not right in terms of statistics so one can't expect deep and complex answers.

    6) Past performance is not... well, you know the rest.

    OK, let's start with Agriculture:

    Wheat, corn, soyoil declined all four times.

    Soybeans grew only 1 time.

    Soymeal grew 2 times, declined 1, 1 time price was neutral (meaning that price difference was truly negligible)

    This is a surprising result. It could be caused by overall fear and over exaggeration. It should be also noted that soybeans and soymeal are very closely correlated (soyoil is not) therefore the picture is rather murky for them. Possibly, there is not much of a negative trend as we can see with other Ags but trend is rather neutral.

    Moving to Softs:

    Cocoa and orange juice declined only one time each.

    Coffee - one time it grew, one time it declined, 2 times prices were neutral.

    Cotton - here case is trickier - closest contract is for October delivery and it is not an active contract, so I looked at December one. Overall prices were bearish.

    Let's look at Energy group:

    Crude oil grew 3 times, no data for 1982.

    Heating oil grew 3 times and declined once.

    Gasoline - I only have data for 2009 and there was growth.

    NatGas was even, 1 growth and 1 decline.

    Last group is Metals:

    Gold and silver were even. And I do not think they give a fly about El Nino.

    Copper grew only one time out of 4.

    Conclusion time:

    A clear winner is petroleum group but I think it is more due to seasonal tendency to appreciate in the end of summer after prices decline during May and bottom in June-July and then grow in August when smart buyers buy stocks for winter season.

    Next, winners are cocoa and orange juice and no wonder as Florida and Ivory Coast are among the first who take hit from El Nino. Also, it is seasonal time for cocoa to appreciate in August-September when stocks are smallest before Ivorian harvest begins.

    So, probably the best conclusion is to trim purchases now for most of agricultural commodities and wait. On contrary - go short if you see El Nino price hysteria even before El Nino actually started.

    May 09 2:44 AM | Link | Comment!
  • My May-14 (And A Bit Further) Strategy

    There was no article on April for one reason - I reviewed my approach towards investing business and left shorter-term trading in favor of longer-term strategies. My trades were seldom longer than a month before. Now I take positions for 2-3 months. Therefore writing an article every month is not relevant anymore. Instead I will be doing that on uneven periods basis.

    Soybeans - at the moment I hold short position consisting of OTM August calls. I still expect soybeans to fall bearing in mind (a) extreme crop in South America, (b) imported beans coming to the US, (c) extremely long position of speculators, (d) looming El Nino which brings wetter conditions to the US in summer. On the resistance side there is shortage of beans in the US warehouses but this is no longer news and was factored into the price already.

    Cotton - I held strangle position but I do not rule out to close it as CT market keeps on crawling up. But this market is unpredictable and is highly dependent on several large players who can turn it upside down within hours.

    Coffee - fears of loss of crop weakened after Brazil received needed precipitation. I am under impression that the price gone up too much and increased my short position waiting for the pullback to 170-180.

    Cocoa - I re-instated strangle position soon after major grind reports were issued. Quarter-on-quarter grind data has weakened a bit in EU and Asia but added in the US. Same period last year grinds are stronger all over the World. Midcrop is promising but El Nino is a potential threat for Ivory Coast. Technically, bulls are very weak. Bottomline - market is under pressure of different factors and I want to hold a non-directional position until early July when new grind reports come live.

    Heating Oil - there is not much to heat in summer and I short HO.

    Gasoline - I was long RBOB back in March. I transformed my position into a non-directional strangle in April. In May I am shorting RBOB. These are seasonal trends and technical factors that influence my decision.

    Natural Gas - I was shorting it but I was caught unprepared in mid-April when prices spiked after pitiful weekly injections. Now situation calmed and I hope that injections will normalize and we see NG slowly giving up its positions. I am shorting NG.

    I suggest to stay away from Wheat and Corn as these two are at gambling state at the moment - July will tells us if corn pollination went well and at that time we will have more info about wheat crop. Plus, important factor is situation in Ukraine. If conflict continues to escalate the conflict then there could be less supply of wheat and corn, especially wheat. I am interested in buying copper but I do not want to buy futures and unfortunately options market is very thin for this commodity so I am still thinking.

    May 05 11:48 PM | Link | Comment!
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