Elgrey's  Instablog

In September I am interested in following commodities:

Wheat - overall I am bearish but there is one wildcard called Russia. Should they introduce export ban (which they ruled out yesterday again) the situation will change. Generally speaking the market factored into the price all the bad news already. The only uncertainty is related with Russia. I will be doing what I did last month - buying dips and selling rallies. But this time I am more bearish than a month ago.

Corn - same.

Soybeans - I continue holding short position. I still believe that the worst is over or nearly over, COT and history supports me. But there is lots of uncertainty related with China - today I read the news that they would be selling state reserves of beans, tomorrow they say that crops in Northern China are good and the day after they buy another huge lot from the US disregarding high prices. What's the reality?

Soybean Meal - same as S. Watching and waiting to go short.

Cocoa - all signals tell me to prepare for shorts. But latest rally keeps me hesitant. The crop in Ivory Coast is plentiful but the weather is humid and not sunny. This may cause black pod fungus disease. This is one way of thinking. Another story tells us that during coming weeks main crop needs rains to develop well. And there are rains nearly all the time. Which one is correct? I do not know. I need to watch market closer. Politically, I believe the situation is relatively calm but market tends to overreact when occasional outbreaks of violence take place. Country is filled with weaponry of all kinds and population is poor - no wonder there are gunshots here and there. But this is not a civil war.

Heating Oil - July-August rally was nice but we are in September. Turnaround may be just around the corner. Watching and waiting.

Coffee - it looks like market is testing highs and we may see rally any moment. I hold long position already I will not extend it anymore, exposure is at proper level no need to be greedy and overextend.

Lumber - I want to short LB again but first I want to see a bounce above $290.

Natural Gas - needless to say I am bullish. Rig count is 473 today compare to 505 a month ago. Injections are in line with predictions; September may bring us rumors of colder winter thanks to El Nino. And again and again - read the statements of NG producers and try to come to their breakeven price. You should get $4-4.50 not current $2.80. My point that this price is not sustainable remains intact.

Now to question marks:

FC, LC, LH - meat sector is a question mark. There is uncertainty due to drought, higher slaughter numbers and costs of feed. It maybe that one should think of longs. But it is not the right time to make conclusions. Not yet.

OJ, CT, SB - all three are at positions when COT is nearly ready to be perfectly bullish. But the word "nearly" should be taken away from the equation.

Rice - rice is not perfectly bullish yet. But it well may become. High grain prices may pull rice prices up as well. There is no clear situation with rice in India, Thailand and Vietnam. We shall see.

Platinum - COT is bearish. Maybe I will open shorts in a week-two. I do not like the whole metal sector now so going short maybe a right option.

Metals are getting some steam but I do not trust this market at the moment. And again I have nothing to say about oil. Too much politics. The elections in the US are getting closer and economical issues are not on the agenda. Bernanke's words about QE3 become more concrete but not concrete enough. Yesterday I read that costs of EU-made products come down which is a good sign. Also, Greece has started to make some progress. The path will be long and painful, still there are high chances they won't manage the pace and surrender. Let us not be fooled by today's good news. "It wasn't raining when Noah built the ark" © Warren Buffet.

Ahhhh… The moment of truth:

Coffee - no unexpected events. Coffee was cheap and I bought some more.

Wheat - this day I was long that day I was short. So it went for the whole month. I earned more than I lost, I never spent much time with it. Like I said before - dancing on the razor's edge. In August my dance was successful.

Corn - same as wheat.

Natural Gas - despite gas dropped this month which is OK for August I made money on it. And I made money by going long during mini rallies.

Soybeans - B.U.S.T.E.D. Again. And you know why? Because "Selling a soybean contract short is worth two years at the Harvard Business School" © Robert Stovall. And by doing so I obtain knowledge of Harvard at reduced cost and within shorter time frame.

Orange Juice - bought it and held it till market got heat on hurricane news. As soon as emotions calm down I will revisit the market.

Heating Oil - sold it a few days ago. This is on contrary with the plan to hold till mid fall but let me explain my actions. I trade ETFs, leveraged ETFs, and futures. In case of HO I bought leveraged ETF only. I was pleased with it (28% return) but I noticed that the volumes were pitiful. In other words ETF was not liquid. And in case of HO market crunch price behavior of the fund would become unpredictable. So I decided to close the position but I may revisit futures market.

Soybean Oil - same case as HO. Sold illiquid ETF and might come back later.

Cocoa - sold it a few days ago. I was early to sell but no regrets - I sold it at profit. Can't get all the money in the World anyway.

Lumber - I started to short it at $302 and it went well down to $283. But it bounced to $288 last night (night Hong Kong time or daytime in the US) and triggered my stop-loss. Bummer. Anyway the trade was profitable. Maybe I will come back.

SM, CT, FC, SB, O, LC, LH were not appealing and I ignored them.

My August Strategy:

This August my plan is:

Coffee - July-August are seasonally good months to open longs. I opened longs last month and I will continue to hold the position or maybe even increase it if dips happen. Winter will pay back the patience.

Wheat - technical futures trade only. Fundamentals are still in favor of bulls but current rally is mature already. The end maybe just around the corner. I am closely watching US weather updates and Russian crop news. So far, so good. So what? It looks like dancing on the razor's edge in my opinion.

Corn - same as wheat.

Natural Gas - a few days ago we saw a huge drop in prices after a simple and relatively harmless thing - analysts predicted injections, the fact was a bit above their numbers and NG dropped by 8%. Unbelievable if you ask me. I bought it immediately. But 8% moves are no piece of cake. Care must be taken. I hold both ETFs and futures at the moment, I am still bullish but such wild moves make me wonder - what's brewing in the pot? Anyway as long as BAKEGAS (NG rig count) keeps on falling I remain bullish.

Soybeans - on contrary to wheat and corn I hold shorts here. Strange approach some may think. But this is my hedge against wild moves in the grain sector. Besides I do not believe the S has much further potential - it is at historic highs already. Rabobank smart heads talk about USD20 per bushel but same smart heads told us gold at USD2,000 last year. I do not rule this out but the case for both looks similar - both commodities rallied for too long. I keep on shorting till Sep-Oct when crop will be complete and beans be abundant at least for some time. If that won't happen then I will surrender. For now I keep my shorts.

Orange Juice - Ladies and Gentlemen! This is the time when COT is a screeming BUY! The crop just finished in July, no more oranges any time soon. Commercials are at record highs, interest is at terrible lows. Nobody wants OJ. Blood on the streets. Buy and hold till winter. I opened longs in Jan contract and will keep them at least till Dec and as soon as the price hits 120 I will be buying more. I have never seen such a perfect combination of buy signals.

Heating Oil - holding till mid of fall. Price behavior makes me smile. But HO is expensive enough so I will keep my position humble.

Soybean Meal - I am waiting for Soy to start falling and I will be shorting then.

Cocoa - I am watching for fundumentals to become a bit clearer. At the moment CC may move to any side, so the best option is to hold and watch. I am relying on COT report to tell me my course of actions.

Cotton - it may be worthy to open longs but I prefer to wait. It is on my watchlist.

Feeder Cattle - same.

Lumber - here I am watching for an opportunity to open shorts. Basically I want to see LB at around 300 to start shorting. COT picture is almost perfect to short LB.

Sugar - same as lumber.

Oats - same as lumber and sugar.

Live Cattle - COT tell me that bottom might be close. However Others are still high and I want Open Interest to drop to open longs. We shall see.

Lean Hogs - I may consider shorting LH if COT pattern changes. I expect Commercials to drop further. At the same time the price is falling already. Maybe I should have opened my shorts already. We shall see. I am not in a rush.

Again, as last month no interest in metals and no interest in oil. I do not want to be a hostage of US-EU politicians monkey plays. They are waiting for Spain to formally ask for help. They are inspecting Greece progress in cutting fat to the bones. They are not happy with the pace of the recovery and are ready to act if... They are here, they are there, they are saving at any cost... Long story short - stay away from anything that correlates heavily with political developments. Read Jim Rogers and Larry Williams, God bless both of them!