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

    OK, let's review the May.

    Soybeans - I held my short stance during May and early June, added puts transforming bearish position into a strange and received double inflows. I closed position right before WASDE report to avoid any fluctuations.

    Cotton - some time along May I reconsidered and opened short position which was the right move. Basically I recalled history when markets heat up in May - starting from May Cotton prices decrease. I was right.

    Coffee - no unexpected events.

    Cocoa - here I was wrong. Markets shoot up. Nevermind, this only deteriorated value on my put leg of the strangle and I booked profit buying back options at deep discount.

    Heating Oil - I was right, prices declined.

    Gasoline - I quit position for now, booked profit and sit on the sides.

    Natural Gas - I was short but most of the market was long. However this strength ended and prices are heading south. I expect further weakness and increased my short position.

    Soy Oil - I am shorting it and I have been right for now.

    Jun 12 12:31 AM | Link | Comment!
  • 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!
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