Your July Commodity Cheat Sheet

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Includes: FXE, GLD, JO, NIB, PALL, PPLT, SGG, SLV, SPY, TLT, UNG, USO, WEAT
by: Movement Capital

Summary

Energies: The seasonal outlook for WTI and natural gas is negative. The WTI futures curve flattened out

Financials: Momentum is quite negative in the 30-year bond. The S&P has closely tracked its 5-year seasonal average in 2017

Grains: Seasonal strength in June materialized yet again for oat futures. Contango in wheat decreased

Metals: The seasonal outlook for gold is bright, palladium is still in backwardation, and July has historically been a strong month for silver

12-month momentum in cocoa futures hasn't been this negative in a decade. Coffee and sugar have also suffered in 2017. July has historically been strong for sugar

This is my ninth weekly update that outlines seasonal trends and the term structure of futures contracts. All of the below data and graphs come from my Commodity Seasonality website. The website is completely free, and I use Seeking Alpha as my sole outlet for weekly recap articles. I break down the updates by asset class, so let's get started.

Energies

WTI (USO) crude's seasonal outlook points down for the rest of the year.

One interesting development has been the flattening of the WTI futures curve. Most long-only commodity indices are geared towards front-month exposure and have heavy tilts towards energy contracts, like WTI and Brent. Significant contango in WTI futures translates to a headwind for commodity longs since they have to pay the negative roll yield for front month energy exposure. All this being said, a flatter curve (like we have now) is a positive development for those bullish on commodities.

Here is the average monthly performance for roll-adjusted natural gas (UNG) futures. The steadily negative numbers is a function of natural gas consistently being in steep contango.

Here's a seasonal view for nat gas. As in WTI, it's pretty bad.

Financials

12-month momentum in 30-year bond (TLT) futures hasn't been this negative since December 2009.

The summer has historically been a strong period for the 30-year bond.

The S&P (SPY) has closely tracked its 5-year seasonal average this year.

EUR/USD (FXE) 12-month momentum has turned positive, getting long-term trend followers on board.

Grains

Oat futures have been on a tear in 2017.

Historically, June has been the best month for oats. Last month wasn't an exception.

Contango has recently decreased in wheat (WEAT) futures as front month contracts have been bid up.

Metals

Gold (GLD), like the 30-year bond, is typically strong in the summer as equity markets tend to swoon.

We saw a very strange spike in palladium (PALL) backwardation a few weeks ago.

Platinum (PPLT) has been a big laggard in 2017.

July has historically been a positive month for silver (SLV) futures.

Soft Commodities

Cocoa (NIB) has failed to find a bottom. 12-month momentum for the soft commodity hasn't been this negative in a decade.

Coffee (JO) has not only retraced all of its early 2017 gains, but now the commodity is down roughly 10% YTD.

June failed to provide any respite for sugar (SGG) bulls. Let's see what happens in July, which has historically been a strong month.

Conclusion

That wraps up coverage of individual contracts. I'll close with my most important charts.

First, here are the average 20-year average monthly performance numbers for July. The best-performing contracts have been palladium and sugar. The worst performers have historically been natural gas and soybean oil.

Here's a look at the current amount of contango or backwardation for each contract. I compare the contract with the highest open interest to the contract with the third-highest open interest to generate the below numbers. RBOB gasoline (NYSEARCA:UGA) is in the highest degree of backwardation. Wheat and natural gas currently exhibit the most contango.

I hope you've found this article to be useful. It's meant to cut down on your research time and save you some money.

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