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!