MB Wealth Corp. is not responsible and does not endorse anything outside of the content of this article authored by Matthew Bradbard; President of MB Wealth.

While the media circus is focusing on Portugal, Italy, Ireland, Greece and Spain, commodity traders should be more concerned about Petroleum, Indices, Interest rates, Gold and Silver. First let me touch on what has transpired in the past with these markets, briefly touch on the current market dynamics and then where do we go from there?

Petroleum:

Over the past two years Crude oil has traded near $40/barrel and near $140/barrel; a $100 range equates to $100,000 on one standard futures contract, so this market is not for the faint of heart. In our opinion, the only scenario that would get prices back below $50 is another global meltdown. That is not to say there will not be opportunities to trade oil from the short side, but more often than not our trading recommendations will be bullish on Crude and it’s by products. Currently prices are near the median of the range trading at approximately $80/barrel. As long as Crude maintains the $70 level we would maintain a buy dips mentality thinking we could see prices trade above $90 and potentially a test of $100 late this year or early 2011.

Indices:

Prices in indexes are well of their highs seen in 07/08 and we do not expect those levels to be re-visited in the foreseeable future. All told the S&P is 33% off its highs, the Dow 30% and the NASDAQ 19%. Massive global de-leveraging has had its effect and in order for a bull market to exist in equity markets again we feel a great deal needs to happen. For starters, the sovereign debt issues across the globe need to be resolved, the housing markets needs to bottom, unemployment needs to abate and investor confidence needs to return. Though these scenarios will happen in time we do not see the light at the end of the tunnel in 2010. For speculators we’re advising selling rallies in the S&P as we see 950 by years end; an 11% depreciation from current levels. For those still carrying a large stock portfolio one word…HEDGE.

Interest rates:

Depending on if you’re looking at the long end or short end of the yield curve there are two distinct stories being told in the Treasury complex. Let us first examine the short end of the curve; Euro-dollars. Two years ago interest rates were 4-5% higher than the current record low rate and the market reflected that in 2008 when prices in Euro-dollar futures were closer to 95.00-96.00. As rates have declined, the price of Euro-dollars has climbed to record highs trading closer to 98.50-99.50. To understand this instrument all one must understand is interest rates. As rates fluctuate up and down, Euro-dollar futures move in the opposite direction. We remain convinced that WHEN the Fed raises rates which at this juncture we think will be in 2011, a bearish trade will develop and last for 24-36 months. To date we’ve been early but bearish exposure in Euro-dollars should be on your radar. 30-yr bonds and 10-yr note futures spiked to decade high levels in the midst of the 2008 global meltdown as US debt served as the primary flight to quality. One will notice that in early 2009 prices came down as quickly as they ran up in late 2008. What we take away from the action here is that investors worldwide still view US debt as the “best house in the worst neighborhood.” Bottom line when investors are willing to take risk Treasuries trend lower and when investors are taking risk off Treasuries trade higher. There will come a time to get short Treasuries but in our estimation investors who are short currently are early to the party.

Gold:

From its lows in 2008, near $700/ounce, gold has traded virtually one way with prices making a record high as recent as last week. Over this time frame gold has appreciated over 70% in US dollars, if calculated in select foreign currencies the move is even more staggering. Though prices will likely see $1300/ounce and beyond in 2010 we would expect prices to correct before reaching much higher prices. In fact being that this trade is so crowded and a correction was to ensue, weak longs could exaggerate the down move and take prices $150-200 lower with very little longer term chart damage. Though we trade principally gold futures and options for clients, we suggest investors should have a portion of their portfolio exposed to gold by some means whether its etf’s, stocks, commodity futures and options or physical bullion or coins. We will likely be buying dips in gold for the coming years as we see $1500/ounce in the next 24 months.

Silver:

Gold makes the headlines but the move in silver has been even more remarkable. As gold appreciated over 70% from its 2008 lows, silver has gained almost 110%. The problem with silver is that the moves are more erratic and being commodities utilize leverage this volatility serves as a double edged sword. It has been and we feel will continue to be unlikely that gold moves one way and silver moves in the opposite direction for an extended period. Why trading the two metals could be different is also that gold is viewed largely as a precious metal while silver is viewed as an industrial and precious metal. Another caveat is while gold is near its record high silver is well of its record highs and has yet to reach the levels obtained in 2008 near $21/ounce. Ultimately by the conclusion of 2010 we expect to see a print above $20/ounce and we anticipate $24-25 in 2011.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

The latest mid-month discussion from the International Research Institute (IRI) for Climate and Society indicates that there is a 90% chance, according to both dynamical and statistical models, that El-Niño conditions will continue through March, April, and May, which are prime planting time frames for key commodities such as corn, cotton, and wheat.

The latest ENSO Diagnostic Discussion, released monthly by the Climate Prediction Center/National Center for Environmental Production/National Weather Service (CPC/NCEP/NWS), also indicate that El-Niño impacts will gradually fade throughout the remainder of the U.S. Spring season and shift into ENSO neutral conditions, particularly by the beginning of summer.   Some of the effects that will continue to be observed include the following:

• Higher than average precipitation in the Southwest
• Higher than average precipitation in the South-central States
• Higher than average precipitation in Florida
• Below average precipitation in the Pacific Northwest
• Below average Precipitation in the Great Lakes region
• Above average temperatures across the northern U.S.
• Below average temperatures across the south-central and southeastern states

The National Agricultural Statistics Service (NASS) and United States Department of Agriculture (USDA) released a report in 1997 titled, “The Usual Planting and Harvesting Dates for U.S. Field Crops” which specify how the states compare to each other in regards to commodity production, as well as most active planting and harvesting dates. 

Cotton, which is grown on the 36^th degree parallel,  can be found growing all the way from Northern Florida to the Carolinas, and as far west as California.  Texas, one of the leading producers of U.S. cotton, depends on dry tropical to subtropical climates for a productive cotton crop.  Initial soil conditions necessitate ample moisture.  Since cotton uptakes an abundance of soil nutrients and moisture, careful crop rotation planning can allow for year round use of field acreage.  The forecasted increase in precipitation in most of the cotton growing regions is good news to farms that tend to depend on Mother Nature to assist in their crop needs.  Colder than average temperatures across the Southern central and southeastern states could be a problem as planting season is nearing halfway over.  Most of the U.S. cotton growing regions have seen a long winter this year so far, which will probably result in a decreased cotton crop output or possible further delays in planting in the more northern cotton growing states such as Tennessee.

Corn, found primarily grown in Midwest, especially in Iowa and Illinois, consists of about 30% of the world production.  Large amounts of water, either through crop irrigation, or natural rain is needed for fruitful crops.  Predicted wetter conditions in the southeast and western portions of the Midwest will aid farmers this upcoming season.  Precipitation amounts will be coupled with ideal temperature conditions which should yield on time productive corn crops this growing season.

Kansas, a key player in the U.S. winter wheat supply, won’t be addressing planting conditions until its growing season which runs between mid-august through mid-September.  North Dakota, which is said to produce more than half of the U.S. Spring Wheat supply, is forecasted to receive drier and warmer conditions this upcoming growing season which should be good news for farmers.  Wheat is sensitive and has little resistance to temperatures outside of its normal growing range.  A late start in spring growth would be ideal as there would be a less likelihood of a late “frost” bringing destruction to already-growing crops. 

The expectations for the USDA’s planting intentions report next week are as follows:

Wheat: Projected Acres 53.376 Million / Average estimate 51.9-55.0 / Last Year 59.133 Million

Cotton: Projected Acres 10.09 Million/ Average estimate 9.50-11.0 Million / Last Year 9.15 Million

Corn: Projected Acres 89.189 Million/ Average estimate 87.0-91.0 Million / Last Year 86.5 Million 

Our current positions for clients in these markets are as follows:

Wheat: We have no outright positions but have positioned some clients long December KCBOT wheat against a short in December CBOT wheat expecting KCBOT to be at a premium to CBOT. This should work as long as the trend remains down.

Cotton: Clients are advised to have short exposure in cotton as we feel prices should come under pressure eventually taking prices back to the mid 60’s on the December contract. Analyzing the daily chart we see stiff resistance just above 75 cents.

Corn: December corn has been range bound for the better part of the last month wondering between $3.85 and $4.15; we sit at the lower end of that range as of this post. We are advising clients to have long exposure via July call options and December futures anticipating a trade up to $4.50 in the coming months.  

 CBOT Wheat:

Cotton:

Corn:

While seasonal trends may potentially impact supply and demand in certain commodities, seasonal aspects of supply and demand have been factored into futures & options market pricing.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial.  Past performance is no guarantee of future trading results.

click on chart

Why corn and why now? Since the January USDA report prices of corn have come down approximately 15% but failed on two occasions, most recently this week and early February, to get much lower than the current levels. On both the daily and weekly charts we are at oversold levels and as one can see from the chart above we are very near a trend line that has been able to act as a floor for the past three years. On average over the last four decades corn prices have been a gainer in the first five months of the year. Past performance is not indicative of future results. Digging deeper month over month within the same time frame we’ve had 116 positive months and 84 negative months. (2010 not included) Two weeks from now we have the most influential USDA crop report of the year; Planting Intentions report. Being we need to buy an additional 3-4 Million acres of corn, we feel prices need to be higher to entice farmers to allocate more acreage to corn. Not to mention that with less than ideal weather we are anticipating planting delays. All things considered we have a first target of $4.50 and see it possible to trade up to $5 the later part of 2010. We are suggesting clients to have option exposure in July and futures exposure in December.

Keep up to date on our daily blogs and weekly commentaries to see what commodities we are recommending selling and what commodities we are recommending buying. For detailed strategies contact us via e-mail www.mbwealth.com or telephone at (888) 920-9997 / 954-929-9898.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

There has been so much fuss of late on the great performance in equities over the past year so we thought it would be interesting to put the indices head to head with the major commodities that we trade. Find the table below that shows the closing price on March 9, 2009 compared to the closing price of March 9, 2010. We use this date because that is the date the major US indices bottomed.

I find it comical that so many investors are ignoring the multiple long/short opportunities in commodities. I’ve seen commodities in my 10-yr career gain respect from the common investor but still too many traders fail to implement commodities into their portfolios.  

Keep up to date on our daily blogs and weekly commentaries to see what commodities we are recommending selling and what commodities we are recommending buying.

To view the chart click here once you click scroll down

For detailed strategies contact us via e-mail www.mbwealth.com or telephone at (888) 920-9997 / 954-929-9898. For the most part investors reading this analysis want to be more hands on, however we suggest taking a look at our managed futures section and consider diversifying further via CTA’s with proven track records:   MB Wealth Managed Futures

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial.  Past performance is no guarantee of future trading results.

by:  Matthew Bradbard

Find two charts below; the top chart is March S&P futures and the second chart is April gold futures. As long as 1100 acts as support in gold we suggest being lightly long gold futures and have positioned clients in August call spreads. As for the S&P 1100 should act as resistance and as long as prices do not close above that level we suggest being short. Our favored play here with clients is to buy June 1000 ES puts and sit on them expecting these options to go intrinsic between now and Memorial day.

S&P, please click to enlarge

Gold, please click to enlarge

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.