MBWealth's Commodity Blog » agriculture

The Fed is Delusional 3/16/10

Matthew Bradbard — Tue, 16 Mar 2010 19:33:46 +0000

You cannot have your cake and eat it too! Either circumstances in the economy are getting better and we need to start looking for an exit door or we are still in for a sh-t storm and then no action is necessary! If the Fed sees the economy improving than why leave IR at an “excessively low rate for an extended period.” Inflation subdued by what measures? Pass me what Ben and the gang are smoking. Crude gained by 2.5% today, ideally this is a one day wonder but tomorrow will tell. Talking to some big energy traders today they expect a range from $76-82. We will continue to play options for clients on rallies thinking that we will head back to the lower end of that range. It sounds like a broken record but we like scaling into longs in Nat gas at these low extremes. What will be the catalyst one client asked today to turn around prices…I do not know but this the short trade feels too crowded! Indices were sideways to up on most of the session and are still trying to digest the Feds non-action to decide where from here. I’ve thrown in the towel trying to predict a top but some of the cycle analysis that we’ve read of late courtesy of some of our clients predicts going into April it could get ugly. Sugar made fresh lows, futures traders should have been stopped at a loss when we broke last weeks levels. We are holding off on all new entries until this market bottoms. On a rally if we get one in the coming weeks we will be looking to cut losses on call options for clients. Let Treasuries rally 1 1/2-3 handles before selling! We will have an interest in 30-yr bonds closer to 120’00 and above 118’00 in 10-yr notes. Green across the screen in agriculture today with corn up by 1.0%, and wheat and soybeans by 1.60%. Corn is a buy; in options we like July and futures December. We sill think there is a possibility to see a trade close to 38.00 in May soybean oil to exit for clients; we will give it till the end of this week. Metals caught fire today likely because of the pressure on the dollar and strength in outside markets. April gold, May silver and May copper all gained virtually 2% each. We do not trust the upside and the only way we see it following through is we get a hefty break in the dollar…stay tuned. That being said the dollar index broke the 2 previous days lows and the trend line that had held since the first week of December. The Euro and Pound should benefit the most as they have been hit the hardest. The Euro could make a stab at 1.3950/1.40 and the Pound at 1.5500; next significant resistance levels.

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

Rolling with the Punches 2/22/10

Matthew Bradbard — Mon, 22 Feb 2010 20:38:07 +0000

After a $10 move higher is Crude getting tired? We want to have long exposure for clients but are on the sidelines in oil anticipating a $4/5 break in the next week or so. The 40 day moving average in April comes in just above $78 and the 200 day is seen at $75.50. We have yet to decide on if we will be trading May or June but we should have some ideas in options as well as futures. April natural gas was lower again today having lost almost 60 cents in the last 5 sessions. We finally got the trade below $5 we were looking for. We started buying options for clients today and will be looking to buy futures over the nest few sessions. Today clients were buyers of June $5/5.50 call spreads for $2050/per. We continue to think this move in equities to be the lull before the storm; we suggest using the sideways action to get short exposure. Clients are scaling into short futures and buying puts. Sugar was not so sweet today; May lost 7% dragging prices back to the 100 day moving average. 23.90 is the 61.8% Fibonacci retracement, if that level holds we would entertain long futures and potentially buying back half of the 30 calls we sold (25/30 1:2 ratio spread).We will have more ideas to follow but one move clients made today to speculate on cotton prices backing off: sold July 90 cent calls and bought July 74 cent puts. The premium paid on the trade was $650/per. On a 4 cent correction in July futures they should be worth $1250-1500/per. Coffee gave back all the previous weeks gains losing 3.75% today. Clients are long and though they had a gtc profit order working we suggest reducing that order to 300 O/B. Agriculture was higher today with wheat gaining 2.3%, soybeans 1.75% and corn just over 3%. This COULD be the beginning of the next leg higher as they compete for acreage. If forced to pick one grain we prefer corn thinking we have at least another 50 cents on the upside. There was little action in live cattle today but we maintain that April should find an interim top very soon; our target remains 89.00. April gold held the 50 day moving average but closed $15 off its intra-day highs. Without a close above $1128 in the next few sessions we most likely will re-visit $1100. March silver needs to stay above the 200 day moving average or profit taken will ensue; that level is $16. On both metals we would be a buyer of dips but treat this like a trade and do not fall in love. The currency market was uneventful with the exception of the Yen which advanced .60%. The dollar remains in the driver’s seat; support is seen at 80.30 followed by 79.80 in March.

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

Trading Correlations 2/11/10

Matthew Bradbard — Thu, 11 Feb 2010 20:50:17 +0000

Recognizing the relationship between different asset classes and even different commodities can keep you from getting too concentrated of a position. We got the rally we were looking for in crude to head to the exit door for clients. We do not wish to have long or short exposure into tomorrows report. Clients lost $200 per spread (May $78/85). Crude did trade above the down sloping trend line but as of the close prices are just below. We like the idea of being long but at this point from lower levels. Clients only energy exposure now is June RBOB which as we’ve stated we expect futures to make their way to $2.15/2.20. Stocks found their way to higher ground and are higher by 1.10-1.70% as of this post. We are still looking for more to get clients short via June ES 1000 puts; the current price is $1650. We are thinking on a trade up near 1100 in the futures clients can pay less than $1400/per. We decided to cut losses in the May OJ back ratio spreads for clients; approx. $225 per spread. We are looking for ways to position in sugar with clients but have yet to find a strategy that makes sense. In the last 30 days May coffee has lost 10% in value and taken prices back to levels not seen in 17 weeks. We think $1.30 is the line in the sand and advised clients to gain long exposure today. We are looking for a trade back up to $1.42/1.45 in the coming weeks. We still like having long exposure in agriculture with clients. Our favored play is call options in May and July corn and December futures. To keep it simple we think in the coming weeks we will start to hear talk of planting delays and that prices will need to trade higher to entice farmers to allocate more acreage to corn. Cattle seem to running out of gas but that is only after a 3.25% move higher in the last 2 weeks. That does not seem like much but that is a pretty big move in livestock. Short term we are looking for lower pricing and then a resumption of the up trend; so trade accordingly. Could it be the turning point in gold and silver? April gold was higher by almost $20/ounce today closing at the 50 day moving average. We would like to see consecutive closes above this level to be convinced the pain is over. As for silver a 2.25% appreciation is respectable but we’re not out of the woods yet. These markets have a way of humbling you so do not get in too early there is plenty of upside in the long run. Clients are still in the Euro-Yen trade; today it moved against them ($937.50/per) as of this post. It is too bad we exited the Aussie yesterday as it was the best currency performer today? Classic case of on the sidelines wishing we were in the market.

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

Exploiting Harvest Delays

Matthew Bradbard — Fri, 13 Nov 2009 16:23:47 +0000

November 13 2009

By: Matthew Bradbard

Most commodity investors that I come into contact with are trading energies and metals but perhaps a healthy portfolio needs more vegetables. With the slowest harvest in over 2 decades we believe more investors should be looking towards agriculture. Looking at the macro view in our opinion adds further bullishness, being soybeans and corn are a staple in one’s diet and with more mouths to feed we should see demand grow exponentially in the coming years.

In the most recent USDA crop report they expect the corn harvest to be 12.9 billion bushels, down 1% from the October forecast. They also decreased the yield by 1.3 bushels/acre which we feel is generous and expect further reductions. While the corn crop is projected to be the second largest on record, up 7% from last year the demand for corn and its byproducts may be growing at a faster pace. As for soybeans the yield was increased marginally to 43.3 bushels/acre with a crop size of 3.3 billion bushels. The usage of soybeans is projected to increase, so if the crop size or yields come into question we expect prices to respond by moving higher. The problem has been excessive rain that has hindered farmers from getting into the fields to harvest their crops. In the month of October top growing regions around the country received at least twice the normal amount of rainfall. That in combination with unusually cool temperatures slowed crop development. Farmers have only managed to harvest about 40% of their corn crop compared with the 80% plus we have been at as an average the last 5 years. In soybeans circumstances are not much better being farmers have only harvested 80% and should be completely harvested at this point. Complicating things further farmers will need to spend more money to dry their crops. If harvest delays continue for corn and soybeans it is feasible that farmers that double crop will be unable to plant wheat this fall.

Though we focus on corn and soybeans in this article, weather problems in Indonesia and the Philippines are wreaking havoc in the rice market. The Mississippi delta which is a massive cotton growing area too has encountered excess rainfall that is affecting the cotton market. In the same USDA report cotton production was forecasted to reduce 3.8% or 12.5 million bales.

The sad reality is when Mother Nature misbehaves money can be made and lost. Floods, droughts, hurricanes and other nature disasters disrupt the norm and create trading opportunities.

Buying corn in late October/early November and holding until mid-May is one of the best seasonal trades out there. This trade has worked 34 out of the last 40 years, for a success rate of 85%. This trade has had a 10-year win streak that began in 1998. Past performance is not indicative of future results. With more competition for corn inventories from animal feed, energy needs and foreign business coupled with the growing cycle and harvest delays we think being long corn makes sense. Corn prices have started to move higher with March 10’ corn advancing 25% off a 3 ½ year low made just over 2 months ago. We suggest gaining long exposure in March or May contracts via call options or long futures with option protection. We see the $3.75/3.80 level acting as support and expect prices to trade near $4.80 in Q1 next year.

CORN

The United States is the leading producer of soybeans though a larger than anticipated crop from China or Brazil will have an impact as both countries are becoming increasingly bigger players. Unlike corn soybeans cannot be stored for an extended period which makes prices at times more volatile. For the last month soybeans have traded sideways in about a 60 cent trading range. As long as prices stay above $9.50 on the March contract we like being long. We are not currently exposed to soybeans with clients but will be looking for long opportunities on a setback. We suggest buying $1 call spreads or to trade long futures with options protection. Trading soybeans is a bit more expensive than corn and also expect more volatility so perhaps trade a lighter position size. With an increase in harvest delays, a reduction in crop size and as long as S.America and or China do not have an immense crop we would expect soybeans to find their way back to $11 early next year.

SOYBEANS

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.

Staying ahead of the Curve 8/4/9

Matthew Bradbard — Tue, 04 Aug 2009 19:25:57 +0000

We’ve had server issues of late so I apologize if you’ve missed our commentary in recent days. The markets have been crazy I hope you’ve been taking advantage. Crude oil has had a nice run the last 4 days. It is starting to look tired, we would suggest tightening up stops or taking partial profits on longs. After a very impressive showing yesterday natural gas held its ground today, only losing 4 cents as of this post. We are suggesting all new entries to trade the November contract opposed to October. We were buyers of more British pound puts today for clients, September 165 puts for just under $600. This is in addition to the 160 puts that we already own and are under water. We did nothing in agriculture today though we suggest buying dips. Gold and silver were higher today, we did lighten up and book profits on some recent entries in silver. Gold may in fact go to $1000 from here but it will be with out our clients as we have no exposure, we prefer silver. Clients that feel the recent stock market rally has run its course we suggest buying ES 950 & 925 puts. Lean hogs traded almost 4% lower today to a new contract low, we are buying this dip via October calls for clients thinking a bottom is near. We do not suggest futures at this point. It makes me sick to see sugar, we exited at 17 cents expecting a pullback and prices have gone straight to 20 cents/lb with out us. If and when we get a dip we will be buyers for clients. A 23% move higher in the last 45 days we feel is too much too fast.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Before trading MB Wealth recommends that you should carefully consider your financial position to determine if commodity trading is appropriate for you. All funds committed should be purely risk capital. Past performance is no guarantee of future trading results.

A Correction is Underway 7/6/9

Matthew Bradbard — Mon, 06 Jul 2009 19:08:19 +0000

The story today was more sellers than buyers as most commodities traded lower. We had suggested to clients that oil looked heavy and could make its way to the 50 day moving average which happened today. For new long entries we expect the $62 level; 50% Fibonacci retracement level to hold. Our pick in the energy sector remains natural gas. October traded to a new low today at $3.72. Though we are not suggesting futures yet we continue to advise the purchase of $1 call spreads. The dollar was bid higher in the morning but gave back most of today’s gain before the close. Aggressive traders could be long the yen or Loonie at this point. See our commentary from this morning for more precise trade recommendations. The path of least resistance remains down in agriculture, we are looking for a sign of a bottom to be a buyer of December corn but sit on your hands for now. Gold and silver are buys right here…right now…in my opinion. We’re suggesting $100 call spread in October gold and $3 call spreads in December silver. All clients that have bought in recent weeks are down on the trade but agree months from now this strategy will pay off. Continue to scale into shorts in the Euro-dollar. Sugar most likely will be a buy this week but for now we’re are spectators. See our coffee and orange juice trades in our commentary. OJ was higher by 8.5% today on rumors of a tropical storm, g-d forbid we actually get some activity.

Let prices come to you 6/8/9

Matthew Bradbard — Mon, 08 Jun 2009 19:18:52 +0000

Buy natural gas on this setback, we expect $3.50 to hold as support. We are advising scaling into August mini-futures and to buy September $4.50/5.50 call spreads. How the US dollar reacts to the 50 day moving average will set the course this week. The correction currency wide should set up some nice long opportunities in coming sessions… recomendations to come. Agriculture is correcting down but July beans were postive on the day? We still expect a break and will be lloking to put in an order in the coming sessions to cover for clients. Euro-dollar down again today…you should own puts or be short futures. Gold and silver are coming back to earth; we advise using this setback to be a buyer. Today we bought December $16/19 call spreads in silver for clients for $3,150. Ideal entries are closer to $915 in gold and below $14 in silver. Coffee was down 3.80 cents today, only a little lower to get long again. Livestock, both hogs and cows will be a buy but not yet.

Talk about a head fake 6/4/9

Matthew Bradbard — Thu, 04 Jun 2009 19:23:50 +0000

I was already tooting my horn calling a commodity correction and it didn’t even last 24 hours. That is what I love about these markets, they can certainly humble you. Energies pushed thru recent highs for crude and the distillates, we remian spectators. We will continue to advise accumulating nat. gas at these levels; we have numerous futures and option strategies. We advised clients o take a profit on their short Loonie positions today as we don’t want a winner to become a loser. All 3 central banks kept rates unchanged today; ECB at 1.0%, BoE at 0.50% and BoC at 0.25%. The correction in agriculture only lasted one day. We did not see a larger enough dip to buy corn YET. We remain short July beans for clients, we are now down on the trade $200/per. Continue to fade any rallies in Tresuries and/or Euro-dollars. The Euro-dollar is a trade that will play out over the coming quarters and years, we view any rallies as selling opportunities. Our picks are December 09′ put options or March 10′ short futures. Gold and silver were higher today, we have suggested to lighten up on longs and will be a buyer on setbacks. It is possible to see $1000 in gold and $17 in silver before a setback. We advised clients to take a small loss in their short ES trade today as we don’t want to be short into tom’s NFP #. Shorter term we could have some pressure in sugar but longer term we like being long; that being said we executed a bullish option play for clients today. Contact us for details.

Who called this correction? 6/3/9

Matthew Bradbard — Wed, 03 Jun 2009 19:32:56 +0000

Yours truly…read past blogs and commentaries MB Wealth has been saying the recent commodity move had over extended itself and Mr. Market delivered. As a trader sometimes you get out too early and we’re guilty of that for clients in recent weeks. The way I look at it I would rather be on the sidelines wishing I was in the market vs. in the market wishing I was on the sidelines. All energies got hit today, we used the setback in natural gas to buy clients who previous did not have exposure; September $4.50/5.50 call spreads & a butterfly spread inSeptmber…inquire for strikes and or strategy. A 50% Fib. retracement in July crude takes prices to $55.50. I hope you listened and lightened up on your fx plays, we’ve been preaching that for the last 2 weeks. We’re short the Loonie and will be looking for long entries in the Aussie and yen in coming sessions for clients. Agriculture fell apart as we predicted, curently short July beans via options. Gold and silver down, just what the doctor ordered. Let the dust settle and we’ll have bullish futures and option ideas to come. $925 and $14 seem attainable at this point. SUBJECT TO CHANGE. Treasuries should rally, get long with tight stops or look to fade this rally in a few days. Sugar, coffee and cotton got hit hard today, more downside to come…we’ll be suggesting longs soon. Equities were lower but this could just be profit taking, too early to call an interim top.

Exect BOJ to hold 4/6/9

Matthew Bradbard — Mon, 06 Apr 2009 19:15:08 +0000

Expect the BOJ to hold rates at 0.10% and the RBA is more of a wilcard..cut of 25 basis points factored in. In terms of the trade we expect the Euro & Pound to move lower and the Loonie higher. Much of this will depend on if the dollar pushes higher or trades below 84 which held today. We have clients long May and June in the Loonie. Continue to use setbacks in crude, RBOB and natural gas as buying opportunities. $50 is the pivot point in May crude and $3.70 in May natty. As we mentioned in the commentary we will be looking at getting long on setbacks in corn, soybeans, bean oil and oats. We traded out of our short exposure in May and July silver today. We also advised lightlybuying mini futures and September $13/15.50 call spreads for $3000. We want to see if gold holds the 100 & 200 day moving averages before committing funds; 100 at 874.20 and 200 at 870.5. We were able to buy back the previously sold July sugar calls today for 45 points or a profit of $448/contract b4 fees. Wouldn’t you know cocoa was down 9% today a day after our puts expired worthless! Continue to short March 10′ Euro-dollars. We feel the S&P is headed south, potential ideas buy the June 750 put for $1500, the 700 put for $925 or the 825/750 put spread for $1350.