PLEASE MAKE SURE YOU CLICK ON THE VIDEO (ABOVE) TO HEAR HOW TO USE MY BEST WEATHER SPIDER AND TO PAY ATTENTION “ALWAYS” TO ANY FORECAST CHANGES AND UPDATES I MAY HAVE
My sentiment being bullish grains changed last Thursday evening, well before the major collapse in grain prices on Friday and much of this week. We have gone from a demand-driven market to a global weather market right now, in which South American crop problems are old news and everyone is focusing on this Midwestern drought.
(Remember, sometimes, when trading commodities and ETFs, one has to be very nimble. Trying to develop longer-term ideas is not always easy.
GRAINS—my best market weather remains a bearish impetus except for maybe mge spring wheat
I advised taking profits on long corn and soybeans last Thursday evening, or if you were still long corn making sure you had 1-2 (July $6.40-$7.30 option) corn strangles on to protect against a 20-40 cent break in prices. Sunday evening, I mentioned shorting corn, soybeans, or options. This strangle position expires this Friday and is profitable
Is the spider old news now that I changed it to a (-2 to -3) in grains? It is not old news until I see a return of hot, dry Midwestern weather for summer; something that may not be possible now given La Nina gone. However, it is a long summer and some of my studies do suggest some weather volatility and possibly buying opportunities, later.
If you did not take my advice Sunday night or Monday evening on the feeble price rally and short the market, I would wait right now, as I do not like recommending selling in the hole. While I am not bullish, some of you emailed me thanking me for this call in the grain market when everyone was talking about drought last week. No harm to take some nice profits if you shorted corn and beans; otherwise, being short soybean and corn options is the conservative play for now. I remain bearish corn and beans with pretty high confidence and my advice, Sunday night. However, I would not be surprised to see some bounce back in prices after such a major wash out.
Wheat has been one of my best trades. We advised selling July calls options 5-8 weeks ago and on Sunday night how to harvest pressure and good crops in Europe would be bearish. However, you may want to take a chance at buying MGE spring wheat. Some areas of the northern Plains still need rains and are not in great condition. Also, I am getting a bit more concerned about Russian spring wheat dryness.
MIDWESTERN RAINS NEXT WEEK CREATED A MASSIVE SLIDE IN GRAIN PRICES. NOTICE HOW WET MODELS ARE NOW WHEN THEY DID NOT SHOW THIS, LAST WEEK, BUT I SECOND-GUESSED THE MODELS DUE TO THE -EPO INDEX. THE DRY (RED) OVER THE PLAINS MEANS HARVEST PRESSURE FOR KC WHEAT, BUT I WOULD NOT SELL NOW, IN THE HOLE IF YOU HAVE NOT ALREADY, AND USE TRAILING STOPS TO PRESERVE PROFITS.
COFFEE—rains in brazil will do little to help this year’s crop; seasonal pressure and no frost scare for brazil
Rains hitting Brazil coffee have been one reason for the collapse in prices. However, I think much of this is just “seasonal bearish factors” unless there is a freeze in Brazil. There is not. There are not any other major weather problems in other parts of the world for coffee. Luckily, at around the $1.60-$1.63 area a few weeks ago, I mentioned taking profits on long coffee futures positions, and if you are in the ETF (JO) to keep 1/3 to 1/2 a position, only. The rains are only psychology and will do nothing to help this year’s crop. It is BS. If anything it may cause some harvest delays later and the market could come snapping back. My bias, if you are aggressive is to use this washout to buy coffee futures or to stay with a conservative position being short the September $1.40 coffee put option.
However, I would feel much more comfortable with this if we had additional global weather problems. That is why for the last few weeks my spider has been a (+1) and not (+2 to +3) that it was most of the winter and spring. I have seen this many times in coffee how stops are hit on-trend lines unless there is some new fundamental input. Spec traders often have to be washed out, first. However, I expect coffee prices to snap back at some point. I just cannot say whether we will see prices above $1.65 again unless there are not weather developments.
NATURAL GAS–market reacts to extreme heat but midwest to cool off and tropical system in the gulf could weaken demand
In natural gas, I advised several weeks ago to buy the 2X long natural gas ETF (BOIL). This was up about 10-15%. I see some cooler Midwestern weather, but it is the extreme western heat that has gotten people excited. Nevertheless, this market can often change on a dime and my strategy for many of you a couple of weeks ago was to buy the September $3.10 natural gas call and sell the $3.50 against it (go back and read my reports). This was a conservative trade to make maybe 3x your money on the hurricane season and off and on hot summer weather.
I do not feel comfortable recommending a strong buy at this point given much of this extreme heat is in the market and, again, the Midwest cools down. I WOULD BOOK FOR NOW ABOUT 7- 10% PROFIT ON THE ETF BOIL. THE SPIDER HAS GONE FROM POSITIVE TO SLIGHTLY BEARISH (-1)
COTTON—u.s. crop not faring well has helped prices
I am getting more concerned about the U.S. cotton crop. The Deep South has been too wet with incessant flooding and while Texas saw some great rains, more rains are needed. Cotton is not always weather, as often I have to watch the weather and demand in multiple countries, but the technical picture of the market looks positive and the crop does not look that good