4 a.m. EST, Monday December 8th
What’s coming up?
A) I was going to send a report today title “What is Backwardation in commodities? The focus is on natural gas and coffee. I will send that probably later Wednesday and after I analyze new models for the natural gas market
B) La Niña: Price patterns of cocoa and sugar prices (next week)
Weather Spider & Trade Summary
NATURAL GAS (-1)
Following a massive 30%+ rally in prices and a panic, spike-high on Friday on two Polar Vortices that would hit the US (In my forecast two weeks ago), the market got over-extended.
Notice the retreat by mid-December of the Polar Vortex. However, I believe it will turn colder again later on and I will discuss this in my report later Wednesday and about (What is Backwardation?)
For now, my Spider was lowered, which means exiting at least 1/2 the long ETF (BOIL). Honestly, I would just take the profits of the whole thing. As of Friday’s close this trade was up about 28-33%. Also, the short $4.30 put is ahead about $1,700 a contract and I would just take the profit on that and wait
Natural gas prices hit major resistance on Friday and then sold off. Too many specs long the market and a warming trend coming deeper into December should be bearish. My weather spider may become more bearish than a (-1).
Coffee (-3 Arabica, -7 Robusta)
Tight nearby stocks continue to help coffee vs improved more bearish weather for Vietnamese Robusta and decent rains coming for Brazil. Short out of the money March coffee calls from 1-4 months ago is the way to play this market longer-term. Traders may be short the March $4.20 calls after booking just under $2,000 profit short the $5.00 calls, a couple of weeks ago.
Cocoa (+3)
A big net short position, some worries over flooding in Indonesia, a slight pick up in demand and the ICCO not quite as bearish in their most recent global surplus prediction suggests prices may have bottomed. My Spider is slightly friendly, following my mostly bearish attitude since autumn. I am unsure whether heavy rains and flooding in parts of Ghana may have caused some concern with their crop. Without a strong Harmattan Wind, however, it is hard for me to make any bold high-confidence buy recommendation.
Corn (0)
Strong demand for corn, vs choppy market action on generally good South American weather. I will be looking more closely at Argentina’s pollination weather in the weeks to come. I have no advice in this market lately.
Wheat (-1)
Traders may be short March CBOT wheat from above $5.50 with about $500 profits. I am unsure right now so just booking a small profit and staying on the sidelines. There may be some talk about dryness in parts of Russia and the SW U.S. Plains though it is really the bombing going on in Ukraine and a big net short position that makes me unsure right now.
Cotton (0)
Not watching it
Soybeans (-3)
Yes, China agreed to buy more soybeans from the U.S., but South American weather is ideal, demand is still lousy and the charts bearish. I have had no new advice lately.
Sugar (-6)
Improving rains coming to Brazil, big crops in India and Thailand and low crude prices have kept me bearish this market. Unfortunately, traders may have been stopped out about a week ago with a $1,000 per contract loss at 15.20. Otherwise, if you are still short I would risk a stop at this price. Seasonally, prices tank this time of the year.
The two friendly concerns in this market has to do with the ethanol-sugar relationship and questions about how much switching from sugar cane to ethanol both Brazil and India may be doing, plus recent flooding in Thailand slowing their harvest.
Silver (no Spider)
While not weather-driven (obviously), though I can justify the idea due to the global green economy and AI technology. I have been bullish silver since $34 last spring. The great Indian Monsoon will also mean large jewelry purchases by hundreds of thousands of farmers in the months ahead.
