Archive | Featured RSS feed for this section

Natural Gas – 2010.11.08

by on November 8, 2010

Below is an excerpt from The Hightower Report’s most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

By most classic, fundamental arguments the downtrend pattern in natural gas looks like it can continue. The lack of a weather threat, abundant US storage levels and a no imminent change seen in US energy policy suggests that the bear camp could retain control over prices for a while longer. However, with the spec and fund position in natural gas having recently moved to more than 92,000 contracts net short and some commodity funds reportedly moving to increase their allocation into natural gas, it could be a signal of an end to the downside pattern. While it might require some forward movement on tax credits for diesel engine conversions or news of a genuine effort to bring about a new energy program that would force the increased use of natural gas, the pressure to consider natural gas as a supplemental source of energy could be set to increase directly ahead, as nearby crude oil prices last week managed to climb back above $85.00 per barrel for the first time since May 13th. With the change in the Congress from the recent election and a temporary call for bipartisan action, it is possible that the tea leaves might be starting to line up for the bull camp in natural gas. Some will suggest that supply is so burdensome that Washington will have to play a role in any bottoming of natural gas prices. On the other hand, on the day of the big spike down low on October 25th, the natural gas market finally saw volume and open interest fail to confirm that new low move, and subsequently the market was able to climb back above a series of key downtrend channel resistance points. This could be the start of a technical bottom. If nearby crude oil prices were to rise back toward $90.00 a barrel or Congress were to toss around ideas of changing the energy policy, it could be enough to invoke a rather significant short covering rally.

Suggested Trading Strategy:

Trading strategies are available to our customers or trial users of our Research Center. Please sign-in or sign-up for your free trial

Stock Indicies – 2010.10.25

by on October 25, 2010

Below is an excerpt from our most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

It is a somewhat risky venture to advocate a sell strategy in equities after the sharp slide in prices last week. It is also somewhat risky to get short the stock market in the face of the chance for movement on QE2. However, the equity market seemed to catch a lot of positive breaks over the last several months, and many rallies seemed to come in close proximity to press coverage suggesting that the GOP was going to deal the Democrats a heavy blow in the November elections. In many cases it is too close to call how some races will pan out, and according to polls the Democrats are set to lose some seats but perhaps not as many as was initially predicted. Furthermore, it appears that the latest corporate earnings cycle may have started out positive, but then a series of disappointments in the tech sector seemed to take the bloom off the flower. While short term technical measures were reaching modestly overbought readings into the October high, the correction last week served to temper that potential negative.

However, it is our opinion that the equity markets are perhaps the guiltiest of buying into the rumor of QE2. While stocks might rise in the wake of the actual implementation, there is a moderate amount of trading time ahead of the Fed’s November 3rd announcement, and we don’t think the Fed will act ahead of the election unless there is an event that threatens to derail sentiment.

QE2 could have a substantially bullish effect on the market, and we wouldn’t want to be short the market into that news. However, the realization that the economy is still fighting pockets of slowing, the fact that the earnings cycle didn’t offer much of a tonic, and with some investors likely to balk ahead of the election, it appears that the bear camp has gained an advantage in the equities markets.

In our opinion, when the stock market was trading its October highs it was actually factoring ideas that the economy was recovering and that QE2 might offer up a growth and earnings surprise in early 2011. We would suggest that traders take a risk-controlled look at a downside move into the election through the purchase of just out of the money, near to expiration puts.

Suggested Trading Strategies:

Trading strategies are available to our customers or trial users of our Research Center. Please sign-in or sign-up for your free trial

Sugar – 2010.10.25

by on October 25, 2010

Below is an excerpt from our most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

The sugar market remains in a steep uptrend, with March sugar posting new contract highs on October 20th. Over the past few months world fundamentals have slowly shifted from a significant world surplus for the 2010/11 season to a possible deficit. A small deficit would normally not be very supportive, but the beginning stocks are historically tight, and the market remains very concerned that the dry pattern Brazil experienced from June through September has left a very uncertain outlook for their production in 2011. While the relatively high price could attract increased production from other areas of the world next year, the market’s upside potential remains explosive if there are continued weather threats to key producers.

After the summer heat wave, sugar production in Germany was expected to come in around 3.65 million tonnes, down from 4.2 million last year. Russian production was also lower due to drought, and Australia’s will reach just 4.1 million versus 4.4 million last year. Traders sometimes count on a strong recovery in Thailand’s production after a year of high prices, but the jump in production this season has been minimal.

Traders look for continued tightness into the first quarter of next year, and there is a growing concern that the outlook for a “steady at best” cane crop for Brazil next year could leave stocks extremely tight. In other words, good weather will not be enough to support any increase in production for next year, and poor weather could cause further tightening. The Brazil cane industry association (Unica) reported that sugar production in Brazil for the season beginning in April through October 1st reached 27.1 million tonnes, up 30.1% from last year. The cane crush was up 17% from last year, while ethanol production reached 20.3 billion liters, up 22% from last year.

China has gradually become a significant importer in recent months, and this may continue. For the 2010/11 season, the USDA attach‚ in China has estimated that production will recover to 12.7 million tonnes, up 10% from last year. However, usage is expected to expand at a 2% annual clip to 15.1 million tonnes. Chinese officials indicate that they will release 210,000 tonnes of sugar from state reserves in an effort to stabilize prices, which have moved to new highs in China. Part of the rally late last week was due to fears that a large, category-5 typhoon was set to hit southern China cane areas. Damage from this storm could widen China’s sugar deficit for this year and boost their import demand.

The Commitments of Traders reports as of October 12th showed non-commercial traders were net long 162,218 contracts, an increase of 8,065 contracts for the week. This buying trend is a positive short-term force, but the hefty net long position held by speculators leaves futures a bit vulnerable to a setback if support is violated. Still, the market remains in a solid uptrend, and the trend has accelerated in the past few weeks. A few technical factors do concern us: 1) Open interest has dropped from 697,692 contracts on September 14th to 587,350 at present. Declining open interest suggests that part of the strong buying trend of the past month has been short-covering, and this may not be considered a good foundation for an extended rally. 2) New highs for sugar on September 14th, September 28th and October 14th have been met with lower RSI readings at each higher high. This divergence suggests a loss of upside momentum. These factors, combined with the volatile action in currency and financial markets, may spark a significant correction over the near term that would represent a buying opportunity.

Suggested Trading Strategies:

Trading strategies are available to our customers or trial users of our Research Center. Please sign-in or sign-up for your free trial

Commodity Outlook – 2010.10.11

by on October 11, 2010

Below is an excerpt from our most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

According to most economic outlooks, what is happening in commodities shouldn’t be happening. What looks, smells and acts like inflation is starting to build into a number of commodity markets, but that doesn’t exactly jibe with conventional wisdom. Certainly a definitive downtrend pattern in the US Dollar has fostered an inflationary psychology that seems to be spilling out in gold, silver, platinum, copper, crude, corn, soybeans and sugar. Yet while the magnitude of gains in various commodity index measures today smacks of inflation, it might also the result of tightening supply. Some might suggest that some of this is the result of ramped up investor interest in commodities, but in many cases (soybeans, corn, cotton, copper and platinum) there is also evidence of robust physical demand.

Some of the markets seem to think that the economy is moving forward and that “much more” easing as requested from the Chicago Fed President this week will set us up for hyper-inflation. Ongoing dryness in South America has already resulted in a resumption of speculative buying in soybeans, sugar and coffee, and therefore there is certainly the potential to extend the tightening into upcoming crop cycles. With the added benefit of very sharp gains in US equity prices and nearly perpetual declines in the Dollar, the outside market forces are also presenting the commodities trade with a perfect storm. One has to wonder what the reaction in the markets will be if the US monthly non farm payroll report on Friday, October 8th (after this writing) ends up showing a minimal jobs gain or a nondescript decline. Could that be enough for the Fed to not invoke QE2?

The agricultural markets are responding quickly to signals from the Fed and the financial markets that inflation is coming. The sharp break in the US dollar only adds to the bullish tone for commodity markets, as it will make US commodities appear cheaper on the world market. A good example is in the wheat market, where the disastrous drought in Russia and the Black Sea region resulted in the loss of millions of tonnes of potential exports from that part of the world. The USDA adjusted the US export forecast up from last year in the wake of the drought, but we have yet to see much of a pick-up in weekly export sales. Cumulative export shipments are lagging behind the average pace for this point in the season, standing at just 30.3% of the USDA’s projection for the marketing year versus a 5-year average of 37.2%. Cumulative export sales (wheat shipped plus wheat sold but not shipped) have reached 50.3% of the forecast for the season as compared with 53.8% as the 5-year average.

The 6% drop in the value of the US dollar since September will likely have an impact on wheat export sales, and they should pick up soon. Traders in Europe already believe that European wheat exportable surplus will be nearly zero by the end of the calendar year, and this will leave the US as the primary supplier on the world market. Canada and Australia may also be in a position to boost wheat exports, but this will depend on the currency trends. In this environment, commodity currencies like the Australian and Canadian dollars are likely to outperform the US dollar.

Commodity markets with the potential for a tightening supply outlook could especially benefit from the lower dollar. If corn yield is adjusted down as much as we believe possible in the USDA production report on October 8th (after this writing), the US may be looking at one of the tightest years on record. Unlike for soybeans and wheat, the US is the world’s biggest corn exporter by far. The December 2011 contract will have the added benefit of having to battle for acres.

The lower US dollar could also support livestock prices into 2011, as tightening supplies will also be an issue. We already export 20% or more of our monthly pork production, and beef exports have also been picking up the pace this year. Cumulative beef sales for 2010 have reached 504,300 metric tonnes, up 27.3% from last year’s pace. A continued decline in the US dollar could only help support even stronger exports during a period when US meat production is already on the decline.

Commodity Outlook – 2010.09.27

by on September 27, 2010

Below is an excerpt from our most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

According to the US Fed and the Bank of England (BOE), the outlook for the economy remains highly suspect. However, it also seems as if the BOE, the US Fed and a long list of commodity markets are starting to catch a whiff of inflation. For some, the combination of ongoing slowing and rising prices fosters fears of stagflation. The central bankers who are tending toward the use of extra quantitative easing probably want to play up the prospect of deflation, as that seems to give them more room and justification for their actions. While some might suggest that historical rallies in cotton, sugar, coffee, corn, soybeans, beef, gold, silver, platinum and copper could be the result of internal fundamental supply and demand conflicts, there haven’t been many times in history that such a broad-based and historically significant rally ended up being a fluke. Certainly the run-up in gold is somewhat suspect because of the speculative component that is assumed to be in place in that market, but with so many unrelated and usually uncorrelated markets rising at one time, one could come to the conclusion that commodity supplies really are tight enough to push prices up, even in the face of a suspect global economy. We have banged the drum for some time on our belief that many commodity prices are too cheap or too close to their costs of production. It is now becoming even more apparent that global demand can draw down supplies very quickly.

In markets like grains and exotic foods (the soft commodities) it is also becoming clear that even minor supply-side setbacks have become significant events. Washington and the regulators would like to suggest that prices are being inflated by speculation, but that still doesn’t take into account that the cost of production for almost all commodities has risen. The speculators see that, and that is what is pulling money toward commodities. If commodity prices aren’t lifted by speculation, commodity production and supply won’t rise fast enough to meet surging global demand. As recently as June of this year corn prices for 2011 delivery were trading close to their cost of production. With the world supply set to contract even in the face of a record 2010 crop, it was clear that corn needed to rally aggressively or it would risk losing production area to cotton, soybeans or perhaps even wheat.

In the gold market one noted analyst recently suggested that the cost of production at some South African gold mines might be more $900 per ounce. That in by itself suggests that $1,270 gold prices are not as expensive as many would like to think.

An example of a storm brewing in the future can be seen in the milk market, where the price paid to farmers was so cheap throughout 2008 and 2009 that the US dairy industry saw a massive contraction. Since the demand for milk continues to increase globally, the contraction in the US dairy herd will probably means that prices in the coming year will have to explode. Since the dreaded speculators don’t usually frequent the milk market, that potential crisis will continue to fester until the required response in the market serves to reduce demand and rebuild production.

In the meantime, we think that strength in industrial and food-based commodities are justified but that a combination of a sharply weaker Dollar and promises of more easing are destined to bring about a temporary bubble in prices. However, the trend in prices over the long turn probably has to stay up to secure needed supplies. Therefore traders should adopt a long futures mentality, with the addition of periodic options protection in the face of classically overbought technical signals.

Cattle Strategies – 2010.09.27

by on September 27, 2010

Below is an excerpt from our most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

In our last issue, we warned of a possible near term high in the cattle market and pointed out the extremely overbought and record high net long position of the fund trader. A bearish Cattle on Feed report was all it took to spark a sharp break in cattle futures, and long liquidation selling from fund traders emerged to drive the market lower in the three sessions following the report. The long liquidation from speculators is likely to be a more lasting bearish force than the 1-month jump in placements. A continued downward correction over the near term looks like a buying opportunity, as high corn values are likely to cause a sharp drop in placements of cattle into feedlots into the fall. This will tighten the outlook for available slaughter supply into the spring which could be a good foundation for another leg higher in cattle prices into the first part of 2011. A cheaper US dollar and continued expansion in the global economy are factors which could add to the potential tightness.

The USDA monthly Cattle on Feed report for September 17th was a bearish surprise for traders, who were generally expecting limited movement of cattle onto feedlots. Traders were looking for on-feed supply for September 1st to come in around 1% above last year, so the news that the on-feed supply was 2.8% higher was bearish against expectations and even above the high end of the range of estimates. Placements in August were 7.1% above last year compared to trader expectations for a slight decline. Keep in mind December corn was at 432 on August 31st when the USDA survey was taken, so the corn rally so far in September (and even a further run higher in October) should cause placements to drop.

Strong seasonal demand in the spring is the primary reason that April and June cattle trade at a premium to other months. It is also the reason that cash cattle generally push higher into the spring even though higher placements of cattle in the fall normally result in higher production in the second quarter of the year. In the recent supply/demand update, the USDA predicted 2nd quarter 2011 beef production to be 6.3 billion pounds, down 3.8% from 2010 and the lowest 2nd quarter production in six years.

The upside is normally limited for cattle in years in which we see a sharp increase in production from the 1st to the 2nd quarters. Production normally increases about 400 million pounds for the quarter, but the increase in 2011 is expected to be only 250 million pounds, the smallest increase since 2000 (see chart). If we see small placements this fall, 2nd quarter production is likely to come in even lower the current USDA estimate. High grain prices could keep spring cattle weights down, which would also cause production levels to come in below expectations.

Suggested Trading Strategy: : Sign-Up for a free trial and get these trades!

Special Update: Rice – 2010.09

by on September 23, 2010

Below is an excerpt from our most recent Special Update. To receive access the full story, along with our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

Rice is one of the cheaper basic commodities from a historical perspective, and many rice farmers in the US would add that at a recent low of less than $10 per hundredweight it had also fallen below the cost of production.

While a cheap price does not necessarily justify a major recovery rally, there are reasons to think that rice will be a consistent gainer into late 2010 and early 2011. In fact, rice has already started putting in what looks to be a significant bottom after pushing through the 100-day moving average on three occasions in August, the last time apparently for good.

A somewhat more obscure indicator, the rice/wheat ratio, may also be getting close to signaling a long term turn in the rice market. Rice and wheat are the two most basic food grains consumed by humans, with occasional switching between the two based on price or a lack of availability in one or the other. These two grains are also linked in many traders’ minds in the wake of the price shocks that took the markets to new all-time highs 2-3 years ago. This started with all-time highs in wheat in 2007, followed by further new highs in wheat and then rice during early 2008. Both markets collapsed during most of 2008 and on into June 2010 after the higher prices triggered increased planting and investment in production around the world.

Wheat again led the grain markets out of the starting gate with a rally in July and early August of 2010. This followed a series of weather problems that started with a cold and wet start to the growing season in Canada followed by an historic drought and heat wave in Russia, Ukraine, Kazakhstan and France and then an extremely wet harvest in Germany. Scattered smaller players from Eastern Europe to North Africa also experienced crop problems.

This rally in wheat drove the rice/wheat ratio down to near the low end of its range for the past decade. By late August, however, the world wheat supply and demand situation had started to stabilize, and the ratio began to correct. Part of this correction came from lower wheat prices, but some of the correction came from the rally in rice.

A look at the weekly rice-wheat ratio shows that it has a strong tendency to turn and trend, with these turns being especially sharp on the extreme low end of the historic range. Furthermore, the last two major lows in the ratio occurred in September and October. The question becomes whether the ratio has fully bottomed, and if it has, whether this will be accomplished via a further break in wheat, a rally in rice, or some combination of the two.


2011 Hightower Commodity Trading Guide Pre-Order And Save!


Several factors favor a rally on the rice side of the equation, including the emergence of scattered crop problems as well as its relatively low price. For example, the UN Foreign Agriculture Organization estimates that the recent floods in Pakistan may have reduced rice production there by 3 million tonnes, making rice the crop that was hardest hit by the floods. (The USDA lowered Pakistan by 1.2 million in the September WASDE supply/demand report.) In Cambodia, extreme heat and a lack of rain has threatened to cut rice production by nearly 2 million tonnes.

China, a far bigger fish than either Cambodia or Pakistan, saw a slow start to its rice production season with an early-season harvest at 31.32 million tonnes, down 6.1% from last year according to the National Bureau of Statistics. This was due to lower planted acreage and poor weather in the south. (The USDA’s September report only lowered China’s overall rice crop for 2010/11 by 1.5 million tonnes.) While these losses are not likely to start a parade of crop losses around the world, the USDA did lower 2010/11 world ending stocks by almost 3 million tonnes to 94.56 million.

The situation in India is at the opposite extreme. The USDA projects 2010/11 overall rice production in India at 99.0 million tonnes for 2010/11, up from 89.13 million in 2009/10. India is also dealing with a bumper wheat harvest, and the combination of these two crops has virtually overwhelmed government storage and led many to ask why India is not moving aggressively into the export market for one or both of these crops.

Below is an excerpt from our most recent Special Update. To receive access the full story, along with our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

Swiss Franc Strategies – 2010.08.23

by on August 22, 2010

Below is an excerpt from our most recent Special Report. To receive access the full story, with trade strategies, along with our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

The outlook for the US economy seems to have become more suspect over the last month. During that timeframe, however, a prevailing trend of general Dollar weakness over the third quarter of 2010 was cast aside. The turning point came earlier this month when the Federal Reserve’s Open Market Committee announced that they would use proceeds from maturing mortgage debt to buy Treasuries, well short of potential action that may have undertaken. There has been little indication from recent US economic numbers that these steps will be anywhere close to changing the outlook for the US economy. More likely than not, this will only be the first step in what will be more substantive activity in the future. While the Fed’s “wait and see” attitude towards US quantitative easing put a scare into global equity markets, it also removed the Dollar’s tendency to receive safe-haven support. Of the two currencies that have taken up the market’s flight to quality, the Yen has seen the larger move to the upside. With Japanese officials being hostile to this current Yen strength, however, it is conceivable that central bank intervention may turn any moderate pullback from 15-year highs into a full-scale meltdown.

A more suitable choice to benefit from an extended period of Dollar weakness would be the September Swiss. Unlike Japan, Switzerland’s economy has been comparatively strong over the past year with better conditions and a better outlook than many of its European neighbors.  This has allowed it to receive safe haven support not only from the Dollar, but from any risk flare-ups within the Euro zone as well. Recent disclosures that the Swiss National Bank had taken heavy losses during their period of active currency intervention fed into the Dollar’s recent recovery, and sent the September Swiss back towards the lower end of this quarter’s trading range. The ability to limit these losses, as well as holding onto the large gains from the rally in June, are a strong indication of the upside potential for the September Swiss if the Dollar makes a return to this month’s lows.

Suggested Trading Strategies: Sign-Up for a free trial and get these trades!

Natural Gas – 2010.08.23

by on August 22, 2010

Below is an excerpt from our most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

Natural gas prices continue to decline and so far have been down about 16.5% in August alone. This has now pushed prices back down to the bottom of a four and a half month base at 4.25 to 4.140. Coincidentally, these low levels have served as a quasi-deflationary price low throughout the year as economic slowdown fears reach a fever pitch. Short term supply is high, as storage levels stand 219 bcf above their five year average and continue to build. Elevated levels of natural gas production are expected to continue, as producers exploit prolific onshore fields (shale). Additionally, the latest Baker Hughes data pegged the U.S. natural gas rig count at 992, just below the psychological 1,000 mark.

The latest EIA Short-Term Energy Outlook estimated 2010 production to grow by 1.9% to 61.1 bcf per day. Increased production in the face of sluggish demand has served to hammer natural gas prices by more than 30% since the start of the year.

We believe there will be one more push down in natural gas prices to come, and that should take prices down to new lows for the year.

Despite the bountiful supplies, there are signs of life on the demand front. The EIA forecasted overall natural gas consumption to increase 3.8% from 2009 levels to 64.9 bcf per day, which provides a 3.80 bcf per day shortfall to help sop up excess supply.

At current price valuations, it would appear that natural gas has virtually no weather premium priced in, and with peak hurricane season now upon us, prices could jump in a hurry. While inventories remain well above their five year average, that gap has contracted for eight straight weeks and is now just under 8.0%. This tightening has narrowed various spread relationships, which has greatly reduced the incentive to build inventories.

The steep decline in prices has also attracted speculator selling and has pushed the spec net short position to extreme levels. If we discount the 2008 financial meltdown, the current position is nearing the 2007 extreme that occurred when natural gas was trading at around $6.000.

As mentioned earlier, we expect the slide in natural gas to continue and post new lows on the year to $3.800-$3.850. This has the potential to trap shorts into the market at a time of “cheap” valuations.

Suggested Trading Strategy: Sign-Up for a free trial and get these trades!

Commodity Outlook – 2010.08.23

by on August 22, 2010

Below is an excerpt from our most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

The U.S. economic outlook continued to deteriorate into the middle of August, with fears of a double dip recession growing almost daily. The Federal Reserve apparently isn’t concerned though, as they have not rushed to the rescue with additional easing efforts beyond the Federal Reserve’s Open Market Committee announcement on August 10th that they would use proceeds from maturing mortgage debt to buy Treasuries. With recent CPI readings depicting a greater chance of deflation rather than inflation, it wasn’t surprising to see a number of U.S. Treasury yields reach fresh, historically low levels. In retrospect, the September Treasury market has managed a very surprising 8-point rally from the late July lows, where previously it appeared that the Treasury market was poised to roll over to the downside! However, news that China has reduced their holdings of U.S. Treasuries for the second month in a row coupled with increased vulnerability in the Dollar may reduce the attractiveness of U.S. Government securities.

The monthly U.S. payroll report was disappointing and U.S. manufacturing readings have been soft, making it difficult to turn the upward trending Treasury market around. U.S. 2nd Quarter Productivity showed the first decline in six quarters with results that were below expectations. June Wholesale Inventories and Sales figures both came in below expectations and served to add to the already fragile sentiment. Foreclosures in July jumped to nearly 93,000 units, up 9% from June and up 6% from a year ago.

With the recent appreciation of grain prices sparking global inflationary fears, the falling Dollar and the potential for reduced interest from China, one of the most important holders of U.S. debt, we suspect that U.S. Treasuries are beginning to look really expensive. A very significant top might be in the offing over the coming month.

The threat of a continued longer-term downtrend in the US dollar might provide some temporary support to the commodity market sector, but it will be more important to see an expanding global economy for commodity markets move higher. If the sluggishness of the US and European economies spreads to China and other emerging markets, recessionary demand will return to the commodity markets.

Fund traders hold aggressive net long positions in many agricultural markets, so a shift in psychology should not be taken lightly. A number of factors could leave fund traders in a position to “throw-in-the-towel” on the long side of the commodities play. A few concerns which come to mind include:

  1. China’s demand slows if their housing market bubble bursts.
  2. India begins to export cotton, wheat, rice and sugar on the world market, which may dispel some beliefs that world supplies are extremely tight.
  3. Energy supply continues to swell.
  4. New regulations aimed at speculators have unintended consequences.

There are certainly plenty of factors that could spark sharply higher commodity prices, including weather, but we see many commodities in general as being too overbought given their supply outlooks. It will take strong global demand growth in just to rationalize their current price levels. We would caution traders to consider buying only in markets with supportive big picture fundamentals.

← Older posts
Newer posts →