• Crude oil and natural gas recover
  • Precious metals rally- Gold on the highs, silver, and platinum higher, but palladium and rhodium explode
  • Copper hovers around the $2.60 level
  • Agricultural commodities mostly higher
  • The dollar index rises to a new high, stocks continue to fly, and Bitcoin moved over the $10,000 level

 

The summary of trade recommendations for the coming week are as follows:

A more detailed picture is available on the spreadsheet that is linked below.

 

Summary and highlights:

 

On Thursday, February 13, stocks backed off after Wednesday’s record highs. The rising number of fatalities and cases of Coronavirus cast a shadow over the stock market. The long bond futures were 0-04 higher to 161-26, and the dollar index rose to a new high on the March futures contract at 99, the highest level since September. The index settled at 98.958. Soybeans edged higher, but corn and wheat prices moved to the downside. Crude oil and oil products posted marginal gains, but natural gas edged lower after the EIA reported a decline of 115 bcf from inventories for the week ending on February 7. Precious metals moved higher across the board with gains in gold, silver, and platinum and palladium futures markets. Rhodium also edged higher. Copper also posted a gain as the price remained above the $2.60 per pound level. Cattle and hog prices moved higher on the session. Cotton and sugar prices declined, but FCOJ, coffee, and cocoa posted gains. Coffee was up almost four cents on the session, and cocoa futures traded to a high of $2988 per ton, the highest level since August 2016. In the soft commodities sector, March futures are rolling to May. Lumber was up marginally but put in a new high at $459.90 per 1,000 board feet. Bitcoin declined $220 to $10,305 per token. Coronavirus remained the primary factor facing markets across all asset classes.

On Friday, stocks did not move all that much as the DJIA and Russell 2000 edged lower, while the S&P 500 and NASDAQ posted gains. The March 30-Year Treasury bond futures contract was 0-19 higher to the 162-15 level. The dollar index rose over the 99 level to settle at 99.003 on the March contract. Corn, soybeans, and wheat prices moved lower in the final session of the week. Energy prices moved higher with gains in crude oil, oil products, natural gas, and even ethanol futures. Gold and silver prices were higher, while platinum and palladium went the other way. Copper was down a touch and settled the week at just below the $2.60 per pound level. Meat prices rallied across the board with the most substantial gains in cattle. Cotton, sugar, cocoa, and lumber prices moved lower. Coffee exploded higher to the $1.10 per pound level, and FCOJ was unchanged at just below the $1 per pound level. Bitcoin futures rose $190 to $10,495 per token.

On Monday, markets in the United States were mostly closed for the President’s holiday. On Tuesday, the DJIA declined, but the S&P 500 and NASDAQ posted marginal gains. T-bonds were higher while the dollar index moved to a new high at 99.375 and closed just off the peak of the session. Soybeans posted a small loss, while corn moved higher. Wheat was the big winner with a 24 cents per bushel gain. Crude oil was unchanged, with gasoline moving higher and heating oil lower. Natural gas recovered and moved to just under the $2 per MMBtu level. Gold finished above $1600 per ounce, with silver rallying to over $18. Platinum moved towards the $1000 level, and palladium put in a new record higher at $2550 per ounce. Cattle and hog prices edged higher on the session. Cotton and sugar prices moved to the upside, but coffee, FCOJ, cocoa, and lumber all declined. Bitcoin was $245 lower to $10,250 per token.

On Wednesday, all of the leading stock indices rose to new highs, with record levels in the S&P 500 and NASDAQ indices. T-bonds just -02 lower to 163-03 on the March contract after the Fed minutes, which told the market the central bank is watching risks to the global economy from Coronavirus. The dollar index moved above the September high to 99.62 and closed at 99.597 as it approached the 100 level. Wheat posts a marginal loss with corn, but beans edge higher. Crude oil continued to rally and move away from the $50 level. Oil products posted gains, while natural gas remained near the recent high at just below the $2 per MMBtu level. Gold rose and was at just over the $1610 level, silver was higher at over $1830, and platinum moved above the $1000 level. Palladium exploded to a new peak at $2755.90 before settling at $2571.20, significantly higher on the session. Cattle and hog prices rose across the board with the most substantial gain in lean hog futures.
All of the soft commodities and lumber posted gains. The prices of cotton, FCOJ, sugar, coffee, cocoa, and cotton all moved to the upside. Bitcoin was trading around the $10,150 level at the close of business on Wednesday.

 

Weekly Spreadsheet:

Copy of Spreadsheets for the The Hecht Commodity Report February 19, 2020

Stocks and Bonds

The stock market mostly ignored the rising number of cases of Coronavirus in China over the past week as all of the leading indices remained at or near record levels. With gains in stocks, volatility in the stock market declined. Meanwhile, the bond market continued to edge higher since February 12. The rise in stock and bond values caused the number of open long and short positions in the E-Mini S&P 500 futures contract, and the 30-Year Treasury bond futures to rise.

 

The S&P 500 moved only 0.20% higher since the previous report, while the NASDAQ rose 0.94% since last week as it continues to grind higher towards the 10,000 level. The DJIA posted a 0.69% loss since the last report but seems destined to reach its next milestone at the 30,000 level.

Chinese stocks underperformed US indices as China is ground zero for Coronavirus.

Source: Barchart

As the chart illustrates, the China Large-Cap ETF product (FXI) was trading at the $42.47 level on Wednesday, which was 0.93% lower than the closing level on February 12. Technical support is at $37.66 per share from August 14. FXI traded to a new high of $45.29 on January 13, which stands as technical resistance. Above the most recent peak, the next level of resistance is at the early April high of $45.96 per share. The FXI will continue to move lower or higher, depending on developments on the spread of the virus. China is likely understating the number of cases of Coronavirus based on the leadership’s desire to avoid severe economic ramifications.

US 30-Year bonds moved higher over the past week. On Wednesday, February 19, the March long bond futures contract was at the 163-00 level, up 0.79%, adding to recent gains. The odds of any changes in Fed monetary policy in 2020 are low as it is an election year in the US. At its January meeting, the Fed left rates unchanged. If a risk-off period returns and intensifies, the Fed is more likely to cut than increase short-term rates. A flight to quality during risk-off periods puts upward pressure on the long bond. However, the US central bank has little room to push rates significantly lower from the present level as they reduced the Fed Funds rate by 75 basis points in 2019 to 1.50%-1.75%. The Fed minutes on Wednesday told the market that the central bank will be watching the impact of Coronavirus on the global economy.

Open interest in the E-Mini S&P 500 futures contracts rose by 2.12% since February 11. Open interest in the long bond futures rose by 4.26% over the past week as the market remains concerns over the economic impact of Coronavirus. The VIX edged higher as the volatility index was at the 14.38 level on February 12, 4.58% higher over the period. The VIX had reached almost 20 but fell as buying came back into the stock market, and the S&P 500 rose to a new record high.

When it comes to stock market volatility, nothing has changed over the past week. I continue to advocate buying the VIX and VIX-related products when volatility is low, and the stock market was making new highs. Buying volatility on dips and taking profits on rallies has been the optimal approach over the past months. I would only trade these products from the long-side and maintain a small core long core position in case risk-off conditions reach a peak, and we see an explosive move in the VIX. At the 14.38 level, the VIX is closer to the buy than the sell zone given the recent trading range. The risk remains on the upside if risk-off conditions return over the coming days and weeks. I will be an aggressive buyer of volatility with tight stops if the VIX declines to the 12 level.

 

The dollar and digital currencies

The March dollar index futures contract continued to rise since February 12. The contract posted a 0.68% gain since last week. The index settled at 99.597 on Wednesday. The dollar index is at a new high on the March contract and continues the continuous contract. Interest rate differentials between the US currency and the euro continue to provide support for the dollar index. The dollar index traded to its lowest level since July 2019 when it fell to 96.02 on December 31, which is now the technical support level, there is some support at 97.165. Technical resistance on the continuous contract stands at the 100 level with support at 95.365. The dollar index moved to the bottom end of its range at the end of 2019 and has moved steadily higher in 2020. While interest rate differentials are bullish for the greenback, Brexit and trade agreements could eventually weigh on the dollar index if the European economy ever exhibits any degree of strength.

Moreover, the 2020 US election is likely to inject mounting uncertainty over the future of US policy into currency markets. A highly contentious election season in the US is now underway, and the contest could cause volatility in the dollar. I expect a wider trading range in the dollar index in 2020 compared to the previous year. The market seems to be discounting the re-election of the incumbent President or a moderate challenger even though Democratic Socialist Bernie Sanders is the current frontrunner for the nomination of his party. If the market is wrong and Senator Sanders becomes the nominee, we could see wild swings in the dollar and markets across all asset classes that chances for a dramatic shift in US policy would rise.

The euro currency was 0.69% lower against the dollar since February 12 on the March futures contract. Weak economic data out of Germany continues to prevent any rebound in the euro. The euro versus the dollar currency pair has moved steadily lower throughout February and is at the lowest level since April 2017. Over the past week, the pound moved 0.32% lower against the US currency. Short-term technical support is at the $1.2885 level against the dollar. Last week I wrote, “I believe the pound is close to a bottom and will rebound over the $1.30 level.” The pound was below that level on February 19.

 

Bitcoin and the digital currency asset class declined a bit over the past week. Bitcoin was trading at the $9,700.30 level as of February 19, as it fell 6.24% compared to the value on February 12. The cryptocurrency is trading on either side of the $10,000 level, which was a significant psychological level of resistance. Ethereum edged lower and was down 1.70% and was at $263.72 per token on Wednesday. The market cap of the entire asset class moved 6.88% loqer as it underperformed the price action in Bitcoin. The number of tokens increased by 27 to 5137 tokens since February 12. The rise in the number of digital currencies over the past months continues to dilute the asset class. In late 2017 the overall market cap was at over $800 billion with a fraction of the number of tokens available today. On Wednesday, the market cap stood at around $282.715 billion. Open interest in the CME Bitcoin futures rise by 5.85% since last week after an almost 40% rise last week. Open interest had been moving higher during rallies and lower during dips in the Bitcoin futures market, which tends to be a bullish sign. As I have been writing, “an ETF product in 2020 could cause even more attention and higher prices for the digital currency asset class. The Chinese government cracked down on the asset class over the past months, but these days it has its hands full with Coronavirus.

The Canadian dollar moved 0.27% higher since last week. Open interest in C$ futures fell by 1.33% over the period. The C$ is highly sensitive to commodity prices as Canada is a mineral-rich nation that also produces significant quantities of energy and agricultural products. Weakness in commodities prices accounted for the lower level of the C$ over recent weeks. The support level for the Canadian currency is at just above $0.75 against the US dollar on the active month March futures contract, and it held that level as of February 19.

The Australian dollar is also a commodity-based currency with a high degree of sensitivity to China’s economy. The A$ fell by 0.92% since the February 12 report. The geographical proximity to China makes the Australian dollar sensitive to the Coronavirus and accounts for its decline.

The British pound posted a 0.32% loss since the previous report. The pound rose to just over $1.35 after the December 12 election, the highest level since May 2018, but pulled back to below the $1.30 level. As I wrote over recent weeks, “I continue to believe the pound could be heading for higher levels and would be a buyer against the dollar and the euro on any dips.” I continue to believe the British currency presents a scale-down buying opportunity against the dollar below the $1.30 level.

The Brazilian real continued to melt against the dollar since February 12, as it moved 0.54% lower after hitting a new low below the $0.23040 2015 bottom. The low in February was at $0.22805, which is the new technical support level. The Brazilian currency is a critical factor when it comes to the commodities that the South American nation produces and exports to the world. Coffee, sugar, oranges, and a host of other markets are likely to move higher or lower with any significant changes in the direction of the Brazilian real over the coming weeks. I continue to believe that the real will eventually appreciate against the US dollar, but so far, I have been wrong. Risk-off conditions had weighed on emerging market currencies. Since the Brazilian economy has significant exposure to commodity prices, the currency has been weak. While a lower low has occurred, I continue to believe that the upside potential for the Brazilian currency is far greater than the downside risk at the current exchange rate.

Meanwhile, the low level of the currency makes Brazilian exports more attractive in the global market and has supported the prices of shares of companies in the South American country. US President Trump is likely to put pressure on Brazil to raise the level of its currency based on trade imbalances over the coming months if the real continues to slip lower. Meanwhile, Brazilian stocks have done well as the low level of the currency reduces domestic expenses while making products highly competitive in global markets.

 

Precious metals prices moved higher since last week as the asset class that was the best performer in 2019 has been strong so far in 2020.

 

Precious Metals

All of the precious metals posted gains over the past week. Rhodium continued to lead on the upside, followed by palladium, silver, platinum, and gold. Precious metals continue to shine with gold over the $1600 level, palladium above $2570, and rhodium over $11,000 per ounce and at a new all-time high. Silver and platinum also posted appreciable gains over the past week.

Gold rose by 2.56% since last week, while silver was 4.65% higher. April gold futures were just over the $1610 per ounce level on Wednesday, while March silver was just above $18.31 per ounce. Open interest in the gold market rose by 8.71% after a significant downside correction in the metric over recent weeks. The decline in the total number of open long and short positions in the futures market for the yellow metal likely had a cleansing impact on the gold market.

April gold futures reached a peak at $1619.60 on January 8, and March silver climbed to $18.895 on the same day at the height of the Iranian missile attack on Iraqi airbases. Gold made a new multiyear high, but silver could not reach the September 2019 peak of $19.54 on the continuous futures contract during the rally earlier this month. The price action and trends in both gold and silver markets remained bullish over the past week.

The price of April platinum rose by 3.85% since February 12. April futures were at the $1,004.50 per ounce level. The level of technical resistance is at $1,046.70 on the April futures contract. Support in platinum is at $954.30 per ounce. Rhodium is a byproduct of platinum, and the price of the metal has been in a bull market since early 2016. The price of rhodium continued to explode to the upside as it has since the end of 2019. The midpoint price of the metal was at $11,400 per ounce on February 19, up $1,350 from the level of February 12. Palladium exploded higher and rose by 10.71% since the previous report. The price traded to a new peak at $2755.90 on Wednesday on the March futures contract and settled at the $2571.20 per ounce level on Wednesday. The risk of significant volatility in palladium and rhodium rises with the prices of the metals, and we should expect a continuation of wide price ranges over the coming weeks.

Open interest in the gold futures market moved 8.71% higher over the past week. I viewed the recent drop in the total number of open long and short positions as the price corrected lower as a healthy event for the gold market. Falling open interest has made room for buyers to return when the price turns higher. The metric moved 1.75% higher in platinum while it was 0.72% lower in the palladium futures market. Silver open interest rose by 7.31% over the period. The bullish trend in the precious metals sector remains firmly intact as of February 19.

The silver-gold ratio fell since February 12, as gold underperformed silver.

Source: CQG

The daily chart of the price of April gold divided by March silver futures shows that the ratio was at 87.68 on Wednesday, down 2.22 from the level on February 12. The long-term average for the price relationship is around the 55:1 level. The ratio remains at an elevated historical level. Silver remains historically cheap compared to gold, and over the past week, it got more inexpensive. The ratio had dipped to a low at 79.13 on September 4, 2019, on the active month contracts when silver moved to its most recent high. The ratio tends to move lower during bull market periods and higher when there is bearish price action in the markets.

We are long the gold mining stock ETF products GDX and GDXJ, which outperformed the price action in gold since the last report.

Gold moved up by 2.56%, while the GDX was 5.80% higher since February 12, and GDXJ rose by 8.64% since the previous report. The mining stocks tend to outperform gold on the upside and underperform during corrective periods as it provides a leveraged return. Over recent weeks, GDX and GDXJ underperformed gold, but they played catch up this week. I continue to rate both ETFs as a hold. We are also long SLV, the silver ETF product, which posted a 5.51% gain since February 12, which outperformed the percentage gain in the silver futures market. I continue to believe that both gold and silver prices will head higher over time. However, the potential for periodic corrections will rise with prices. Silver could be a sleeping giant based on the price action in the gold and other precious metals markets sans platinum.  On Wednesday, Citigroup analysts finally agreed with my projection that gold is heading above the $2000 per ounce level.

Platinum and palladium prices moved higher since February 12. March Palladium was trading at a premium over April platinum with the differential at the $1566.70 per ounce level on Wednesday, which widened significantly to a new record level since February 12. April platinum was trading at a $607.30 discount to April gold at the settlement prices on February 19, which widened marginally since the previous report as platinum continued to underperform gold.

The price of rhodium, which does not trade on the futures market was at $11,400 per ounce on Wednesday, up $1,350 per ounce on the week. Rhodium is a byproduct of platinum production. The low price of platinum has caused a decline in output in South African mines, creating a shortage in the rhodium market. Rhodium is part of the reason that platinum is finally making a move on the upside. As I wrote since late 2019, when the price of rhodium was below $5500 per ounce, “Some analysts projected that the price of the rare metal was heading for the $10,000 per ounce level.” Rhodium is now comfortably over the $11,000 milestone at a new all-time high. The spread widened to $1200 per ounce at times in a sign of the wild price action in the illiquid metal. Markets rarely move in a straight line, and we could see an increase in volatility in the rhodium market, which is in a deficit condition. Rhodium has been then best-performing precious metal since 2016. The price has moved higher from a low at $575 per ounce. Rhodium has doubled since the end of 2019. In a runaway bull market, it is a challenge to pick a top, but the risk of a correction rises with each new price peak in the illiquid metal that only trades in the physical market.

We are long the PPLT platinum ETF product, which moved 4.81% higher since February 5 as it outperformed the price action in the futures. Platinum continues to offer the most attractive value proposition in the precious metals sector even after the recent rally. Platinum needs to make a move and take out the $1200 resistance level to break to the upside on a technical basis. After the recent price action, the price is back above the $1000 level, which has been a problem area over the past years.

We are long the ETFMG Prime Junior Silver ETF (SILJ) product at $10.36 per share to diversify risk. SILJ was at $11.24 on February 19, up 6.74% since the last report as mining shares outperformed the silver futures market.

I have been writing, “I continue to be bullish on the prospects for all of the precious metals. The period of consolidation and correction continued over the past week and could go on for a time. I believe that any price weakness in the sector will create excellent buying opportunities.” My outlook has not changed over the past week.

I expect platinum and silver to catch up with the other precious metals over the coming months. I believe that gold is heading to a new all-time high in US dollar terms that will take the price of the yellow metal above $2000 per ounce. When it comes to palladium and rhodium, the prices are in the stratosphere, and the potential for wild price swings on the up and downside is high. Gold continues to be the best bet for stability in the sector as central banks continue to have a healthy appetite for the yellow metal.

 

Energy Commodities

Most members of the energy sector of the commodities market posted gains over the past week. Crude oil and oil product prices were higher than the closing levels on February 12. Heating oil was weaker than crude oil, but gasoline outperformed the raw energy commodity. Brent posted a more substantial gain than WTI futures. Natural gas and Ethanol prices moved to the upside, but coal posted a loss over the past week.

March NYMEX crude oil futures rose 4.14% since the previous report. After probing below $50 per barrel, the oil market recovered. The price rose to a high of $53.66 on February 19. Meanwhile, after putting in a bearish reversal on the monthly chart in January, the price still faces the jeopardy of further downside pressure. If nearby futures settle below the $50.99 per barrel level at the end of March, they will put in a bearish reversal trading pattern on the quarterly chart. However, the price has been moving away from that level over the past week.

April Brent futures moved 5.97% higher since February 12. March gasoline was 5.21% higher, so the processing spread in March posted an 8.42% gain since the previous report as gasoline outperformed the price of crude oil over the period. March heating oil futures moved 1.86% higher from the last report, and the heating oil crack spread fell 3.15% higher since February 12.

Technical resistance in the March NYMEX crude oil futures contract is at $55.00 per barrel level with support at the February 4 low at the $49.31 level. Crude oil open interest fell by 3.40% over the period. Crude oil continues to face bullish and bearish factors. The bears had been in control since January 8, but the price has stabilized at over the $50 level over the past week. Iran remains a potential source of supply concerns that could send the price of oil higher if another round of hostilities breaks out or the theocracy in Teheran undertakes further provocative actions. OPEC will meet in early March with some members currently advocating for deeper production cuts, which could lift the price of the energy commodity. However, economic weakness in China because of Coronavirus has increased fears of a global slowdown, which weighed the price of crude oil futures. At the same time, US production continues to be at record levels, with inventories increasing. Last week I wrote, “Crude oil is at a significant level just above $50 per barrel on the nearby NYMEX futures contract. The price could hang around the level and enter a period of consolidation at the low end of its range over the past year. Crude oil has been failing to push through on the upside above $65 or on the downside below $50. Overall, the odds favor the upside at the current price with a tight stop based on the trading range.” Crude oil has been consolidating at over the $50 level over the past week. I continue to believe the price will find support if it drifts back below in the current environment.

Oil equities continue to lag the price of petroleum. With stocks at record levels, the only sector offering value has been oil and gas-related stocks. Energy companies have low price to earnings multiples and high dividend levels compared to the rest of the market. However, shares of energy-related companies continue to underperform the market in a trend that was in place throughout 2019 and into 2020. Companies like Occidental Petroleum (OXY) with a consistent record of earnings and an over 7.5% dividend could turn out to be diamonds in the rough in the stock market.

I am repeating what I wrote last week because it is one of the most significant factors to consider when it comes to energy prices throughout 2020 and into the future. Over half the world’s crude oil reserves are in the Middle East. Political instability in the region always has the potential to impact the price of the energy commodity. Meanwhile, technological advances and regulatory reforms in the US has made the world’s leading economy independent when it comes to energy supplies. With 13 million barrels per day of output, the US produces more oil than either Saudi Arabia or Russia. The Trump administration has encouraged oil and gas production over the past four years. However, the 2020 Presidential election will be a referendum on the future of energy policy as the opposition party has embraced the “Green New Deal” that would reduce fracking and energy output when it comes to fossil fuels. The potential for a dramatic shift in US energy policy could cause lots of price volatility in the oil and gas market during the second half of 2020 as the prices could begin to move higher and lower with the political polls in the US. In November, the world’s largest energy-producing nation will decide if it continues to produce or if new regulations cause a sudden decline in output beginning in 2021. Senator Bernie Sanders will likely face a moderate for the nomination of the opposition party while President Trump represents the status quo. A close election could cause lots of volatility in the energy sector.

The spread between Brent and WTI crude oil futures in April rose to the $5.60 per barrel level for Brent, which was $1.25 above the level on February 12 after probing below the $4 level recently. The spread moved to a high of $6.23 on January 8 as Iranian missiles attacked Iraqi airbases that house US troops. The Brent premium tends to move higher during bullish periods in the oil market and vice versa. The Brent premium traded as high as $11.59 per barrel in late May. The level to watch in the spread at $3.48, the low from August 2019. Tensions in the Middle East should keep somewhat of a bid under the price of Brent crude oil and the spread between the two benchmarks.

US daily production remained at the record high 13 million barrels per day level as of February 7, according to the Energy Information Administration. The level of output was unchanged from the previous week. As of February 7, the API reported an increase of 6.0 million barrels of crude oil stockpiles, while the EIA said they rose by 7.50 million barrels for the same week. The API reported a rise of 1.10 million barrels of gasoline stocks and said distillate inventories fell by 2.30 million barrels as of February 7. The EIA reported a decline in gasoline stocks of 100,000 barrels and a drop in distillates of 2.0 million barrels. Rig counts, as reported by Baker Hughes, rose by two last week to 678 rigs in operations as of February 14, which is 179 below the level operating last year at this time. The inventory data from both the API and EIA continued to be mostly bearish for the price of oil, as stocks have been trending higher since October.

OIH and VLO shares moved lower since February 5. OIH declined by 1.75%, and VLO moved 2.12% to the downside since last week. Strength in crack spreads would be supportive of the price of VLO stock. We are long two units of the OIH ETF product at an average price of around $13.40 per share. OIH was trading at $11.21 per share level on Wednesday. I believe the ETF that reflects the price of oil service company shares remains too low at its current price level. I will consider adding to the position on further price weakness. Oil services stocks continue to underperform the other oil-related equities. I will wait before adding any more shares to the position in OIH.

This week, I recommend selling put options on VLO shares. I favor selling the May 15, 2020, $80 put option on VLO for $3.50 or higher per share. This option can be found here:

https://finance.yahoo.com/quote/VLO200515P00080000?p=VLO200515P00080000

 

If the price of the stock is above $80 on May 15, the option will expire, yielding a $3.50 or better profit on the trade. If the shares are below the $80 level, we will assume a long position in VLO shares at $76.50, which I believe is an attractive level for the stock. VLO was trading at $83.23 on Wednesday.

I believe that crude oil-related equities are far too inexpensive at current levels and could experience a rebound as sector rotation in the strong stock market occurs. As I mentioned in the report over the past weeks, “I have been trading the Direxion Daily Energy Bull 3X Shares (ERX) from the long side of the market. ERX is a triple-leveraged product, so time and price stops are significant for managing risk. ERX holds leveraged positions in the leading energy companies.”

ERX was 1.21% lower since last week’s report. I continue to buy dips and use tight stops on long positions in the ERX product. Oil-related equities were volatile over the past week. I have been buying ERX with very tight stops. I will continue to stop out of the leveraged product in the quest to catch an updraft. I do not view ERX as an investment position, so I would use a trailing stop and take profits on a scale-up basis if I can catch a rally.

March natural gas futures finally recovered and were at $1.955 on February 19, which was 6.02% higher than on February 12. The futures contract traded to a high of $2.778 on November 5. Natural gas traded at its lowest price since 2016, when it hit $1.753 on February 11 on the March contract. In January, natural gas fell to its lowest price in twenty-one years since 1999. Natural gas bounced since February 11, but any attempt at rallies has encouraged selling throughout the winter season.  The recent price action is the most significant attempt at a recovery since November.

Natural gas followed through on the downside after putting in a bearish reversal trading pattern on the weekly chart during the week of January 13. A recovery in natural gas was overdue, but there are only around six weeks left until the 2020 injection season begins in late March, and the price has reflected injection season trading conditions throughout most of the peak season.

Source: EIA

The EIA reported a withdrawal of 115 bcf, bringing the total inventories to 2.494 tcf as of February 7. Stocks were 31.7% above last year’s level and 9.4% above the five-year average for this time of the year. Natural gas stocks fell to a low of 1.107 tcf in March 2019. With around six weeks to go until inventories begin to climb, we would need to see an average withdrawal of 231.17 bcf to reach last year’s low in stockpiles. This week the consensus expectations are that the EIA will report a withdrawal of 133 bcf from storage for the week ending on February 14. The EIA will release its next report on Thursday, February 20, 2020.

Open interest fell by 1.93% in natural gas over the past week. The metric had been rising over the past weeks as the price declined. The price action likely attracted trend-following and technical shorts to the natural gas futures market. Technical resistance is at $2.00 per MMBtu level on the March futures contract with support at $1.753. The $1.611 per MMBtu level from March 2016 stands as technical support on the continuous futures contract. Price momentum and relative strength on the daily chart rose above neutral conditions after the recent rebound from the low. The price action continues to suggest that sellers are lurking above looking to take advantage of any attempts at a price recovery above the $2 level.

The GASL ETF product was trading at $4.47 per share on February 19, 0.45% lower than on February 12, after steady losses over the past weeks. I have been on the sidelines in GASL. If I do dip a toe back into the leveraged ETF product on the long side, I would use a very tight stop and trade it like the ERX product.

March ethanol prices moved 0.97% higher over the past week on the back of the bounce in crude oil and gasoline prices. Open interest in the thinly traded ethanol futures market moved 6.22% lower over the past week. With only 498 contracts of long and short positions, the biofuel market is untradeable. The KOL ETF product fell 0.80% compared to its price on February 12, but the price of April coal futures in Rotterdam moved 1.59% lower over the past week despite the moves in crude oil and natural gas over the past week.

Late Wednesday, the API reported a 4.16-million-barrel rise in crude oil inventories for the week ending on February 14. Gasoline stocks fell by 2.67 million barrels, while distillate stockpiles fell 2.63 million barrels over the period. The EIA report will come out early Thursday morning with a one-day delay because of the President’s Day holiday in the US on February 17. The API inventory report was a bit bearish for the price of the energy commodity, but the price at over the $50 level on nearby NYMEX futures is at a level that continued to absorb negative news. Without any fresh news from the Middle East, the price is likely to follow inventory data over the coming weeks.

In natural gas, the price experienced a long overdue bounce since last week.

Source: NYMEX/RMB

As the forward curve over the coming months shows, the price at $1.955 in March on the settlement price on February 19, was 11.10 cents per MMBtu higher than on February 12. Meanwhile, the oversold condition of the market was the reason for a technical recovery rally, but we could see a test of the 2016 low in March or April. We could see volatility increase over the coming weeks as the March-April spread becomes active. Since March-April represents the time of the year when withdrawals from storage end and injections begin, the spread has the nickname as “the widow maker” because of its history of extreme price volatility. The spread was trading at a 1.60 cents premium for April on February 19, down 1.40 cents over the past week.

Keep in mind that price action tends to fill the gaps created by the island reversals on the daily and weekly charts. The top end of the gaps is an eventual target for the price action, but it could be quite some time before prices reach those levels. Time is not on the side of natural gas bulls. As I wrote over the past weeks, “The longer the price takes to recover, the lower the chances of any significant move to the upside. Sellers are likely to take advantage of any price recovery over the coming days and weeks. The rise in open interest could be a sign of increasing short positions, which could lead bears to push the price of the energy commodity lower as the winter season has not come with below-average temperatures across the US.” The price action over the past week created another gap on the weekly chart from $1.869 to $1.874 per MMBtu. On the daily chart, the void was from  $1.854 to $1.874 over the last weekend.

I have been tracking the price action in BG shares. BG is a significant producer of ethanol in Brazil. The price of BG shares moved 2.29% lower to $53.76 per share on February 19. We are working a stop on close in BG at $49.49 per share on the downside. Our average cost of the shares is at $54.82. I will continue to post weekly updates on this position.

I have been taking profits quickly and stopping losses looking for a 1:2 risk-reward ratio on forays into the crude oil futures market. UCO and SCO products can be helpful for those who do not trade futures. In natural gas, UGAZ and DGAZ have attracted lots of volume over the past week as the price of natural gas fell to new lows. I expect volatility to continue in both energy commodities.

We are holding a long position in PBR, Petroleo Brasileiro SA. We are long two units at an average price of $15.16 per share. PBR shares were 0.20% lower over the past week at $14.89 per share. I will add another unit at a much lower price to lower the average cost of the long position.

Bullish and bearish factors continue to pull the price of crude oil in opposite directions. Coronavirus and increased US output and inventories have weighed on the price. At the same time, the political stability in the Middle East and the “phase one” trade deal between the US and China are supportive factors. I expect lots of volatility in the crude oil market during the second half of this year when the US election comes into the spotlight. The election will serve as a referendum over the future of US energy policy. Since the US has taken over as the world’s leading producer of both oil and gas, a status quo in energy policy or the adoption of the “Green New Deal” could have a significant impact on the prices of both energy commodities in the futures markets on NYMEX division of the CME and the Intercontinental Exchange. I would be surprised if selling did not return to the natural gas futures market above the $2 per MMBtu level over the coming week.

 

Grains                                                             

In the aftermath of last week’s World Agricultural Supply and Demand Estimates report, the prices of corn and soybean futures did not move all that much. Soybean futures on the CBOT edged a touch higher, while corn went the other way. Wheat futures moved higher as the market found support after the recent correction.

 

 

March soybean futures rose by only 0.53% over the past week and was at $8.9725 per bushel on February 19. Open interest in the soybean futures market fell by 2.30% since last week. Price momentum and relative strength indicators were above neutral territory on Wednesday.

The March synthetic soybean crush spread fell over the past week and was at the 81.00 cents per bushel level on February 19, down 9.50 cents since February 12. The crush spread is a real-time indicator of demand for soybean meal and oil. Therefore, price trends in the crush spreads can cause buying or selling in the raw oilseeds at times. Any significant moves in the crush spread are likely to translate into price movement in the soybean futures. The decline in the crush spread is a confirmation of the recent bearish trend. However, the spring planting season is right around the corner now that we are in February, and it is the wrong time of the year to become overly bearish in soybeans or any of the grain markets.

March corn was trading at $3.8050per bushel on February 19, which was 0.65% lower on the week. Open interest in the corn futures market rose by 2.19% since February 11. Technical metrics were below neutral readings in the corn futures market on the daily chart as of Wednesday. The price of March ethanol futures rose by 0.97% since the previous report on the back of the rebound in energy prices. March ethanol futures were at $1.358 per gallon on February 19. The spread between March gasoline and ethanol futures widened to 30.53 cents per gallon on February 19, up 6.93 cents since last week on strength in gasoline prices.

 

March CBOT wheat futures were 3.24% higher since last week. The March futures were trading $5.6525 level on February 19. Open interest rose 1.35% over the past week in CBOT wheat futures. The metric rose in corn and wheat futures markets as they prepare for the 2020 planting season. The rise in the total number of long and short positions reflects an increase in hedging activity. Technical metrics in CBOT wheat were above neutral readings on Wednesday. Wheat traded to a high of $5.925 on January 22, just one-half cent below the technical resistance on the longer-term charts, but the price failed, leading to the correction over recent sessions. What found support at just below the $5.40 per bushel level on the March futures contract.

As of Wednesday, the KCBT-CBOT spread in March was trading at a 85.50 cents per bushel discount with KCBT lower than CBOT wheat futures in the March contracts. The spread widened by 9.0 cents since February 12. The long-term norm for the spread is a 20-30 cents premium for the Kansas City hard red winter wheat over the CBOT soft red winter wheat. The CBOT price reflects the world wheat price, and it is the most liquid wheat futures contract. The KCBT price is often a benchmark for bread manufacturers in the US who purchase the grain from suppliers. As I have been writing, “at a discount to CBOT, consumers are not hedging their requirements for KCBT, which is a sign that they continue to buy on a hand-to-mouth basis.”  The spread continues to be at a level that is bearish for the wheat market. Any sudden problem in the wheat market that causes consumer hedging to increase could result in a dramatic change in the spread between the hard and soft winter wheat futures contracts.

I will continue to build long core positions in futures and the CORN, WEAT, and SOYB ETF products over the coming weeks on price weakness. The trade deal resulting in a de-escalation of the trade war is supportive of the prices of grains. The outbreak of the Coronavirus has been a bearish factor for the grain markets. The uncertainty of the 2020 crop year could add volatility to the market as the spring planting season gets underway. I would be a scale-down buyer of beans, corn, and wheat on price weakness. Nothing las changed since last week.

The long-term average for the corn-soybean spread is around the 2.4 bushels of corn value in each bushel of soybean value level. When the spread is higher, farmers tend to plant more beans than corn, and when it is lower than the 2.4:1 average, they tend to plant more corn than soybeans on their acreage.  Farmers are now watching the spread to determine how best to utilize their acreage during the upcoming 2020 planting season.

Source: CQG

The chart of the November 2020 soybean futures divided by December 2020 corn futures shows that the ratio moved lower over the past week and was at the 2.3576:1 level on February 19, up 0.0137 since last week. The ratio remained below the long-term norm but moved closer to the average level. On February 19, the spread was at a level where farmers would likely plant more corn crops and fewer soybeans when it comes to the planting season in the early spring at below the 2.4:1 level.

The uncertainty of the 2020 crop year is likely to add price variance to the grain futures markets over the coming weeks. I will look to build long positions during periods of price weakness. The deal with China should limit any downside until the 2020 growing season during the summer months. However, Coronavirus has weighed on the prices over the past weeks. Lower price levels could create a buying opportunity in the agricultural products that feed the world for the coming weeks and months. I continue to believe that the demand side of the fundamental equation for grains will limit any selloffs. At the same time, the uncertainty of the weather during the coming crop year could create the ideal conditions for sudden sharp rallies. I believe that any weakness in grains could offer some of the most compelling buying opportunities in the commodities asset class over the coming weeks.

Each year is a new adventure in the agricultural commodities that feed the world. The beginning of spring is the time of the year when uncertainty can lead to increased price variance.

 

Copper, Metals, and Minerals

The base metals and industrial commodities sector were quiet with few dramatic price changes over the past week. COMEX copper posted a marginal gain and was just over the $2.60 level on Wednesday, while LME copper also moved a bit higher. Lead and tin moved higher over the past week, while aluminum, nickel and zinc went the other way as of the close of business on February 18. Iron ore was higher, and the Baltic Dry Index was higher for the first week in ages. Lumber posted a gain and uranium was unchanged since February 12.

Copper fell rose 0.23% on COMEX, while the red metal posted a 0.74% gain on the LME since the last report. Open interest in the COMEX futures market moved 2.32% higher since February 11. March copper was trading at $2.6060 per pound level on Wednesday after trading to a low of $2.4875 on February 3. Copper is a leading barometer for the overall health and wellbeing of the Chinese and global economies. The outbreak of Coronavirus has weighed on Chinese economic growth. The increase in stockpiles had weighed on the price of the red nonferrous metal. Over the past three weeks, copper inventories declined.

Just as in the crude oil market, copper put in a bearish reversal on the monthly chart in January. A close below $2.5150 per pound at the end of March would put in the same bearish price reversal pattern on the quarterly chart. Both copper and oil remained above the levels that would create bearish reversal on the long-term chart on Wednesday.

The LME lead price was the most significant gainer of the base metals as it moved higher by 2.16% since February 11. The rise in demand for electric automobiles around the world is supportive of lead in the long term as the metal is a requirement for batteries. The price of nickel fell by 1.30% over the past week. The export ban in Indonesia began on January 1, 2020 but has had little impact on the price of the nonferrous metal so far this year. Tin rose 0.92% since the previous report. Aluminum was 0.50% lower since the last report. The price of zinc moved 0.33% to the downside since February 11. Zinc was below the $2150 level on February 18. Base metals will continue to be highly sensitive to any news and developments on trade between the US and China. The path of least resistance of the US dollar could also impact prices, and the greenback moved above its September 2019 high on Wednesday, which was not a supportive factor. The current level of global interest rates is supportive of the prices of nonferrous metals, but the Coronavirus is a negative factor as it weighs on Chinese economic growth. Bullish and bearish factors are pulling base metal prices in opposite directions.

March lumber futures were at the $460.30 level, up 1.28% since the previous report. Interest rates in the US will influence the price of lumber. The US Fed left interest rates unchanged at its recent meeting. Lumber is a requirement for new home construction, which is a function of the level of interest rates. Low rates are likely to support the price of wood in 2020. The price of uranium for March delivery was unchanged at $24.60 per pound. The volatile Baltic Dry Index gained 7.66% since February 12to the 450 level after significant losses throughout the winter months. June iron ore futures were 1.50% higher compared to the price on February 12. Open interest in the thinly traded lumber futures market increased by 6.65% over the period, after an almost 20% rise last week, which continues to be a bullish sign for the price of wood.

LME copper inventories moved 2.07% lower to 166,475 metric tons since last week. COMEX copper stocks fell by 0.34% from February 4 to 29,338 tons. Lead stockpiles on the LME fell only 0.11%, while aluminum stocks were 5.03% lower. Aluminum stocks fell to the 1,177,425-ton level. Zinc stocks rose 3.71% since the last report, after a significant rise in inventories last week. Tin inventories rose 17.14% since February 11 to 7,485 tons. Nickel inventories were 4.55% higher compared to the level on February 11. The export ban from Indonesia took effect on January 1.

The dollar, US interest rates, trade, and the overall direction of the global economy are the primary factors when it comes to base metal prices. Trade and the Chinese economy will have the most significant impact on the path of least resistance for the nonferrous metals. The trade deal provided some support for the sector but concerns over Coronavirus have overwhelmed the markets over the past weeks and caused risk-off conditions in industrial commodities and markets across all asset classes until some light buying stabilized prices.  The higher dollar could weigh on the sector.

We own two units of Energy Fuels Inc. (UUUU), a US producer of uranium and vanadium, at an average of $2.55 per share. We are working a stop at $1.19 and have an initial profit target at $6 per share. There is a double bottom on the long-term chart at the $1.29 level. I am giving this position plenty of room and plenty of time. If the shares continue to fall, I will add another one and possibly two units to this trade to average down the price on the long position. UUUU was trading at $1.44 per share on Wednesday, down 28 cents over the past week. Low uranium prices continue weighed on the share prices of most producers over recent weeks.

We own the January 2021 $15 call on X shares at $3.30 per share, and it was trading at 38 cents on February 12, down 5 cents since last week. I believe this option is an inexpensive way to hold a long-term position in X shares at a low level until early 2021. The details for the call option are here:

https://finance.yahoo.com/quote/X210115C00015000?p=X210115C00015000

 

US Steel shares were at $9.20 per share and moved 0.88% higher since last week.

We own two units of FCX shares at an average of $10.56. The stock was trading at $12.10 on Wednesday, $0.57 lower since the previous report. I continue to maintain a small long position in FCX shares.

The base metals and other industrial commodities are likely to move higher and lower based on the news cycle on trade between the US and China over the coming months. However, the most significant factor will continue to be the progress of Coronavirus and its impact on the Chinese economy.

I remain cautiously bullish on the prospects for base metals and industrial commodities prices in 2020. I would be a buyer on price weakness, leaving plenty of room to add at lower prices in all of the industrial commodities.

 

Animal Proteins

Animal protein futures prices rebounded across the board since last week with gains in both live and feeder cattle contracts and lean hogs. With spring just around the corner, the market will soon shift focus to the upcoming grilling season. The grilling season begins in late May during the Memorial Day weekend holiday and runs through Labor Day in early September.

April live cattle futures were at $1.20800 per pound level up 2.50% from February 12. Technical resistance is at $1.28550 and $1.3000 per pound. Technical support stands at around $1.16650 per pound level. Price momentum and relative strength indicators were trending higher at over neutral readings on Wednesday. Open interest in the live cattle futures market moved 1.67% higher since the last report.

March feeder cattle futures outperformed live cattle as they rose by 4.24% since last week. March feeder cattle futures were trading at the $1.40775 per pound level with support at $1.3365 and resistance at $1.47750 per pound level. Open interest in feeder cattle futures fell by 0.70% since last week. While live cattle futures have a delivery mechanism, feeder cattle are a cash-settled futures contract. Sometimes live cattle prices lead feeder cattle prices, while at others, the opposite occurs.

Lean hog futures outperformed the cattle futures since the previous report. The active month April lean hogs were at 67.575 cents on February 19, which was 5.96% higher from the level on February 12. Price momentum and the relative strength index were rising from deeply oversold readings over the past week and were over neutral readings on Wednesday. Support is at 61.00 cents with technical resistance on the April futures contract now at 75.975 cents per pound level.

The forward curve in live cattle is in backwardation from February 2020 until August 2020, and the market shifts to contango from August 2020 through April 2021. Backwardation returns until June 2021. The Feeder cattle forward curve is in contango from March 2020 through October 2020, and there is a small backwardation from October 2020 through January 2021.

In the lean hog futures arena, there is contango from April 2020 until July 2020. From July 2020 through December 2020, the curve is in backwardation, but contango returns from December 2020 through July 2021. The forward curves reflect the seasonal trading patterns in the meat markets. In lean hogs, the shortage in China could impact the forward curve over the coming weeks and months now that the trade war de-escalated. China needs US pork exports given the current situation, and we could see purchases as a result of Chinese concessions as the nation continues to suffer from a severe shortage of pork. The Coronavirus could increase demand for pork from China as the country is banning the consumption of other meat products, which could be the source of the virus. However, the kneejerk reaction to the virus had caused significant selling and risk-off conditions in the lean hog futures arena. Lean hog futures recovered over the past week.

The long-term average for the spread between live cattle and lean hogs is around 1.4 pounds of pork for each pound of beef. Over the past week, the spread between the two in the April futures contracts moved higher as the price of live cattle outperformed lean hogs on a percentage basis.

Source: CQG

Based on settlement prices, the spread was at 1.78760:1 compared to 1.84790:1 in the previous report. The spread decreased by 6.03 cents as live cattle became less expensive than lean hogs over the past week. The spread moved towards the historical norm on the April futures contracts.

Soon the markets will turn their focus to the upcoming 2020 grilling season of peak demand in the US, which begins in late May and runs through early September. Production in Argentina and Brazil and any moves in the currency markets for the peso or the real could impact the prices of beef and pork. Over the past weeks, both currencies remained weak. Any rise in the Brazilian real and Argentine peso could provide some support for meat prices. Lower values for the South American currencies would likely weigh on futures prices as they cause production costs to decline. Grain prices over the coming weeks could also impact the path of least direction for the prices of meat futures. Lower grain prices make animal feed prices lower and weigh on meat prices. We could see two-way price volatility increase as the winter season ends in the US.

I continue to believe we will see recoveries in cattle and hog prices, the COW ETN product, as we move closer to the season of peak demand. The trade agreement between the US and China could boost US exports of beef and pork to China. I believe the USDA underestimated demand in the most recent February WASDE report, which could lead to higher prices over the coming weeks and months.

 

Soft Commodities

Four of the five soft commodities posted gains over the past week as March futures rolled to May. Coffee was the leader on the upside and FCOJ also moved higher. Sugar and cotton futures posted gains of under 1%. Cocoa corrected lower after falling short of the $3000 per ton level.

March sugar futures rolled to May and rose 0.13% since February 12, as the price of the sweet commodity was around the 15.08 cents per pound level on the new active month futures contract. Technical resistance is at 15.29 cents with support at 13.98 cents. Sugar made a new high at 15.90 cents on February 12 on the continuous contract. Nearby sugar futures traded to a low at 13.20 cents on January 2, which is a critical level of short-term support. The value of the January Brazilian real against the US dollar edged lower over the past week and was at the $0.22880 level against the US dollar on the February contract, 0.54% lower over the period. The Brazilian currency recently fell below its multiyear lows, which is a factor for the price of sugar and other commodities where Brazil is a leading producer and exporter. The currency fell through the critical support level at $0.23040 and probed below $0.23 to a new low of $0.22805. Anyone with a risk position in sugar should keep an eye on the price action in the Brazilian real. Price momentum and relative strength on the daily sugar chart were above neutral territory as of February 19. The metrics on the monthly chart crossed higher from a neutral condition and are headed for overbought territory. Sugar made a new high above its 2019 peak, and the next significant target on the upside could be the 20 cents per pound in the volatile sugar futures market if a deficit develops in the sweet commodity.  Open interest in sugar futures was 0.85% lower since last week. Open interest had been rising with the price, which was a bullish technical factor. Sugar rallied to new highs over recent weeks as drought conditions in Thailand created the supply concerns that lifted the price of sugar futures.

March coffee futures rolled to May and moved 6.08% higher since February 12 after a significant correction from the December 2019 high. May futures were trading at the $1.0900 per pound level. The first level to watch on the downside is 99.55 cents. Below there, support is at around 97.40 cents on the continuous futures contract. Resistance is now at $1.1380 on the nearby May contract. I continue to favor coffee on the long side, but coffee can be a highly volatile commodity in the futures market, as we have witnessed over the past weeks and months. Our stop on the long position in JO is at $27.99; we are long two units of the ETN at an average price at $34.92 per share. JO was trading at $34.41 on Wednesday. Open interest in the coffee futures market fell by 4.88% since last week. I am holding a long position in the coffee futures market and the JO ETN product after taking profits scale-up in late 2019. Volatility has increased in the coffee futures market. I began buying as the price fell below the $1 per pound level. I started selling at around $1.10 but will continue to hold a small core long position.

Supply concerns over Brazilian production in the off-year for crops had been supportive of the price of the soft commodity from mid-October through December. The ICO has warned that a deficit between supply and demand could be in the cards for the market because of the 2019/2020 crop year. However, those fears subsided, causing the price of the soft commodity to decline to a level where buying returned to the market. Coffee had made higher lows since reaching 86.35 cents in mid-April. The ultimate upside target is the November 2016, high at $1.76 per pound. Price momentum and relative strength rose above neutral levels over the past week. On the monthly and quarterly charts, the price action was positive, given the recent rebound. As I wrote in previous reports, “The risk rises with the price in the volatile coffee futures market. We should expect wide intraday trading ranges in the coffee futures market.”  Coffee can be a wild bucking bronco when it comes to the price volatility of the soft commodity.

The price of cocoa futures edged lower over the past week. On Wednesday, May cocoa futures were at the $2847 per ton level, 0.73% lower than on February 12. Open interest fell by 0.71%. Relative strength and price momentum were just above neutral territory on February 19. The price of cocoa futures rose to a new peak and the highest price since September 2016 at $2998 per ton on the March contract on February 13. We are long the NIB ETN product at $25.76. NIB closed at $34.00 on Wednesday, February 19. As the Ivory Coast and Ghana attempt to institute a minimum $400 per ton premium for their exports of cocoa beans, it should provide support to the cocoa market on price dips. The level to watch on the upside above the recent high is now at $3000 per ton. On the downside, short-term technical support now stands at $2702 per ton.

March cotton futures rolled to May and rose 0.56% over the past week on the back over concerns about the Chinese economy. May cotton was trading at 69.65 cents on February 19. On the downside, support is at 67.30 and 66.75 cents per pound. Open interest in the cotton futures market fell by 7.89% since February 11. Price momentum and relative strength metrics were rising at just above neutral readings on Wednesday. The “phase one” trade agreement between the US and China was a bullish factor for the price of the fiber futures, but Coronavirus cuts the other way. Cotton is coming into a time of the year when the price tends to peak. However, news out of China will determine the path of the fiber futures over the coming weeks, and that news has been problematic for the cotton market. As the Chinese economy grinds to a halt, the demand for cotton suffers.

March FCOJ futures are rolling to May and posted a gain since last week. On Wednesday, the price of May futures was trading around $1.0220 per pound. FCOJ nearby futures moved 1.44% higher over the past week. Support is at 95.55 cents level. Technical resistance is at $1.0275 per pound. Open interest fell by 0.39% since February 11. The Brazilian currency weighed on the FCOJ futures. $1 per pound could become a critical pivot point for the OJ futures.

The price action in coffee is a reminder of how volatile the soft commodity sector can become at times. Now that sugar is retreating from its most recent high, coffee has taken back the bullish baton and led the sector over the past week. Cotton prices remain low coming into the time of the year when they typically peak. However, the path of least resistance for the price of the fiber will be a function of events in China. Cocoa continues to make higher lows and higher highs. Buying dips and selling rallies has been the optimal approach in the cocoa futures market. OJ is now around its midpoint level on the May futures contract.

 

A final note

Commodity prices remained stable over the past week with NYMEX crude oil back over $50 per barrel and nearby copper futures hovering around the $2.60 level. Gold remained strong and looks poised to make new highs, while silver and platinum continue to lag the price action in the yellow metal and other PGMs.

Grain prices should experience an increase in volatility over the coming weeks as the planting season approaches in late March and early April. While Coronavirus remains a clear and present threat to the Chinese economy, and the nation is the demand side of the fundamental equation for commodities, I remain mostly bullish on the prospects for raw material prices. Make sure you approach all markets with a plan for risk-reward.

I plan to increase the price of The Hecht Commodity Report soon. However, all of my current loyal subscribers will never experience an increase in their monthly or annual subscription rates. I will grandfather all subscribers at their current rates for as long as they maintain their subscriptions. Thank you for your support.

 

 

 

Until next week,

 

Andy Hecht

 

Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal.  This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.