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  • Q2 comes to an end
  • Gold hits $1800 on June 30
  • Weakness in crude oil and products- Natural gas bounces
  • A grain rally on the final day of Q2
  • Strength in copper- Quarterly reports over the next week- No weekly report until July 15

 

A note to start:

The second quarter of 2020 ends today. The first half of this year has been a volatile period as the global pandemic caused an unprecedented shutdown of business activity. Central banks and governments responded with massive injections of liquidity when it comes to monetary and fiscal policy initiatives. As we head into the third quarter, we should expect volatility to continue. While the virus continues to present a clear and present danger to the US and global economies, the US election will be the most contentious in history. Social discord in the US adds another element that can cause bouts of market volatility across all asset classes.

Over the coming days, I will be posting my quarterly reports. I will not post a weekly report next week but will return on Wednesday, July 15, with the price action and analysis of the markets from June 30-July 15. If you have any questions, please feel free to email me. Have a happy and safe July 4 holiday!

Weekly Spreadsheet:

Copy of Spreadsheets for The Hecht Commodity Report June 30, 2020

 

Stocks and Bonds

Another bout of selling hit stocks over the past week as the US and world continue to grapple with Coronavirus and social protests. The upcoming Presidential election will begin to take the center of the stage as it will determine the US’s future policy direction. Challenger Joe Biden has a double-digit percentage lead in some of the polls, but with over four months to go, the gap is likely to narrow. The election has the potential to be the most contentious in US history, given the global pandemic, its impact on the economy, and social upheaval. All of the leading indices posted losses over the past week, but they were up on June 30. The bullish action on the final day of Q2 was likely window dressing.

 

The S&P 500 fell 0.99% since last week. The NASDAQ was 0.72% lower, and the DJIA posted a 1.31% loss. Together with other monetary authorities around the globe, the US central bank has injected unprecedented levels of liquidity into the financial system. At the same time, government stimulus programs that address high levels of unemployment and the surging costs of the virus have created ballooning debt levels. The price tag for the virus and a potential shift in US domestic and foreign policies is likely to continue to cause price variance over the coming weeks and months. This week, we reach the halfway point in 2020, a tumultuous year. Markets reflect the economic and political landscapes, and uncertainty is likely to continue to cause volatility in markets across all asset classes. The stock market is no exception.

 

Chinese stocks moved lower over the past week as they underperformed US equities.

Source: Barchart

As the chart illustrates, the China Large-Cap ETF product (FXI) was trading at the $39.70 level on Wednesday, as it declined by 2.91% since the previous report. The Chinese large-cap ETF product has been trading around the $40 per share level. Support is at the March low at $33.10 with resistance at $41.65, the June 10 high. FXI has made higher lows and higher highs since March. A continuation of the bullish pattern could depend on the virus and US-Chinese relations over the coming weeks and months.

September US 30-Year bonds moved higher over the past week as the stock market moved to the downside. Interest rates in the US are not moving appreciably higher any time soon. On Tuesday, June 30, the September long bond futures contract was at the 178-18 level, 0.92% higher than on June 23. Short-term support for the long bond is at 170-30 with resistance at 180-28. The bond market action reflects Fed policy, which has made dips in bonds a buying opportunity. The pattern of trading is likely to continue, given the Fed’s approach to monetary policy.

Open interest in the E-Mini S&P 500 futures contracts rose by 1.63% since June 22. Open interest in the long bond futures rose 0.11% over the past week. The VIX traded to a high of 85.47 on March 18, the highest level since 2008. I have been writing, “I continue to believe that risk-reward favors buying the VIX and VIX-related products with tight stops and reestablishing positions after the market triggers stops is the optimal approach in the current environment. Nothing has altered my approach to the VIX over the past week.” I have traded from the long side over the past weeks. The volatility index was at 30.43 on June 30, down 3.00% on the week.

I continue to trade related products like VIXX, and VIXY are short-term trading tools. The most recent high in the VIX was at 44.44 on June 15. I will continue to buy VIXY or VIXX on dips when the volatility index falls and take profits on rallies. These are short-term trading instruments, so I use very tight stops and re-enter on the long side at lower levels after the markets trigger stops. I have let profits run but stopped losses quickly. On profitable positions, I have employed trailing stops.

As I wrote last week, “I prefer European and emerging market stocks to US equities. While US stocks could continue to edge higher in the low interest rate environment, they have come a long way from the March lows. Political uncertainty in the US with the upcoming election could make foreign markets more attractive for investors at this time. Emerging markets with exposures to commodities and inflation-sensitive assets could provide opportunities for outperformance when compared to the US stock market.” I believe that foreign equities offer more upside potential than US stocks over the coming months. Expect lots of volatility, and only buy during periods of price weakness.

 

Precious Metals

As of the settlement prices on June 30, three of the precious metals that trade on the COMEX and NYMEX exchanges posted gains. Platinum and rhodium edged lower. Gold continued to make higher highs as the price moved to a peak of $1804 and closed Q2 at $1800.50 on the nearby August futures contract.

Gold was 1.08% higher over the past week. The yellow metal made a higher high at $1804 on June 30. Silver rose 2.09% since June 23. August gold futures were at $1800.50 per ounce level on Wednesday. July silver rolled to September and settled at $18.637 per ounce on June 30. I maintain a bullish opinion on the gold and silver markets as the odds favor that the price action that followed the 2008 global financial crisis is a blueprint for the coming months and years.  Stimulus is bullish fuel for gold and silver as increases in the money supply weigh on the value of fiat currencies. Price corrections continue to be buying opportunities in the silver and gold markets. However, we could see wide price variance given the price levels. I continue to hold a long core position in gold and silver. I am also running short-term long positions looking to buy on dips with the hope of taking profits on rallies. On the short-term risk positions, I am using both the metals and the diversified gold and silver mining ETF products. Nothing has changed since last week. Gold continues to make small strides on the upside as the price probes above the $1800 per ounce level.

While I am bullish on the gold and silver markets, they rarely move in a straight line. Using corrections as buying opportunities is likely to be the optimal approach to trading and investing.

Technical resistance for August gold stands at the recent high at $1804 per ounce, the high from mid-April. Support is at $1671.70, the low from June 5. In September silver, support is at $17.175, with resistance at $19.035 on the new active month contract. If the price action from 2008 through 2011 is a guide, gold will head for the $2000 to $3000 per ounce level over the coming months, and silver should follow the yellow metal to the upside.

Gold mining shares moved higher with the yellow metal over the past week, with the GDX up 3.70% and GDXJ moving 3.31% to the upside. The mining shares tend to outperform the yellow metal on the upside and underperform on the downside. The market action gave way to a slight outperformance by the mining shares on a percentage basis. The SIL and SILJ silver mining ETF products that hold portfolios of producing companies moved 2.27% and 4.97% higher since June 23. The price action outperformed the silver futures market.

Gold underperformed silver over the past week. The silver-gold ratio reached a new modern-day high as risk-off selling hit the silver market, taking the price below the $12 per ounce level. The ratio had been moving steadily lower over the past weeks. I will continue to add to long physical positions in gold, silver, and platinum, during periods of price weakness. I will continue to trade leveraged derivatives and mining stocks on a short-term basis with tight stops. While gold mining stocks and derivatives follow the price of gold, they are not the metal and could experience significant periods of price deviation if risk-off conditions return to the stock market. I hold long core positions but will employ tight stops on any new positions that increase exposure to the two leading precious metals.

July platinum rolled to October and fell only 0.13% since the previous report.  Platinum continues to lag the rest of the precious metals sector in 2020. October futures were at the $851.20 per ounce level on June 30. The level of technical resistance is at $931.80 on the October futures contract, the May 20 high. Support in platinum is at $798.00 per ounce on the new active month contract. Rhodium is a byproduct of platinum, and the price of the metal had been in a bull market since early 2016. The price of rhodium was at a midpoint price of $6,800 per ounce on June 30, down $200 or 2.86% over the past week. September Palladium rose by 0.81% since last week. Support is at $1830.20 on the September contract with resistance at $2060.30. September palladium settled at the $1966.90 per ounce level on Tuesday. The support and resistance levels in silver and platinum moved over the past week as the July future rolled to the new active months. In gold, the resistance level moved higher as the yellow metal reached a new eight-year peak at $1804.

Open interest in the gold futures market moved 4.76% higher over the past week. The decline over the past weeks in open interest is because of problems with dealers when it comes to the EFP, or arbitrage positions between gold for delivery on COMEX and London. The metric moved 2.93% higher in platinum. The total number of open long and short positions increased by 1.67% in the palladium futures market. Silver open interest fell 6.00% over the period.

The silver-gold ratio moved a bit lower over the past week.

Source: CQG

The daily chart of the price of August gold divided by September silver futures shows that the ratio was at 96.83 on Tuesday, down 0.88 from the level on June 23. The ratio traded to over the 124:5 level on the high on March 18 on the continuous contract. The long-term average for the price relationship is around the 55:1 level. The ratio rose to the highest level since futures began trading in 1974 as the price of silver tanked recently. The move lower since mid-March has been a supportive factor for the two metals. In 2008, the ratio peaked during the risk-off selling and then fell steadily until 2011.

Central banks continue to purchase gold, and net buying by central banks is a supportive factor for the price of the yellow metal.

Platinum was 0.13% lower, and palladium moved 0.81% to the upside over the past week. September Palladium was trading at a premium over October platinum with the differential at the $1115.70 per ounce level on Wednesday, which widened a bit since the last report. October platinum was trading at a $949.30 discount to August gold at the settlement prices on June 23, which widened since the previous report.

The price of rhodium, which does not trade on the futures market, fell $200 on the week. Rhodium is a byproduct of platinum production. The low price of platinum caused a decline in output in South African mines, creating a shortage in the rhodium market that lifted the price to the $13,000 level before risk-off conditions caused the price to evaporate to $2,000. Rhodium has been highly volatile over the past weeks after reaching its peak. The price moved higher from a low at $575 per ounce in 2016. The bid-offer spread in Rhodium remained at $2000 per ounce, $1,000 narrower than in previous weeks. The spread remains at a level that makes any investment in the metal irrational. Rhodium is an untradeable commodity, but it can provide clues about the price path of the other PGMs.

I continue to favor buying physical platinum as well as gold and silver during corrective periods. In gold and silver, the GLD, IAU, BAR, and SLV ETF products hold physical bullion and are acceptable proxies for the coins and bars. In platinum, PPLT and PLTM are the proxies. Since a NYMEX platinum futures contract contains 50 ounces of metal, purchasing a nearby futures contract on NYMEX and standing for delivery is a way to avoid significant premiums for the metal. At $851.20 per ounce, a contract on NYMEX has a value of $42,560, after falling to the lowest level just under two decades in March.

The GLTR ETF product holds a portfolio of physical gold, silver, platinum, and palladium, for those looking for diversified precious metals exposure. I continue to believe that gold is heading a lot higher, but the route will not be in a straight line. The stimulus in the US and Europe continues to be highly supportive of gold and silver prices. Platinum is inexpensive from a historical perspective compared to gold and palladium. Palladium and rhodium continue to trade in bullish patterns, but both are sensitive to global economic conditions. We should continue to see volatility in all of the precious metals with a bias to the upside. I continue to favor gold, silver, and platinum on price weakness. I hold a long core position and a trading position where I buy dips and take profits on rallies. Since mining shares tend to be more volatile, I have used the mining ETFs and ETNs in gold and silver shares for short-term trading purposes. The higher high in gold over the past week is another sign of technical and fundamental strength for the yellow metal as the Fed continues to add liquidity to markets. As I have written in the past, the ascent of gold marks the descent of fiat currencies that rely on the full faith and credit of the governments that print legal tender. Central banks and governments worldwide continue to hold and be net buyers of gold, which is the ultimate currency. While countries can print legal tender to their heart’s content, the gold stock can only increase by extracting more from the crust of the earth. If 2020 turns out to be anything like 2008, new all-time highs in gold are on the horizon, and the precious metal has the potential to surprise and even shock market participants on the upside in the coming months and years.

 

Energy Commodities

The stock market moved lower over the past week, and so did the energy sector of the commodities market. The correlation between energy and equities has been a consistent theme since earlier this year. The only energy commodities to post gains since last week were natural gas and coal for delivery in Rotterdam. Crude oil, oil products, oil processing spreads, and ethanol prices all moved lower on the back of fears over demand.

August NYMEX crude oil futures fell 2.73% since June 23. The August contract settled at $39.27 per barrel on June 30 after trading to a low of $17.27 on April 28 and a high at $41.63 on the August futures contract on June 23. The bottom of the gap on the daily chart from March remains at the $42.17 level. Production cuts by OPEC and the decline in US output contributed to the recent recovery from the lowest prices in history for WTI crude oil futures in late April. However, crude oil inventories rose for the week ending on June 19, according to both the API and EIA, product stockpiles were mostly lower during the most recent week. Crude oil inventories moved significantly lower for the week ending on June 26, according to the API, which could add some support to the market if the EIA reports a decline on Wednesday.

Chinese demand for crude oil has been robust over the past weeks. With parts of the economy reopening in Europe and the US, the demand side of the equation has improved. However, news of new outbreaks and hotspots continue to pose a threat to the recovery in the energy commodity, which has weighed on the price of the energy commodity. The current target on the upside in August NYMEX futures is the bottom end of the gap at $42.17 per barrel from March 6, which stands as a resistance level.

August Brent futures underperformed June NYMEX WTI futures, as they fell 3.42% since June 23. August gasoline was 7.46% lower, and the processing spread in August dropped 21.18% since last week. The August gasoline crack spread was at $11.20\ per barrel. Wild swings in energy prices caused wide price ranges in the crack spreads the reflect refining margins. Gasoline crack spreads tend to exhibit strength during the summer driving season in the US, but 2020 is no ordinary year.

August heating oil futures moved 2.39% lower from the last report. The heating oil crack spread was 0.94% lower since June 23. Heating oil is a proxy for other distillates such as jet and diesel fuels. The August distillate crack spread recently traded to a low of $8.47 and closed on Tuesday at $10.57 per barrel. The price action in the processing spreads has been highly volatile, given the timing differences between moves in crude oil and products over the past weeks. The crack spreads are a real-time indicator of demand for crude oil as well as barometers for the earnings of refining companies that process raw crude oil into oil products. The crack spreads could be a significant indicator of demand over the coming days and weeks as the wheels of the US economy have begun moving. However, the energy market remains highly sensitive to new outbreaks and hotspots in the US and worldwide. The crack spreads moved lower as the number of reported cases of COVID-19 rose in the US.

Technical resistance in the August NYMEX crude oil futures contract is at $41.63 and $42.17 per barrel level with support at the $34.66 level. The measure of daily historical volatility was at 43.7% on June 30, a bit lower than the 46.9% level on June 23. The price variance metric was at almost 135% in early May on August futures. Demand remains the overwhelming critical factor when it comes to the price direction of the energy commodity. As I wrote over the past weeks, “falling production should eventually balance the market and could create a deficit at some point in the future. The course of the pandemic is crucial for the oil market over the coming weeks and months. If we have seen the peak, we could see prices rise. However, further outbreaks that prompt a return to closing parts of the economy again would be a highly bearish factor for energy demand.” The new active month NYMEX crude oil futures contract has made higher lows and higher highs. The price needs to remain above the $34.66 level to keep that pattern intact.

The Middle East remains a potential flashpoint for the crude oil market. Relations between the US and Iran and Saudi Arabia and Iran have not improved over the past months. While the leadership in Teheran has had their hands full with coronavirus, we could see them lash out at US interests in the region over the coming weeks or months. Any hostilities that cause supply concerns could send the price of crude oil for nearby delivery appreciably higher in the blink of an eye. At just over $41 per barrel for the Brent benchmark, any actions that impact production, refining, or logistical routes could cause a far greater percentage move in the price of oil than we witnessed at the beginning of 2020. The Middle East could provide surprises to the oil market, but global demand remains the primary factor for the price over the coming weeks. The August Brent futures contract rolled to September on the final day of June.

Crude oil open interest increased by 0.21% over the period. NYMEX crude oil fell by 2.73%, and the energy shares underperformed the energy commodity since June 23. The XLE dropped 3.67% for the week as of June 30.

I continue to be cautious when it comes to any investments in debt-laden oil companies. I would only consider those with the most robust balance sheets like XOM and CVX in the US. Exxon and Chevron could stand to pick up lots of production assets at bargain-basement prices over the coming months as the number of bankruptcies rises in the oil and gas sectors. I would only purchase these companies during corrective periods. Nothing has changed since last week when it comes to opportunities for oil-related equities.

The spread between Brent and WTI crude oil futures in September moved higher to the $1.93 per barrel level for Brent, which was down 40.0 cents from the level on June 23. The September spread moved to a high of $5.45 on March 18. The continuous contract peak was at $11.52 on April 20 as all hell broke loose in the crude oil futures market. The Brent premium tends to move higher during bullish periods in the oil market and vice versa. However, this time, it was the carnage in the price of WTI futures that drove the spread to higher levels. Brent crude can travel by ocean vessel to consumers around the globe, while WTI is a landlocked crude oil. The lack of storage capacity was responsible for the price action in the spread and outright prices in late April. The decline in the Brent-WTI could reflect the decline in US output and the anticipation of rising demand for gasoline.

A decline in US production over the coming months could cause significant volatility in the Brent-WTI spread. Before 2010, WTI often traded at a $2 to $4 premium to Brent. The WTI grade has a lower sulfur content making it the preferable crude oil for processing into gasoline, the world’s most ubiquitous fuel. If US output continues to decline significantly and demand returns to the market, we could see it impact the Brent-WTI differential and cause periods where WTI returns to a premium to the Brent, which is better suited for refining into distillate products. The USO and BNO ETF products replicate the short-term price action in WTI and Brent futures, respectively. While both do an adequate job tracking the futures in the short-term, neither are particularly effective for medium or long-term positions because of the volatility of the forward curves in both crude oil benchmarks. The path of least resistance of the oil market will be a function of the ups and downs of the global pandemic over the coming weeks and months.

Term structure in the oil market experienced a significant shift as the price of crude oil tanked in March and April. The flip from backwardation to contango in the spread reflects the flood of supplies in the crude oil market. Oil traders have filled tanks and storage all over the world to take advantage of the wide contango with financing rates at historic lows. Cash and carry trades in the oil market became one of the only profitable areas of the market as demand evaporated. The cash and carry trade put upward pressure on freight and storage rates. The forward curve in crude oil highlights the current state of the widest contango in years. The US is filling its strategic petroleum reserve to the brim at the current low price levels. The contango caused the price of May futures to plunge to an incredible low of negative $40.32 per barrel. As prices moved higher over the recent weeks, contango declined.

Over the past week, August 2021, minus August 2020, moved from a contango of $1.35 to $0.63, which was 72 cents lower on the week after trading below the June 18 low at $0.84. In early January, the spread traded to a backwardation of $5.05, $5.68 per barrel tighter than the level on June 30. The spread hit a high of $10.19 per barrel on April 28. August futures traded to a low of $20.28 on April 22. Rising contango was a sign of a glut in the oil market while falling contango signifies tighter supplies. The capacity for crude oil storage around the globe fell dramatically as well-capitalized traders purchased nearby crude oil, put it in storage, and sold it for futures delivery. The decline in the spread could have triggered some profit-taking, which opened up more capacity on the storage front.  Falling production also caused the spread to tighten. We are likely seeing an unwind of the spreads as they have gravitated back towards flat as production declines and inventories begin to fall over the coming months, which would result in significant profits for well-capitalized crude oil traders. The decline in contango since late April is a supportive sign for the price of oil. The number of rigs operating in the US continued to decline significantly over the past week, and production has been moving lower in response to the lowest price levels in years and demand problems over the past months.

US daily production rose to 11.0 million barrels per day of output as of June 19, according to the Energy Information Administration. The level of production increased 500,000 barrels from the previous week, as the price moved to the $40 per barrel level on nearby NYMEX futures. The EIA will report data for the week ending on June 26 on Wednesday, July 1. As of June 19, the API reported an increase of 1.749 million barrels of crude oil stockpiles, and the EIA said they rose by 1.40 million barrels for the same week. The API reported a decline of 3.856 million barrels of gasoline stocks and said distillate inventories fell by 2.605 million barrels as of June 19. The EIA reported a decline in gasoline stocks of 1.70 million barrels and an increase in distillates of 249,000 barrels. Rig counts, as published by Baker Hughes, fell by one for the week ending on June 26, which is 605 below the level operating last year at this time. The decline in the rig count has been significant and should lead to falling output in the US. The number of rigs operating stood at 188 as of June 26. The inventory data from both the API and EIA was mixed. However, the rise in output in the US could have weighed on prices along with the action in the stock market. As of June 19, US production dropped by 2.1 million barrels per day since March.

OIH and VLO shares moved lower since June 23. OIH fell by 5.62%, while VLO moved 6.11% to the downside over the past week. As I wrote over the past weeks, “the level of crack spreads is a reason for short-term caution for VLO.” OIH was trading at $121.88 per share level on Wednesday. I am holding a small position in OIH. We are long two units of VLO at an average of $70.04 per share. VLO was trading at $58.82 per share on Tuesday.

The July natural gas contract rolled to August and settled at $1.751 on June 30, which was 3.73% higher than on June 23. The August futures contract traded to a high of $2.447 on May 5, where it failed miserably. Support in August stands at $1.517. Last week, the continuous contract made a new twenty-five-year low at $1.432 per MMBtu. The next target on the downside stands at $1.335, the low from the second half of 1995. Short-term resistance remains at the $1.960 level, the high in the August contract from June 5.  The bearish price action in natural gas led to a bounce over the past three sessions. The all-time low was in 1992 at $1.02 per MMBtu.

Last Thursday, the EIA reported a triple-digit increase in natural gas stockpiles.

Source: EIA

The EIA reported an injection of 120 bcf, bringing the total inventories to 3.012 tcf as of June 19. Stocks were 32.5% above last year’s level and 18.3% 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, this year the low was at 1.986, 879 bcf higher. This week the consensus expectations are that the EIA will report a 79 bcf injection into storage for the week ending on June 26. The EIA will release its next report on Thursday, July 2, 2020.  Over the past thirteen weeks, the percentage above last year’s level has been declining when it comes to natural gas stockpiles. The steady decline from 79.5% above the one-year level as of March 20 to 32.5% last week has not provided any fundamental support to the natural gas market. The trend could reflect higher demand or lower production. Given the events since March, it is likely that output is causing a slower rate of injections into storage. Baker Hughes reported that a total of 75 natural gas rigs were operating in the US as of June 26, compared to 173 last year at this time. Meanwhile, the price action over the past few weeks continued to be a sign of fragile demand. I suggest tight stops on any risk positions but continue to prefer the long side over the coming week. I have stopped out of risk positions for small losses over the past week, but caught the rally this week, which was overdue.

Open interest rose by 0.67% in natural gas over the past week. Short-term technical resistance is at $1.960 per MMBtu level on the August futures contract with support now at $1.517 per MMBtu, lower than last week. Price momentum and relative strength on the daily chart were on either side of neutral territory as of Wednesday.

August ethanol prices moved 1.22% lower over the past week. Open interest in the thinly traded ethanol futures market moved 2.17% lower over the past week. With only 90 contracts of long and short positions, the biofuel market is untradeable and looks like it could be delisted. The KOL ETF product fell 3.69% compared to its price on June 23. The price of August coal futures in Rotterdam rose 4.28% over the past week.

On Tuesday, June 30, the API reported an 8.156 million barrel decline in crude oil inventories for the week ending on June 26. Gasoline stocks fell by 2.459 million barrels, while distillate stockpiles increased 2.638 million barrels over the period. On Wednesday, the EIA will report inventory data and daily production of the week ending on June 26. The API report was bullish for the price of crude oil. Demand remains the significant factor for the price direction of the energy commodity.

I expect volatility in the crude oil market as it will move higher or lower on optimism or pessimism on the back of the progress of the virus and progress on treatments and a vaccine. The latest reports of new outbreaks were bearish for the energy sector. Production is falling, but demand remains the most significant factor when it comes to the price direction. The price recovery threatened to close the gap just above the recent high. While price gaps are powerful magnets for price action, the oil futures market fell short on the August futures contract, so far.

In natural gas, the forward curve continues to be wide, with January 2021 futures trading at a significant premium over natural gas for August 2020 delivery.

Source: NYMEX/RMB

As the forward curve over the coming months shows, the settlement prices on June 30, at $1.751 in August was 6.30 cents per MMBtu higher than on June 23.

The price is in contango where deferred prices are higher than levels for nearby delivery, reflecting the condition of oversupply and high level of inventories compared to past years as we are in the 2020 injection season. Natural gas stockpiles started the 2020 injection season at a level where a build to over four trillion billion cubic feet and a new record high is possible in November, which could keep the price from running away on the upside in the lead-up to the winter of 2020/2021. However, production is likely grinding lower because of the low level of prices that make output uneconomic. The trend in stocks since March 20 compared to last year is a sign of declining output. The debt-laden oil and gas businesses in the US could receive support from the government to keep energy output flowing, but demand destruction is a critical factor. Meanwhile, the differential between nearby August futures and natural gas for delivery in January was $1.132 per MMBtu or 64.6% higher than the nearby price, reflecting both seasonality and substantial inventory levels.

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 attract lots of volume and are excellent short-term proxies for natural gas futures. I will not take positions in leveraged products overnight and will only day trade, given the volatility in the markets.

We are holding a long position in PBR, Petroleo Brasileiro SA. PBR shares tanked with oil and the Brazilian real but has made a comeback. At $8.27 per share, PBR was 5.49% lower than on June 23. I have a small position that I will hold as a long-term investment. PBR had been weak on the back of the falling value of the Brazilian currency.

Demand continues to be the primary factor that will drive energy prices over the coming days and weeks. The recovery ran into a roadblock as the number of cases of the virus is climbing in the US. Natural gas was at a quarter of a century low, but that does not mean it cannot continue to grind to the downside. However, I remain more comfortable with the long side with tight stops. I continue to believe that crude oil will fill the gap on the August chart up to $42.17 per barrel, but the correlation with the stock market should remain firmly in place. Tight stops are key when approaching energy commodities in the futures or ETF arena. When it comes to share prices, I believe that the leading companies will eventually rebound, but it could take some time. Energy powers the world, and demand is critical throughout the rest of 2020. In 2021, US energy policy could change, which would impact the dynamics of the fundamental equation for fossil fuels.

 

Grains 

Grain prices were all lower on the week, but a rally on the final day of June turned the losses into gains in soybeans, corn, and wheat futures compared to last week’s closing levels. We are now in the heart of the 2020 growing season, and so far, there have been no weather events that threaten the crops across the United States. As in many other commodity markets, demand remains a factor that is weighing on prices. The USDA will release its July WASDE report on July 10, which will update the markets on the progress of crops, inventories, and demand for agricultural commodities. I will be following the new crop contracts in the grains and oilseed futures beginning this week.

New crop November soybean futures rose 0.92% over the past week and was at $8.8225 per bushel on June 30. Tensions between the US and China are weighing on soybean prices, but the weather is the leading factor for the price of the oilseed over the coming weeks. We are now in the height of the summer growing season. Open interest in the soybean futures market moved 8.59% lower since last week. Price momentum and relative strength indicators were rising above neutral territory on Tuesday. A recovery rally is threatening to take the price to a test of the $9 per bushel level.

The December synthetic soybean crush spread fell 3.25 cents from the level on June 23 to 85.75 cents. The processing spread in December for new crop beans has been trending lower since reaching a peak at $1.1550 in early April.

I had been writing, “I believe that a relief rally is possible in the soybean futures and would only position from the long side of the market at under $8.50 per bushel.” US relations with China could throw cold water on the chances of higher price levels as we are now in the summer season. I suggest tight stops on long risk positions and would be looking to take profits on rallies. I will tighten risk parameters the further we move into the growing season, which risks tailing off to minimal levels during the peak summer months when crops become established in August. The best chances for a supply-based rally will come during the coming weeks in early to mid-July when the plants are most vulnerable. My guidance is unchanged from last week. The weather is the most significant factor over the coming weeks. I will take profits on a scale-up basis leaving a small core long position over the coming weeks.

December corn was trading at $3.5050 per bushel on June 30, which was 4.32% higher on the week. Open interest in the corn futures market fell by 3.74% since June 22. Technical metrics were rising above neutral readings in the corn futures market on the daily chart as of Tuesday. Support on December corn futures is at the $3.22 level, on the continuous contract, $3 per bushel is a line in the sand on the downside. Long positions should have stops below $3 per bushel. Technical resistance is now at $3.7075 level after the June 30 rally.

Corn will continue to be highly sensitive to the price path of gasoline. Ethanol production in the US accounts for approximately 30% of the annual corn crop.  The price of August ethanol futures fell by 1.22% since the previous report. August ethanol futures were at $1.22 per gallon on June 30. The spread between August gasoline and August ethanol futures was at 1.85 cents per gallon on June 30, with gasoline at a small discount to ethanol. The spread moved 8,18 cents lower since last week as gasoline underperformed the biofuel in August futures.  The prospects for corn prices are a function of both the weather and the price of gasoline and crude oil. Corn found support from the energy sector over the past weeks, which lifted the price to its highest level since April 14. Over the past week, energy and ethanol fell, but corn futures rebounded.

September CBOT wheat futures rose 0.15% since last week. The September futures were trading $4.9175 level on June 30. Open interest decreased by 4.82% over the past week in CBOT wheat futures. The support and resistance levels in September CBOT wheat futures stand at $4.7100 and $5.3275 per bushel. Price momentum and relative strength were rising from an oversold condition on Tuesday on the daily chart and were in neutral territory.

As of Tuesday, the KCBT-CBOT spread in September was trading at a 52.00 cents per bushel discount with KCBT lower than CBOT wheat futures in the May contracts. The spread widened by 4.50 cents since June 23. 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.” 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. The spread moved away from the long-term average over the past week.

I continue to hold small long core positions in futures and the CORN, WEAT, and SOYB ETF products. The further we move into the growing season without any significant price appreciation, I will cut position sizes. The time of the year when crops are most vulnerable to the weather is between now and mid-July. As crops mature, they can withstand periods of adverse conditions. I continue to favor the long side but will be looking at the calendar as a time stop on positions is likely to be the optimal approach to controlling risk. Grains have been disappointing, and farmers are suffering on the back of low prices. The July 10 WASDE could cause some volatility in the markets, but the time for recovery rallies is growing short. I did some light selling during Tuesday’s rally but remain long all of the grain markets.

 

Copper, Metals, and Minerals

Base metals prices edged mostly higher over the past week with the only losses in tin and zinc on the LME. Copper, aluminum, nickel, and lead all posted small gains. Iron ore was lower, but the Baltic Dry Index continued to rebound. Lumber and uranium prices slipped since June 23.

Copper rose 2.48% on COMEX over the past week as July futures rolled to September. The red metal was 2.06% higher on the LME since the last report. Open interest in the COMEX futures market moved 1.57% higher since June 23. September copper was trading at $2.7285 per pound level on Tuesday. Copper is a leading barometer for the overall health and wellbeing of the Chinese and global economies. LME copper inventories fell, and COMEX stockpiles moved higher, continuing of the trend over the past weeks.

Long-term technical support for the copper market is at the early 2016 low of $1.9355 per pound. From a short-term perspective, the first level on the downside stands at $2.5570 per pound on September futures, and then the $2.5000 and $2.0595 levels. Chinese demand will continue to be the most significant factor when it comes to the path of the price of copper and other base metals and industrial commodities over the coming weeks and months. Then rising tensions over coronavirus, Hong Kong, and trade could cause volatility in the sector. Keep in mind that during the 2008 financial crisis, copper fell to a bottom of $1.2475 per pound. The decline came from over $4 per pound in early 2008. By 2011, the copper price rose to a new all-time high at just under $4.65 per pound. A massive level of stimulus is supportive of the price of copper and other commodities. Technical resistance is now at $2.7370 per pound, the June 30 high. The markets are not yet out of the woods when it comes to coronavirus. Any outbreaks that cause the economy to shut down again or take a significant step back in social distancing easing could cause selling to return to all markets, and industrial commodities could fall sharply. Therefore, caution is advisable in copper, which can become extremely volatile during risk-off periods. We could see volatility increase as tensions between the US and China rise. The $2.70 level gave way at the end of the month.

The LME lead price moved higher by 0.84% since June 22. The rise in demand for electric automobiles around the world had been supportive of lead in the long term as the metal is a requirement for batteries, but Coronavirus had weighed on the price of lead because of falling fuel prices. Since late April, the prices of crude oil, gasoline, and lead moved higher. The price of nickel moved 0.24% higher 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 fell 0.42% since the previous report as inventories rose. Aluminum was 1.04% higher since the last report. The price of zinc posted a 1.77% gain since June 22. Zinc was at the $2030.50 per ton level on June 29. Nonferrous metals remained within their respective trading ranges.

September lumber futures were at the $431.60 level, 0.48% lower since the previous report. Interest rates in the US influence the price of lumber. Lumber can be a leading economic indicator, at times. The price of uranium for August delivery fell 0.46% after recent gains and was at $32.55 per pound. The world’s leading producer, Kazakhstan, suspended production nationwide for three months to slow the spread of COVID-19, which helped to lift the price over the past months. The volatile Baltic Dry Index rose 15.15% since June 23 to the 1794 level after an over 47% rise last week. June iron ore futures were 1.36% lower compared to the price on June 23. Supply shortages of iron ore from Brazil have supported the price over the past year. Open interest in the thinly traded lumber futures market rose by 11.12% since the previous report.

LME copper inventories moved 5.91% lower to 219,600 as of June 29. COMEX copper stocks rose by 3.54% from June 22 to 79,148 tons. Lead stockpiles on the LME were 8.58% lower as of June 29, while aluminum stocks were 1.87% higher. Aluminum stocks rose to the 1,648,000-ton level on June 29. Zinc stocks decreased by 0.61% since June 22, after recent gains. Tin inventories rose 18.64% since June 22 to 3,565 tons. Nickel inventories were 0.18% higher compared to the level on June 22.

We own the January 2021 $15 call on X shares at $3.30 per share, and it was trading at 23 cents on June 30, down 6.0 cents since the previous report. The details for the call option are here:

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

 

US Steel shares were at $7.22 per share and moved 9.75% lower since last week.

FXC was trading at $11.57 on Wednesday, 49 cents higher since the previous report. I continue to maintain a small long position in FCX shares. FCX moves higher and lower with the price of copper.

I remain cautious on the sector and have limited any activity to very short-term risk positions. Brewing tensions between the US and China could cause a return of risk-off conditions to the industrial metals and commodities as can any new outbreaks of Coronavirus over the coming weeks and months. Keep stops tight on all positions in this sector that is highly sensitive to macroeconomic trends. Very little changed in this sector since last week.

We are long PICK, the metals and mining ETF product. We bought PICK at the $23.38 per share level, and it was trading at $24.53 on June 30, down 1.72% for the week. I continue to rate this metals and mining ETF that holds shares in the leading producing companies in the world a buy and a long-term hold. I would add to the long position on price weakness over the coming weeks and months if another risk-off period occurs. Base metals and industrial commodities prices could continue to follow crude oil and stocks over the coming week.  The price action in the sector was mostly stable to bullish over the past week. Copper is the leader of the pack. The move over the $2.70 level and a continuation of gains would be a constructive sign for the sector.

 

Animal Proteins

All of the meat futures moved lower over the past week, but lean hogs did a lot worse than live and feeder cattle futures.

August live cattle futures were at 96.275 cents per pound level down 0.95% from June 23. Technical resistance is at $1.0190 per pound. Technical support stands at 93.575 cents per pound level. The levels did not change over the past week. Price momentum and relative strength indicators were on either side of neutral readings on Tuesday. Open interest in the live cattle futures market moved 0.46% higher since the last report. The disconnect between cattle prices in the futures market and consumer prices at the supermarket continued to be a dislocation in the market. Very little changed in the cattle arena.

August feeder cattle futures slightly outperformed live cattle as they fell by 0.26% since last week. August feeder cattle futures were trading at the $1.32850 per pound level with support at $1.28325 and resistance at $1.38450 per pound level, also unchanged since June 23. Open interest in feeder cattle futures rose by 4.18% 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. Price momentum and relative strength metrics were also on either side of neutral territory on Wednesday. Cattle futures markets remained quiet over the past week.

Lean hog futures continued to plunge since the previous report. The August lean hogs were at 49.025 cents on June 30, which was 6.07% lower than last week’s level as the price moved below the 50 cents per pound level. Price momentum and the relative strength index were at oversold readings on June 30 on the August contract. Some support could be at the most recent low at 47.525 cents with technical resistance on the August futures contract at the 58.025 cents per pound level. The low from April at 37 cents is critical technical support. The same issues impacting beef are present in the hog market with low prices at origination points and bottlenecks at processing plants causing consumer prices to rise and shortages to limit availability for customers.

The forward curve in live cattle is in contango from June 2020 until April 2021. There is a backwardation between April 2021 and August 2021, when contango returns until October 2021. The Feeder cattle forward curve is in contango from August through November 2020 before it flattens until May 2021. The forward curves did not move over the past week.

In the lean hog futures arena, after contango from July through June 2021, there is backwardation from June 2021 through December 2021. Some supermarkets continue to limit beef, pork, and chicken purchases to prevent hoarding. The forward curve in lean hogs shifted towards contango as the price fell 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 August 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 1.96380:1 compared to 1.85140:1 in the previous report. The spread rose significantly by 11.24 cents as live cattle fell, but lean hog futures collapsed in August over the past week. The spread fell to a low of 1.2241 in mid-March, which was below the long-term average making pork more expensive than beef. The spread moved over the average and kept going, and beef is more expensive than pork on a historical basis on the August futures contracts, and the spread widened over the past week.

The current low prices could give way to far higher levels in 2021 as producers adjust to the new price environment. After processing plants resume regular schedules in the eventual aftermath of the virus, shortages could develop. I believe that today’s low price levels will cause prices to rise next year, and consumers will face even higher levels at the supermarket. I am a buyer of cattle and hogs on price weakness and would only trade the beef and pork futures market from the long side over the coming weeks. Nothing changed from the previous report. I view the weakness in hogs as an opportunity but picking a bottom can be challenging. A rally in the hog futures market is overdue.

Soft Commodities

Four of the five soft commodities moved higher over the past week; cocoa futures moved lower. Futures have rolled to their next active month on the Intercontinental Exchange. Cocoa futures were the worst performer, while FCOJ led the way on the upside with the most significant percentage gain.

October sugar futures rose by 0.34% since June 23, with the price settling at 11.96 on June 30. The price of the sweet commodity fell to a new multiyear low at 9.05 cents per pound on the May contract on April 28. Technical resistance on October futures is at 12.40 cents with support at 10.70 cents on active month futures. Sugar made a new high at 15.90 cents on February 12 on the continuous contract, but the price collapsed on the back of risk-off conditions. The decline in the price of crude oil and ethanol in April weighed on sugar as the primary ingredient in ethanol in Brazil is sugarcane. The recovery in the oil market provided support for the price of sugar. Weakness in the Brazilian currency reduces production costs and had been a bearish factor for the sugar market.

The value of the September Brazilian real against the US dollar was at the $0.18360 against the US dollar on Wednesday, 5.48% lower over the period. The September real traded to a new low of $0.16780 on May 13. The Brazilian currency had been making lower lows as Coronavirus weighed heavily on all emerging markets. Anyone with a risk position in sugar should keep an eye on the price action in the Brazilian real. Argentina’s recent default on debt obligations did not put downward pressure on the Brazilian real.

Meanwhile, Brazil has become a hotspot of the global pandemic, which could lead to supply chain problems for sugar, coffee, and oranges, as well as the other commodities produced by South America’s most populous nation and leading economy. Over the past week, we have seen price strength in two of the three of those soft commodities. Sugar was the exception.

Price momentum and relative strength on the daily sugar chart were just above neutral territory as of June 30. The metrics on the monthly chart were below a neutral reading, as was the quarterly chart. Sugar made a new high above its 2019 peak in February before correcting to the downside. The low at 9.05 was the lowest price for sugar since way back in 2007. In 2007, the price of sugar fell to a low of 8.36 cents before the price exploded to over 36 cents per pound in 2011. At that time, a secular rally in commodity prices helped push the sweet commodity to the highest price since 1980. If the central bank and government stimulus result in inflationary pressures, we could see a repeat performance in the price action in the commodities asset class that followed the 2008 financial crisis. Sugar could become a lot sweeter when it comes to the price of the soft commodity in a secular bull market caused by a decrease in the purchasing power of currencies around the world. The price action in sugar over the past weeks reflects the recovery in crude oil and gasoline prices as ethanol moved higher. A stronger real has also provided some support for the sweet commodity. Meanwhile, the lockdowns have weighed on demand, which could eventually cause production to decline.

In February, risk-off conditions stopped the rally dead in its tracks on the upside. Sugar found at least a temporary bottom at a lower low of 9.05 cents per pound. Open interest in sugar futures was 5.80% lower since last week. Sugar had rallied to new highs as drought conditions in Thailand created the supply concerns that lifted the price of sugar futures in late 2019 and early 2020. The correction in sympathy with the risk-off conditions in markets across all asset classes chased any speculative longs from the market. The long-term support level for the sweet commodity is now at 9.05 and 8.36 cents per pound. Without any specific fundamental input, sugar is likely to follow moves in the energy sector as well as the currency market when it comes to the exchange rate between the US dollar and the Brazilian real. Over the longer term, the cure for low prices in a commodity market is low prices as production declines, inventories fall, demand rises, and prices recover. We may have seen the start of a significant recovery in the sugar market after the most recent low. Over the past week, the price traded on either side of the 12 cents per pound level, but it was leaning lower. The 12 cents level could become a pivot point as the price of sugar consolidates.

September coffee futures moved 2.85% to the upside since June 23. September futures were trading at the $1.0100 per pound level. The technical level on the downside is at 94.55 cents on the September futures contract. Below there, support is at around 92.20 and 86.35 cents on the continuous futures contract, the bottom from 2019. Short-term resistance is at $1.0240 on the active month contract. The levels have not changed since last week. Coffee put in a bullish reversal on Monday, June 22. The price climbed back to the $1 level on June 29. 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. The lower coffee falls, the higher the odds of a significant rebound become. Our stop on the long position in JO is at $27.99. JO was trading at $31.19 on Tuesday. Open interest in the coffee futures market was 1.79% higher since last week. I continue to hold a small core long position in coffee after taking profits during the rally in March. I have added to my long position over the past week. From a technical perspective, a bottom above 92.20 cents would be constructive. Coffee could make a similar move to sugar, given the recent bounce in the Brazilian currency.

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 price of coffee has remained firm despite the risk-off conditions. The ultimate upside target is the November 2016, high at $1.76 per pound. Price momentum and relative strength turned higher from oversold territory on Tuesday and were above neutral readings. On the monthly chart, the price action was below neutral. The quarterly picture was also below a neutral condition. Coffee can be a wild bucking bronco when it comes to the price volatility of the soft commodity. Bottlenecks on South American ports could prove highly supportive of coffee prices as they could create a shortage of the beans. I expect volatility in coffee to continue, and I will look to trade on a short-term basis with a bias to the long side. Any new positions should have tight stops and defined profit objectives. Coffee remains near the bottom end of its pricing cycle. I would leave wide scales on buying as picking a bottom in the volatile coffee market is more than a challenge.

The price of cocoa futures moved lower over the past week on the now active month September contract. On Wednesday, September cocoa futures were at the $2186 per ton level, 4.54% lower than on June 23. Open interest rose by 3.13% over the past week. Relative strength and price momentum were below neutral readings and heading for oversold territory on June 30. 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. Risk-off conditions pushed the price of cocoa beans lower, but they bounced after reaching a low that was $7 above the technical support level on the weekly chart. Cocoa has been falling since early June. We are long the NIB ETN product. NIB closed at $25.91 on Tuesday, June 30. As the Ivory Coast and Ghana attempt to institute a minimum $400 per ton premium for their cocoa exports, it should provide support to the cocoa market. The levels to watch on the upside is now at $2475, $2509, and at the mid-March high of $2631 per ton on the July contract on the daily chart. On the downside, technical support now stands at $2183 and $2172 per ton. The potential for Coronavirus to disrupt production in West Africa is high, which could lead to shortages of beans over the coming months. The health systems in producing countries like the Ivory Coast, Ghana, Nigeria, and others are not sufficient to treat patients or prevent the spread of the virus. Africa could suffer tragic consequences over the coming weeks and months. The flow of cocoa beans to the world could suffer as bottlenecks at ports could reduce exports. I continue to favor the long side in cocoa but will be cautious in the deflationary environment in markets. Nothing has changed since last week. I continue to view the price action in the cocoa futures market as a buying opportunity. Weakness in the British pound has also weighed on the price of cocoa as London is the hub of international cocoa trading. I would leave wide buying scales in the cocoa futures market or in the NIB product.

December cotton futures moved higher by 2.42% over the past week. The recent declines had been on the back of continued concerns about the Chinese and global economies. The increase in tensions between the US and China is not supportive of the price of cotton. However, the weather conditions across growing regions will determine the price direction over the coming weeks and months.  December cotton was trading at 60.88 cents on June 30, after falling to the lowest price since 2009 in early April. On the downside, support is at 57.75, 52.15 cents, and then at 48.35 cents per pound. Resistance stands at the 61.14 cents per pound level. Open interest in the cotton futures market fell by 1.68% since June 22. Daily price momentum and relative strength metrics remained above neutral territory on Tuesday and were heading higher. The June WASDE report was not bullish for cotton from a fundamental perspective as global inventories have grown to the highest level in five years. However, I remain very cautiously optimistic about the prospects for the price of cotton at above the 50 cents per pound level but would use tight stops on any long positions and a reward-risk ratio of at least 2:1. Cotton is inexpensive, but the fundamentals remain problematic. The China-US issues remain a bearish factor for the price of the fiber, but the price level remains at a low level. The move above 60 cents for the first time since March was constructive for the fiber futures, but it failed. Optimism in the economy could lead to more garment purchases, which supports the demand for cotton. Cotton has made higher lows and higher highs since early April. The price needs to remain above the 56.43 level on December futures to keep that pattern intact. Remember that cotton suffered selling pressure in 2008 that pushed the price to below 40 cents per pound. A decline in production and stimulative policies by central banks took cotton from the bottom end of its pricing cycle twelve years ago to an all-time high of $2.27 per pound in 2011. Cotton is a lot closer to the low end of its pricing cycle at around the 60 cents per pound level on June 30.

September FCOJ futures were the best-performing soft commodity since last week. On Tuesday, the price of September futures was trading around $1.2840 per pound, 3.47% above the price on June 23. Support is at the $1.18150 level. Technical resistance is at $1.3200 per pound. Open interest fell by 2.74% since June 22. The Brazilian currency could eventually turn out to be bullish for the FCOJ futures, and bottlenecks at the ports could create volatility. FCOJ broke out to the upside over recent weeks, but the price failed over the past week as FCOJ futures fell to the lowest level since mid-May. OJ took the stairs higher and is currently on an elevator ride to the downside. Over the past weeks, I wrote, “The price ran out of steam on the upside above the $1.30 level.” After trading to a peak at $1.32, the price action had been mostly bearish, but OJ stabilized over the past weeks and has been making a comeback since June 16.

Keep an eye on the Brazilian real versus the US dollar when it comes to sugar, coffee, and FCOJ futures. The path of cotton’s price will be a function of US relations with China, the impact of coronavirus, and the weather in critical growing regions in China, India, the US, and Pakistan. Cocoa has been trending lower since falling short of $3000 per ton in mid-February. At below $2200 per ton, the primary ingredient in chocolate confectionery products is likely near the bottom end of its pricing cycle. I continue to believe that the upside potential in all of the soft commodities is greater than the downside over the coming months and years. If 2020 turns out to be anything like 2008, we could see significant rallies in the sector. Buying on price weakness is likely to be the optimal approach to the volatile sector.

 

A final note

The summer months are often a quiet time in the commodities asset class. However, 2020 is anything but an ordinary year in markets across all asset classes. I continue to expect the unexpected as the pandemic’s uncertainty, the US election, and other factors could create periods of extreme volatility in markets. I believe that 2008 is a blueprint for 2020, given the level of monetary and fiscal policy stimulus in markets. Any significant selling in commodities is likely to present compelling buying opportunities. Look for bargains, but keep in mind that it is always a challenge to buy at the bottom or sell at the top of a market move. Approach any risk position with a clear and defined plan for risk and reward. Make sure you risk less than your expectations for profits on any position. Volatility creates opportunities for nimble traders with their fingers on the pulse of markets. Try to eliminate emotion from your trading and investing. The news cycle can generate false signals, as we have learned since March.

 

As I wrote over the past weeks, I plan to increase the price of the report in the coming months. 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.

 

Please keep safe and healthy in this environment.

 

 

 

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.   

 

 

 

 

 

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