• Optimism over trade appears to be shifting to pessimism as a “phase one” agreement may not come in 2019
  • Stocks rise to record highs over the week
  • Precious metals hold since the previous report
  • A choppy oil market- Natural gas weak going into the winter months
  • Copper, base metals, and agricultural commodities move mostly lower

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, November 14, stocks did not move all that much as the markets wait for the next news on trade between the US and China. The dollar index edged lower towards the 98 level, and US 30 Year Treasury Bonds moved 0-30 higher. Grain prices were quiet with little movement. Crude oil edged lower with gasoline, but heating oil posted a marginal gain. Natural gas moved higher after the EIA reported an injection of only three bcf into storage for the week ending on November 8. Stockpiles could begin to decline as of November 15 as the withdrawal season gets underway. Precious metals all moved to the upside with palladium and gold leading the way. Cattle edged higher, and hogs posted a marginal loss on the session. Sugar fell by a little, but all of the other soft commodities and lumber moved to the upside. Cocoa was once again the leader with an $86 per ton gain on the session. Bitcoin fell $110 to $8,675 per token.

On Friday, the stock market continues to ignore the impeachment inquiry as all of the leading indices rallied to new record highs on the final session of the week. The long bond futures and the dollar index edged lower on the session. Soybeans posted a marginal gain, but corn and wheat futures declined. Crude oil moved to the upside and to the highest level since September 24. Heating oil outperformed gasoline futures, but both posted gains. Natural gas edged higher and probed above the $2.70 per MMBtu level as the injection season came to an end on November 8. Gold, silver, and palladium prices fell, while platinum and copper posted gains. Live and feeder cattle did not move much and were on either side of unchanged, but lean hog futures edged a bit higher. Coffee, sugar, and lumber prices fell, while cotton, cocoa, and FCOJ posted marginal gains. The price of Bitcoin was at $8,505 down $170 per token on the session.

On Monday, stocks posted marginal gains, the dollar index edged lower and further away from the 98 level, and 30-Year Treasury futures moved up around 0-12 on the session. Wheat moved a bit higher, but corn and soybean prices fell. The energy sector posted losses across the board. Oil and oil products fell. Gasoline outperformed crude oil, but heating oil prices underperformed the raw energy commodity. Natural gas declines on the back of warmer weather forecasts as the price fell sharply towards the $2.50 per MMBtu level. The December futures contract fell to a low at $2.535 and settled at $2.566 per MMBtu. Ethanol futures also posted a loss in sympathy with oil, gas, and corn prices. Gold, silver, platinum, and palladium all posted small gains on the first session of the week, but copper moved lower and towards the $2.60 per pound level on the December COMEX futures contract. Meats traded around unchanged with a small gain in feeder cattle and marginal declines in live cattle and lean hog futures. Sugar was a touch higher, lumber moved back over the $400 per 1,000 board feet level, but all of the other soft commodities moved to the downside. Bitcoin fell $300 per token to the $8,205 level on Monday. Late in the day, news that the Chinese are troubled by President Trump’s reluctance to roll back tariffs could impact markets on Tuesday.

On Tuesday, the DJIA and S&P 500 edged lower, while the NASDAQ continues to post gains. The 30-Year Treasury bond futures moved 0-17 higher, and the dollar index posted a marginal increase on the session. Trade issues continued to remain on the center stage during the session. Grain prices moved a touch higher across the board while crude oil and all other energy prices fell. Crude oil fell sharply with both WTI and Brent futures losing over $1.50 per barrel on Tuesday. Product prices declined with crude oil as did natural gas, which fell to the $2.50 per MMBtu level on the December futures contract. All of the precious metals posted gains, led by the platinum group metals. Live cattle edged higher, but feeder cattle and lean hog futures went the other way with small losses. Lumber was unchanged on the session, while all of the soft commodities moved lower led by coffee and cocoa on the downside. Bitcoin fell another $95 per token to $8,110.

On Wednesday, news that a “phase one” trade deal between the US and China may not happen by the end of 2019 weighed in markets. The Fed minutes told markets that the central bank is likely on hold for the rest of 2019, and no further rate cut is coming at the December meeting. There continued to be a division amongst the members of the FOMC as two members voted against the third 25 basis point rate cut, and other members wanted to make it clear that the central bank was finished lowering rates. The October rate cut was insurance by the Fed because of the trade war between the US and China. News that a “phase one” deal may not be coming any time soon and a resolution to condemn China over Hong Kong in the US Senate sent stocks lower on Wednesday. Stocks fell from the highs on the back of disappointment over trade as all of the leading indices posted losses, and the VIX edged higher. Grain prices moved lower, but energy posted gains. Oil and oil products recovered after losses earlier in the week. Natural gas bounced off the $2.50 per MMBtu level. Gold and silver did not move much, but platinum posted a gain on the session. Copper moved lower on disappointing news on trade. Hogs continued to decline, but battle posted small gains. Coffee moved 7 cents per pound higher on the nearby contract. FCOJ and sugar moved a bit higher, while cocoa continued to correct from the recent new high. Cotton fell on the trade news. Bitcoin was down just $10 to $8100 per token.

Weekly Spreadsheet:

Copy of Spreadsheets for The Hecht Commodity Report November 20, 2019

Stocks and Bonds

The old saying, today’s highs are tomorrow’s lows, had been the best way to characterize the price action in the stock market for most of the past week. The impeachment inquiry in the US, trade war with China, tensions in the Middle East, Brexit, and the other issues facing the world had done little to stop the leading equity markets in the US from rising to new highs. However, on Wednesday, news that a “phase one” trade agreement may not materialize in 2019 weighed on the stock market. Additionally, the Fed minutes from the October meeting said that the central bank is not likely to lower rates again this year.

The S&P 500 rose by 0.47% since the previous report, while the NASDAQ moved 0.53% higher. The DJIA posted a 0.14% gain since the last report. As the price action on Wednesday showed, the risk of a correction will continue to rise with the level of the indices. We have learned, when the market becomes too optimistic or pessimistic, an event or news item has changed the tone of the market. Time will tell if a stall in negotiations will weigh further on the stock market over the coming days and weeks.

Chinese large-cap stocks outperformed US stocks since last week.

Source: Barchart

As the chart illustrates, the China Large-Cap ETF product (FXI) was trading at the $41.45 level on Wednesday, which was 0.73% higher than the closing level on November 13. Technical support is at the recent low at $37.66 per share from August 14. Resistance stands at the July 1 high at $44.02 per share. The path of least resistance for FXI will depend on if the US and China sign a “phase one” trade deal, which now seems unlikely.

US 30-Year bonds moved higher over the past week after a period of selling. On Wednesday, November 20, the long bond was at the 160-13 level as it moved 2.01% higher since the previous report. The bond market had corrected lower as the market now expects the Fed to leave short-term interest rates unchanged for the rest of 2019. However, the price stabilized over the past week after the market remembered that the central bank already cut rates by 25 basis points three times since July 31 and ended its quantitative tightening program.

Open interest in the E-Mini S&P 500 futures contracts rose by 1.57% since November 12, as investors continue to flock to the stock market. Open interest in the long bond rose by 2.45% over the past week. The VIX fell as the indices rose to new highs over the past week. The volatility index was at the 12.78 level on November 20, 1.69% lower over the period.

I continue to favor the long side when it comes to the VIX and VIX-related instruments, even though it has been a losing trade. The current level of volatility is so low that risk-reward remains attractive. I would look for at least a 2:1 payoff ratio on short-term positions on the long side of price variance instruments like the VIX, VIXY, and others. I will continue to buy on dips and take profits on rallies. The many issues facing markets have the potential to cause periods of selling in stocks, particularly with the leading indices at record levels. The current level of the VIX at under 13 limits the downside potential for the instrument. I continued buying and stopping out of the VIX and VIXY for small losses over the past week.


The dollar and digital currencies

The dollar index edged back from the 98 level on the nearby December futures contract over the past week. The contract posted a 0.42% loss over the period. The index has been trading around the 98 level since November 13 and settled at 97.814 on November 20. The dollar index had been supported by interest rate differentials and recent optimism that a “phase one” trade deal would become a reality. Technical support is at 96.885, with resistance is at 99.305 and 99.33 in the upside.

The euro currency was 0.57% higher against the dollar since last week’s report. We could see more volatility in the dollar index over the coming weeks and months as the 2020 Presidential election nears, and the impeachment issue dominates the news cycle.


Over the past week, Bitcoin continued to drift lower to the $8000 level. Bitcoin was trading at the $8,043.95 level as of November 20, as it lost 8.83% compared to the value on November 13. Bitcoin had been rallying over the past weeks. An introduction of an ETF product would likely lift the price of the leading cryptocurrency. Ethereum fell by 6.87% and was at $175.63 per token on Wednesday. The market cap of the entire asset class moved 8.67% lower as it kept pace with Bitcoin. The number of tokens increased by 45 to 4843 tokens since November 13. The recent significant rise in the number of digital currencies dilutes the asset class. In late 2017 the overall market cap was at over $800 billion with far fewer tokens. Open interest in the CME Bitcoin futures rose by 2.14% since last week. The level to watch on the upside in Bitcoin is at around the $10,050 per token. Support is at $7,280.

The Canadian dollar moved 0.44% lower since last week. Open interest in C$ futures fell by 5.49% 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. The C$ put in a bearish reversal on the daily chart on October 29 and followed through on the downside. However, I expect the currency to make a higher low against the US dollar, but it is at the bottom end of its trading range.

The Australian dollar is also a commodity-based currency with a high degree of sensitivity to China’s economy. The A$ fell by 0.53% since last week’s report.

The British pound posted a 0.62% gain since the previous report. The general election on December 12 will serve as a second Brexit referendum. Boris Johnson currently enjoys a substantial lead in the polls, but elections can be tricky. The UK and the US have become accustomed to election surprises since 2016. We could see increased volatility in the pound going into the election. However, a victory by the Prime Minister and deal on Brexit would likely cause the pound to rally and could take the British currency to the $1.40 level or higher against the US dollar. Meanwhile, candidates from Nigel Farage’s Brexit Party could take some votes away from the Prime Minister as he refused to do a deal with Farage. The odds of a surprise in the election rise if Brexit candidates stand in Tory districts.

The Brazilian real edged lower since November 13 and remained below the $0.24 level as it fell 0.63%. The real remains not far above its multiyear lows. 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.


Precious metals were stable over the past week. Gold and silver moved marginally higher, but the platinum group metals did better on a percentage basis.


Precious Metals

Precious metals prices had a good week, with all members of the sector posting gains. The slight decline in the dollar and rebound in the bond market likely supported the prices of the metals.

Gold rose by 0.75% since last week, while silver was 1.19% higher. The price of December gold was just below the $1475 per ounce level on Wednesday, while silver was above the $17.10 level. December gold futures reached a peak at $1566.20 on September 4, and December silver climbed to $19.75 on the same day.

The price of platinum rose by 5.17% since last week and was at $920 per ounce. The level of technical resistance is at the September 5 high at $1000.80. January platinum bounced from its recent bout of selling. Rhodium is a byproduct of platinum, and the price of the metal has been in a bull market since early 2016. Rhodium was the best performing precious metal over the past week as it rose to a higher high. The price of rhodium moved $425 per ounce higher since the previous report. The midpoint price of the metal was at $5775 per ounce on November 20. Palladium was 3.98% higher on the week. The price traded to a new peak at $1799.20 on October 30 and closed at the $1741.80 per ounce level on Wednesday.

Open interest in the gold futures market moved 1.52% higher over the past week and to a new record peak at over 719,200 contracts. The metric moved 2.52% lower in platinum while it was 1.50% lower in the palladium futures market. Silver open interest fell 0.19% over the period.

The return of some optimism over trade and Brexit lowered some of the uncertainties that faced the global economy. After three short-term interest rate reductions since July 31, the odds are favoring no further rate cuts in 2019. Bonds stabilized over the past week, but the Fed could leave rates unchanged for the foreseeable future after the recent moves.

The silver-gold ratio edged lower since the last report as silver outperformed gold.

Source: CQG

The daily chart of the price of December gold divided by December silver futures shows that the ratio was at 85.96 on Wednesday, down 0.48 from the level on November 13 as gold marginally underperformed silver. 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 a bit more inexpensive. The ratio had dipped to a low at 79.30 on September 4 when both gold and silver were on the recent highs. 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 posted gains since the last report. While gold moved up by 0.75%, the GDX was 2.24% higher since November 13, and GDXJ rose 1.59% 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. The price action over the past week did not yield any significant clues. I continue to rate both ETFs as a hold. We are also long SLV, the silver ETF product, which posted a 1.26% gain since November, slightly outperforming the price action in the silver futures market. I continue to believe that both gold and silver will find short-term lows at higher levels during the current correction.

Platinum and palladium posted gains since November 13. December Palladium was trading at a premium over January platinum with the differential at the $821.80 per ounce level on Wednesday, which widened from the previous week and was not far from a record level. January platinum was trading at a $554.20 discount to December gold at the settlement prices on October 29, which narrowed since the previous report.

The price of rhodium, which does not trade on the futures market, moved $425 higher over the past week and was at $5,775 per ounce on Wednesday. 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. Some analysts are now projecting that the price of the rare metal could make a move to the $10,000 per ounce level, which is double the current price. However, markets rarely move in a straight line. Rhodium has been then best-performing precious metal since 2016. The price has moved higher from a low at $575 per ounce. Nothing changed in the rhodium market since October 29, as it was once again the leader on the upside in the sector.

We are long the PPLT platinum ETF product, which moved 5.20% higher since November 13. 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 above the $1000 and $1200 resistance levels to break to the upside on a technical basis. Platinum continues to be a highly frustrating trade on the long side.

We sold our Endeavour Silver Corp shares (EXK) at a price of at least $2.30 per share on November 14, booking a minimum profit of more than 23.5%. We replaced the position with the ETFMG Prime Silver ETF (SILJ) product at $10.36 per share to diversify risk. SILJ was at $10.65 on November 20.

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.


Energy Commodities

Most energy prices were choppy over the past week. Crude oil edged lower after rising to a new short-term peak. Gasoline edged higher, but heating oil futures fell causing crack spreads to ignore seasonal factors. Natural gas and ethanol declined, while coal prices moved to the upside over the past week.

December NYMEX crude oil futures fell by just 0.02% over the past week. January Brent futures moved 0.02% lower since November 13. December gasoline was 1.21% higher, and the processing spread in December posted a 7.42% gain since last week as gasoline outperformed the price of crude oil over the period. December heating oil futures moved 1.07% lower since the previous report, and the heating oil crack spread was 1.07% lower since last week. December futures are rolling to January on NYMEX.

Technical resistance in the December NYMEX crude oil futures contract is at $59.11 per barrel level, the high from September 23, with support at the $50.89 level. Crude oil open interest fell by 1.30% over the period. While any news on trade or Iran will continue to impact the price of crude oil, the next event will be the December 5 and 6 meeting of the oil ministers of OPEC in Vienna, Austria. Any changes in production policy by the cartel could add volatility to the WTI and Brent crude oil futures markets.

We could see volatility in the oil and gas markets increase in 2020 as the US Presidential election will be a referendum on the future of energy policy. The progressive wing of the opposition party, which seems to be gaining support, could reduce or eliminate fracking. President Trump’s administration continues to support energy independence, which has made the US the world’s leading producer of oil and gas. A change in administrations following the November 2020 election could have a significant impact on both US production and world energy prices.

The spread between Brent and WTI crude oil futures in
January edged higher to the $5.35 per barrel level for Brent, which was $0.18 above the November 13 level. 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, but the January contract reached a high at a lower level at $6.82 on the high when it comes to the spread. The spread found what looks like a significant bottom at $3.39 on September 3. Tensions in the Middle East should keep a bid under the price of Brent crude oil and the spread between the two benchmarks. The critical level on the downside in NYMEX crude oil is at $50 per barrel.

US daily production stood at 12.8 million barrels per day as of November 15, according to the Energy Information Administration, which was at a record peak for daily output. As of November 8, the API reported a decrease of 500,000 barrels of crude oil stockpiles, while the EIA said they rose by 2.20 million barrels for the same week. The API reported a rise of 2.3 million barrels of gasoline stocks and said distillate inventories climbed 800,000 barrels as of November 8. The EIA reported an increase in gasoline stocks of 1.90 million barrels and a decrease in distillates of 2.50 million barrels. Rig counts, as reported by Baker Hughes, continued to decline and fell by ten last week to 674 rigs in operations as of November 15, which is 214 below the level operating last year at this time. The steady decline in the number of rigs with daily output at 12.8 million barrels per day level is a sign of the efficiency of the oil business in the US. The decline in the rig count is significant and could weigh on production and provide some degree of support for the price of oil. All eyes in the oil market will be on the upcoming OPEC meeting as December 5 and 6 are just around the corner.

OIH and VLO shares moved lower since last week. OIH fell by 1.13%, while VLO moved 3.06% lower since November 13. The recent strength in VLO had been because of strong refining margins that go directly to the bottom line of processing companies. We are long two units of the OIH ETF product at an average price of around $13.40 per share. I believe the ETF that reflects the price of oil service company shares is far too low at its current price level. I intend to add to the position on further price weakness. Oil services stocks have done much worse than other oil-related equities over the past weeks. I will wait before adding any more shares to the position in OIH, given the price action last year at this time. 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 3.71% lower since last week’s report. Any sector rotation that causes a recovery in shares within the oil patch could have explosive results for the ERX product over the coming weeks. I am using tight stops on long positions in the product and will re-enter if the market triggers stops. I expect to take small losses in the quest for a significant profit as I would ride a bullish wave with trailing stops in ERX. Disappointment over trade between the US and China could weigh on the price of crude oil. However, it could cause OPEC to increase production cuts in early December.

December natural gas futures were at $2.559 on November 20, which was 1.58% lower than on November 13. The futures contract traded to a high of $2.905 on November 5. The price fell to a low at around $2.50 per MMBtu since the previous report. Last week, the EIA reported a lower than expected injection of only three bcf into storage, bringing the total amount of gas in storage to 3.732 tcf as of November 8, which is likely the high for the end of the injection season. The low for the 2018/2019 withdrawal season was at 1.107 tcf in March. Last year stocks rose to a high at 3.247 before the start of the withdrawal season in November. Stocks had already moved above the late 2018 high in September.  If last week was the final injection, stocks peaked at 485 bcf above last year’s level.

Source: EIA

As the chart shows, stockpiles of natural gas are 15.1% above last year’s level and 0.10% above the five-year average as of November 8. This week, I expect the EIA to report the first withdrawal of the season of around 50 bcf as the winter season gets underway. Open interest rose by 2.03% over the past week. Technical resistance is now at $2.905 per MMBtu level on the December futures contract with support at $2.57 and $2.388. The $2.187 and $2.135 per MMBtu levels stand as technical support on the continuous futures contract with resistance at $3.00 per MMBtu. As I wrote over recent weeks, “I continue to favor buying on price weakness but expect a significant recovery sooner rather than later in the natural gas futures market as November arrives this week.” I would look to take profits on existing long positions in natural gas, starting at the $2.90 level on a scale-up basis. I would also put a time stop on any long positions through mid to late January 2020.

In 2019, inventories of natural gas are peaking at just below the 3.75 tcf level. While the amount of natural gas in storage around the US is significantly higher than last year, it will be the average temperatures that dictate the path of least resistance for the price of the volatile energy commodity.

I had suggested buying call options with strike prices at the $2.80 to $3.00 per MMBtu for expiration in January and February 2020 in the natural gas futures options market on price weakness. The January $2.80 call at 11.20 cents was 4.30 cents lower since last week. I believe this option offers excellent value at the closing price on November 20.

I had also been buying the leveraged GASL product on dips. In GASL, I will continue to work tight stops and look to take profits and re-establish long positions at a lower level if selling in natural gas, the stock market, or both weigh on the leveraged ETF. GASL was at the $6.07 level on Wednesday, down $1.25 on the week. I will not work any stops on the call option positions as I will at least hold them until the end of 2019. I am using tight stops on any long positions in the GASL product and re-entering at lower levels.

December ethanol prices moved 1.20% lower over the past week. Open interest in the thinly traded ethanol futures market rose by 5.61% over the past week. However, with only 546 contracts of long and short positions, the biofuel market is untradeable. The KOL ETF product moved 3.13% lower compared to its price on November 13, but the price of January coal futures in Rotterdam rose by 2.34% over the past week.

The API reported that crude oil inventories rose by 5.954 million barrels for the week ending on November 15 compared to a consensus estimate of a rise of 1.543 million. While the consensus estimate was for an 870,000-barrel rise in gasoline inventories, the API said they increased by 3.354 million. Distillate stocks fell by 2.19 million barrels for the week ending on November 15, according to the API. The EIA said crude oil inventories rose by 1.40 million barrels as of the end of last week. When it comes to gasoline and distillate stocks, the EIA reported an increase of 1.80 and a decline of 1.0 million barrels, respectively. The EIA and API data were bearish for the price of crude oil and products.

The risk of a price spike in oil remains greater on the up than on the downside, given the deteriorating economic conditions in Iran. The OPEC meeting at the beginning of December could move the price of the energy commodity if there are any changes in the cartel’s production policy.

In natural gas, the price will move higher and lower with the weather forecasts over the coming weeks. The pace of stockpile withdrawals could also add to volatility in the nearby futures contracts.


As the forward curve over the coming months shows, the peak price for this coming winter was at $2.611 in January, which was 8.10 cents per MMBtu lower than last week. I am sitting on positions in January through February call options with strike prices from the $2.70-$3.00 per MMBtu levels, and I am trading the GASL product from the long side. My stops and profit levels on GASL will be tight, given the volatile nature of the product. I continue to believe that natural gas could test $3 and perhaps higher over the coming days and weeks.

I have been tracking the price action in BG shares. Since November 6, the price of BG shares moved 0.18% higher to $55.30 per share on November 20. 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. I will continue to favor the long side of the market in crude oil and natural gas over the coming week. Nothing has changed when it comes to my opinion of the crude oil market over the past week. Meanwhile, we could see price volatility increase going into the early December OPEC meeting. Over the recent sessions, the oil market became choppy, which creates trading opportunities.

I continue to hold 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 3.44% lower over the past week at $14.87 per share. I will add another unit at a much lower price to lower the average cost of the long position. While I remain bullish on Brazil, contagion from Argentina and volatility in the overall stock market pushed the price of the shares lower over the recent weeks.

While I continue to favor the upside in the crude oil market, the energy commodity tends to take the stairs higher and the elevator to the downside. Therefore, trading with stops on long positions can limit risks. The natural gas market is trading at a price level that assumes that the weather conditions will not be colder than average and that there is plenty of stocks available to meet requirements. A prolonged period of cold temperatures across the US could support the price of the volatile natural gas futures market. I believe that the time of the year limits the downside prospects for the price of nearby gas futures at this time of the year.



There was not all that much action in the grain markets over the past week. The prices of corn and beans declined, while wheat posted a gain. The November WASDE report had little impact on the prices of the leading grain futures markets.


January soybean futures moved 1.12% lower over the past week and was at $9.0500 per bushel on Wednesday. Open interest in the soybean futures market rose by 2.99bcx% since last week. Price momentum and relative strength indicators on the daily chart continued to display oversold readings on November 20.

The March synthetic soybean crush spread edged higher over the past week and was at the $1.00 per bushel level on November 20, up 6.75 cents since November 13. 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 price action in the March crush spread was mildly supportive of the price of the oilseed futures.

December corn was trading at $3.6675 per bushel on November 20, which was 2.27% lower on the week.

Open interest in the corn futures market rose by 1.93% since November 12. Technical metrics were in oversold territory in the corn futures market as of Wednesday. The price of ethanol fell by 1.20% since the previous report on the back of strength in the gasoline and oil futures markets. December ethanol futures were at $1.4050 per gallon on Wednesday. The spread between December gasoline and ethanol futures widened to 25.13 cents per gallon on November 20, up 3.68 cents since last week.


December CBOT wheat futures rose by 1.28% since last week. The December futures were trading $5.1550 level on November 20. Open interest fell by 5.85% over the past week in CBOT wheat futures.


As of Wednesday, the KCBT-CBOT spread in December was trading at an 89.50 cents per bushel discount with KCBT lower than CBOT wheat futures in the December contracts. The spread widened by 5.25 cents since November 13. 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. The spread is close to the highest level in years. Meanwhile, a 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.

My positions in the grain markets continue to be small, given the time of the year and the recent price volatility. I have minimal long core positions in futures and the CORN, WEAT, and SOYB ETF products. The trade dispute between the US and China remains one of the most significant factors for the prices of soybeans and corn. Any news from the trade front between the US and China could cause increased volatility. The bottom line is that optimism over trade is bullish for the prices of agricultural commodities, while pessimism would continue to weigh on prices. The weather in South America and trade will continue to be a significant issue. Last week, I began to highlight the new crop corn-soybean ratio for 2020. The long-term average for the 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.

Source: CQG

The chart of the November 2020 soybean futures divided by December 2020 corn futures shows that the ratio did not move much over the past week and was at the 2.4052:1 level on November 20. The ratio has been trending higher since before the summer of 2019. At a higher level next spring, farmers would plant more soybeans than corn because the oilseed’s price offers more economic incentives. The end of the year is an excellent time to put the corn-bean ratio on your radar as any significant moves in the spread could provide clues about the path of least resistance for the prices of the grain and the oilseed futures markets.

The has not been much price action in the grain sector over the past week as prices continue to drift and wait for the next shoe to drop when it comes to the ongoing trade war between the US and China.


Copper, Metals, and Minerals

All of the base metals that trade on the London Metals Exchange posted losses over the past week, but the other industrial commodities moved higher. Iron ore, lumber, and uranium all posted gains over the period. The Baltic Dry Index moved lower.

Copper edged just 0.38% higher on COMEX, while the red metal posted a 0.24% loss on the LME since the last report. Open interest in the COMEX futures market moved 4.53% lower over the past week. Copper was trading at $2.6495 per pound level on the nearby December futures contract. Copper is one of the leading barometers when it comes to the trade war between the US and China. The de-escalation had been moderately bullish news for the red metal, which is the leading force in the base metals sector. However, the red metal will need to see progress on trade to test above the $2.70 per pound level. The copper market was sleepy over the past week. The lack of a “phase one” deal by the end of this year could cause some selling in the red metal.

Copper has been trading in a range from under $2.50 to around the $2.70 per ounce level. Since the previous report, copper inventories fell on the LME, but stockpiles continued to rise on the COMEX. While political and labor issues in Chile could impact production, the trade war is the most significant issue as it weighs on the demand side of the fundamental equation for the red metal.

The LME lead price moved lower by 4.86% since November 6. 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 6.43% over the past week, even though China increased imports of ore ahead of the export ban in Indonesia that will start on the first day of 2020. The export ban is a highly supportive factor for the price of nickel. Tin declined by 3.37% since the previous report. Tin has been trading around $16,600 per ton level, which has become a pivot point for the base metal. Over the past week, it fell below the $16,000 per ton level. Aluminum was 1.87% lower as inventories suddenly increased by over 23%. The price of zinc fell 5.95% since November 12 as stocks rose over the past week. Critical support was around $2355, with resistance at $2550 in the zinc market. Zinc moved below the bottom end of its recent trading range and could be headed for a test of the $2200 per ton level. Base metals will continue to be highly sensitive to any news and developments on trade between the US and China.

January lumber futures were at the $402.70 level, 3.82% higher since the previous report. Interest rates in the US will influence the price of lumber. Since it appears the US Fed is likely to pause at the December meeting and not lower the Fed Funds rate for the fourth time since July 31, the lumber market has been trading around the $400 per 1,000 board feet. Lumber is a requirement for new home construction, which is a function of the level of interest rates. The price of uranium for December was 4.67% higher at $25.80 per pound. The Baltic Dry Index fell by 3.69% since last week after weeks of steady declines. December iron ore futures posted a 7.02% gain compared to the price on November 13. Open interest in the thinly traded lumber futures market rose by 4.03% over the past week.

LME copper inventories dropped by 4.31% to 219,475 metric tons since last week. COMEX copper stocks increased by 3.03% from last week to 39,989 tons. Lead stockpiles on the LME fell by 1.47%, while aluminum stocks suddenly increased by 23.02%. Aluminum stocks rose to the 1,158,975-ton level. Zinc stocks moved 5.68% higher from the last report. Tin inventories moved 2.71% higher since last week to 6,645 tons. Nickel inventories were 1.17% higher compared to the level on November 12. Stockpiles of nickel had been declining as the Indonesian export ban is set to take 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 are bound to have the most significant impact on the path of least resistance for the nonferrous metals. The fear of war in the Middle East and Brexit could impact behavior in markets, and base metals are no exception. The industrial commodities sector continues to wait for news that could guide prices.

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 $2.01 per share on Wednesday, down four cents over the past week.

We own the January 2021 $15 call on X shares at $3.30 per share, and it was trading at $2.20 on November 20, down 33 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. The details for the call option are here:



US Steel shares were at $12.78 per share and moved 4.77% lower on the week.

We own two units of FCX shares at an average of $10.56. The stock was trading at $11.03 on November 20, $0.19 higher since the previous report. I will 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. China is the demand side of the fundamental equation for the raw materials in the industrial sector. Any disappointment that leads to an escalation of protectionist policies would further weigh on the Chinese economy leading to selling in base metals and other industrial commodities. However, a “phase one” deal and further progress could light a bullish fuse under these raw materials and send prices appreciably higher. Industrial commodities continue to sit and wait for news as prices drift around within medium-term trading ranges. On Wednesday, the news was not positive for the prices of industrial commodities.


Animal Proteins

Cattle prices moved higher over the past week, while lean hog futures moved to the downside. While I will be reporting on the nearby December futures contracts in the live cattle and lean hog futures this week, they are rolling to the next active month for February 2020 delivery.

December live cattle futures were at $1.19300 per pound level up 1.02% from last week. Technical resistance is at $1.20325 and $1.3000 per pound. Technical support stands at around $1.17350 per pound level, as the market continues to trade at the top end of its trading range. Price momentum and relative strength indicators are sitting in the lower region of overbought territory. Open interest in the live cattle futures market moved 4.96% higher since the last report. The total number of open long and short positions in the live cattle futures market continued to climb over the past week.

January feeder cattle futures underperformed live cattle as they rose by 0.88% since last week. January feeder cattle futures were trading at the $1.44075 per pound level with support at $1.38525 and resistance at $1.5000 per pound. Open interest in feeder cattle futures rose by 2.81% 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 fell over the past week. The price ran into selling at over 70 cents per pound in mid-October. The active month December lean hogs were at 60.450 cents on November 20, which was 4.24% lower on the week. Hog futures were falling towards the 60 cents level on Wednesday. The open interest metric rose by 0.84% from last week’s level. Price momentum and the relative strength index remained in oversold territory over the past week. Support is at 57.775 cents with technical resistance on the December futures contract at 67.65 cents per pound level.

The forward curve in live cattle is in contango from December 2019 until April 2020. From April 2020 until August 2020, a backwardation or tight market returns to the forward curve for live cattle, but it shifts back to contango until from this August 2020 through April 2021. The Feeder cattle forward curve is in backwardation from November 2019 through January 2020, and contango from January 2020 through September 2020 when a slight backwardation returns until October 2020.

In the lean hog futures arena, there is contango from December 2019 until July 2020. From July 2020 through December 2020, the curve is in backwardation, but contango returns from December 2020 through April 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. China needs US pork exports given the current situation, and we could see purchases as a result of “phase one” of a trade agreement if both sides sign a deal. Optimism over trade has not translated into buying in the lean hog futures market. The hog market continues to wait for more progress on trade and the potential for Chinese buying of US pork. If there is no deal by the end of 2019, we could see pressure on the lean hog futures continue.

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 December 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 1.97350:1 compared to 1.87090:1 in the previous report. The spread increased by 10.26 cents as live cattle became more expensive compared to lean hogs on a historical basis. The spread moved away from the historical norm. The USDA report that raised the forecast for cattle prices and lowered hog price expectations caused the spread to move to the upside over the past week. The spread in February was at the 1.8791:1 level as of November 20, which was closer to the historical average but still; reflected that beef was historically expensive compared to the price of pork.

Trade continues to be the significant factor facing the animal protein sector as we are now in the winter months, which is the height of the offseason for demand in the US. 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. A rise in the Brazilian real and Argentine peso could provide support for meat prices, while lower values for the South American currencies would likely weigh on futures prices as they cause production costs to decline. Cattle prices have continued to exhibit strength over the past week. However, the risk of a correction increases with the price. Lean hog futures have corrected from over 70 cents per pound to the 60 cents per ounce level. While seasonality favors a quiet market throughout the rest of 2019, we could see price volatility on the back of developments in the trade war between the US and Chinese. In early 2020, the animal protein sector will begin to focus on the peak season for demand, which starts in late May.


Soft Commodities

Cocoa posted a gain over the past week and moved to the highest price of 2019. Coffee traded in a wide range and moved higher over the past week. Meanwhile, the prices of all of the other members of the soft commodities sector moved to the downside since last week’s report. I will continue to monitor the price action in the December futures contracts in coffee, cocoa, and cotton in this week’s report. However, they are all rolling to futures for March 2020 delivery.

March sugar futures drifted 0.78% lower since November 13, as the price of the sweet commodity was around the 12.75 cents per pound level. Technical resistance is at the October 2 peak at 12.93 cents with support at 12.05 cents. Nearby sugar futures traded to a low at 11.74 cents on September 12, which is another level of support. The value of the December Brazilian real against the US dollar moved lower since last week and was at the $0.23715 level against the US dollar, which was $0.00150 or 0.63% lower. The Brazilian currency remains near its multiyear lows, which is likely contributing to the overall weakness in the price of sugar and other commodities where Brazil is a leading producer and exporter. However, it has remained above the critical support level since 2015. 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 remained above neutral territory over the past week. The metrics on the monthly chart reflects a neutral condition. If sugar suffers a substantial decline, I will look to add to long positions, but that does not seem likely. Sugar open interest fell by 1.69% over the past week. I will be looking to add to the long position in CANE at lower levels. I expect the price of sugar to move higher over the coming weeks and months.

December coffee futures rose by 1.62% since last week’s report and were trading at the $1.0970 per pound level. Short-term support is at the August 20 low at $1.00 on the December futures contract. Resistance is at $1.1440. I continue to favor coffee on the long side, but it has been a bumpy ride in the soft commodity. 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 $35.60 on Wednesday. Open interest in the coffee futures market fell by 8.70% since last week. I had taken some profits but will keep a small long core position in the coffee futures market and the JO ETN product. Coffee needs to move above the $1.2550 level to change the tone of the market. Supply concerns over Brazilian production in the off-year for crops have been supportive of the price of the soft commodity since mid-October. Coffee has made higher lows since reaching 86.35 cents in mid-April.

The price of cocoa futures exploded higher over recent weeks. On Wednesday, December cocoa futures were at the $2682 per ton level, 0.26% higher than last week. Open interest rose by 4.36%. Relative strength and price momentum moved to overbought territory on the daily chart. The price of cocoa futures rose to a new peak and the highest price since May 2018 at $2783 per ton. We are long the NIB ETN product at $25.76. NIB closed at $30.55 on Wednesday, November 20. 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 is now at $2914 per ton.

December cotton futures moved 3.08% lower over the past week. On August 26, the price fell to a low at 56.59 cents, less than one cent above the critical 2016 low at 55.66 cents per pound. December cotton was trading at 62.24 cents on November 20 after rising to a high of 65.99 on October 30. The next level on the upside above the recent high is at the 68.35 cents per pound level on the December contract, the July 1 peak. On the downside, support is at 60, 56.59, 56.19, and 55.66 cents per pound. Open interest in the cotton futures market fell by 5.61% since November 12. Price momentum and relative strength metrics were falling below neutral territory on Wednesday. The metric remains in an oversold condition on the monthly chart but is attempting to cross higher. I continue to believe that the price level limits the downside prospects for the cotton futures market, and positive news on the trade front could ignite rallies as we witnessed recently.

January FCOJ moved lower over the past week. On Wednesday, the price of January futures was trading around 99.40 cents per pound. FCOJ nearby futures moved 0.70% lower over the past week. Support is at the 96.10 cents level. Technical resistance is at around $1.0705 per pound. Open interest fell by 0.92% since November 12. OJ tends to rally as the winter season approaches each year. In November 2016, FCOJ hit its all-time peak at $2.35 per pound. This year, the price of orange juice has been weak and trading around the $1 per pound pivot point. The price action in FCOJ futures could be a function of the low level of the Brazilian currency against the US dollar.

I continue to favor the soft commodities that are close to the bottom end of their respective pricing cycles, including sugar, coffee, cotton, and FCOJ. When it comes to cocoa, the surcharge on West African production is a sign that the pattern of lower highs will continue. The demand for all soft commodities is a function of the global population, which is rising. Therefore, I prefer trading all of the members of the sector from the long side at the current price levels.


A final note

Thanksgiving is next week, which is the official start of the holiday and winter seasons. The next significant event for commodities will be the OPEC meeting on December 5 and 6 that could cause volatility in the crude oil market. On December 12, the general election in the United Kingdom will shed light on if the nation will proceed towards Brexit from the EU by the end of January 2020 deadline. Meanwhile, any developments when it comes to the trade war between the US and China have the potential to inject volatility into the commodities asset class. No agreement by the end of 2019 could weigh on markets and increase concerns over the Chinese economy and the potential for a global recession. An escalation in the trade war could have significant consequences on markets.

2020 could be a very volatile year in markets across all asset classes. If the US Presidential election is a contest between President Trump and a candidate and platform from the progressive wing of the opposition party, it will be a referendum on the future of tax, energy, and other policies in the world’s leading economy. We could see markets move higher and lower with political polls until November 2020.

Keep those stops tight and take profits when they are on the table. Only enter into risk investment or trading positions on the long or short side of the market with a logical plan for risk and reward expectations. And, always remember that a position is long or short at the current market price, not at the execution level. Re-evaluating investment and trading positions at the ever-changing market level is an excellent way of monitoring if the original thesis for a position is still valid.


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.