Commodity Advisory Newsletter November 3rd

Several commodity markets are poised for well-defined up-trends this year. I plan to write about these markets on a regular basis as the views presented here are more thematic and longer term in nature. Updates to the trading strategies published here will be provided on an ongoing basis. In this issue, I will be focusing Corn and Sugar

With the FOMC meeting behind us, the next focus should be the China Trade Deal. There is talk of a Phase 1 or a partial deal with China that will not move the needle. In this context, China will maintain it’s unfair trade relationship, absorb higher economic input prices and will likely agree to buy commodities that it already needs. The partial trade deal on the surface will not change much but any official “all clear” signal will impact Grains, Meats and Softs so I am expecting rallies. This week we have the USDA reports on crops which should introduce volatility and I am expecting buying into the announcement in Soybeans and Corn. We should see the USDA walk down yields from previous levels due to crop harvests being interrupted by cold weather.  Fund traders are still net short in Corn, Meal, Wheat, Copper, Coffee, and Cotton; we could see a squeeze play out in any of these commodities in the coming weeks. The ultimate resolution of the China Tariff situation may be many months away as intellectual property and other issues may still be unresolved by December 15th.

Please see the past issues of the Commodity Advisory Newsletter for more information on the China Tariff situation and commodities covered here on The Art of Chart.

Cattle

The Live Cattle market is extremely overbought and there is currently a large premium in the front month. Feed lot operators in this environment are doing their best to achieve higher weights. The premium is as large a $7 with a boost in beef production and weights expected in November. The market is setup for a decent pull back, good customer demand and tight supply has helped create this rally. The USDA reports are expected to be neutral for Q1 and there is usually a decline in production from Q4 to Q1.

Looking at the Charts, technically we have seen a big rally from the black swan event from the fire in the processing plant in August all driven by a tight supply market. With a boost in production and weights expected, look for a decline into the middle of November into the 112 area. We should see a bounce from the Monthly S1 area. We have a nice negative D setup on RSI.

Trading Strategy

I currently have no position and am looking at selling April Live Cattle in the $126-126.40 risking $1.00 from the entry. Taking the trade off in 1/3 increments is wise with the first 1/3 after 100 ticks in profit and placing the stop at even.

Disclaimer: Trading futures contracts and commodity options involves substantial risk of loss, and may not be appropriate for all investors. By reading this report, you acknowledge and accept that all trading decisions are your sole responsibility. Trading strategies referenced in this document are only suggestions, no representation is being made that they will achieve profits or losses. Past performance is no guarantee of future results.