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Agricultural Commodities

Geopolitical tensions lend a tailwind to wheatThe geopolitics of wheat has once again come under the spotlight. Wheat prices jumped 4%1 as news broke out that a major dam Kakhovka in southern Ukraine had been destroyed. This is not the first mishap with the dam, as both Russia and Ukraine accused each other of planning sabotage back in October 2022. In Ukraine, flooding caused by the destroyed Kakhovka dam not only poses a risk to people, but also will be a major obstruction to agricultural transport and logistics. This casts further doubts on the recently lowered forecasts for Ukraine’s wheat production and exports owing to the destruction. The dam and reservoir situated on the Dnipro River is in the middle of Ukraine’s traditional main wheat growing area and is a major source of farm irrigation. No respite in Russia’s sabre-rattling There has been no respite in Russia’s sabre-rattling surrounding the Black Sea Grain Initiative, which was extended last month for an additional two months. The initiative has been instrumental in allowing Ukrainian grain flows to the world by creating a safe transit corridor. Russia has repeatedly specified the re-opening of the ammonia pipeline as a condition for renewing the grain corridor deal through the Black Sea. However, the ammonia pipeline was damaged a day before the Kakhovka dam was destroyed. This increases the risk that Russia could after all follow through on its threat and revoke the grain deal as early as next month. Net speculative positioning in wheat indicates a level of peak bearishness Market participants were caught off-guard evident from the knee-jerk reaction of wheat prices, up 4%2, intraday following the news. According to the Commodity Futures Trading Commission (CFTC), net speculative positioning in wheat futures was more than 2-standard deviations below the mean3, underscoring the extent of the bearish view held among investors. Dry weather to slash Australia’s next wheat crop by a third Another catalyst fuelling wheat prices higher was an early season estimate from Australian Bureau of Agricultural and Resource Economics and Science (ABARES) for a 34% slump in Australia’s wheat production in the coming season. The main reason cited by ABARES is the development of El Niño which is likely to suppress rainfall across large parts of Australia. Dry conditions and low soil moisture in the west and east coasts of Australia imply that much of the 2023-24 crop has been sown dry and will require adequate and timely rain to allow the plants to germinate. Wheat is a major winter crop in Australia with planting from April and the harvest starting in November. The expected onset of the El Niño conditions from July will likely see winter crop output fall significantly according to ABARES. According to the Bureau of Meteorology the dry weather has arrived, with the second driest May on record nationwide and the driest in Western Australia since observations began. Extreme weather conditions among top wheat suppliers to weigh on 2023/24 forecasts Across the globe, wild weather is affecting crops elsewhere, including Americas and North Africa. Europe is also being impacted by high temperatures and scant rainfall, increasing the risk of damage to the continent’s wheat crops. In France, the EU’s largest wheat producer, growing conditions in areas planted to wheat have deteriorated rapidly in recent weeks. The harvest in the largest wheat consumer China has also been affected by torrential rains, potentially boosting demand for wheat imports. Sources 1 Bloomberg as of 6 June 2023 2 Bloomberg as of 6 June 2023 3 Commodity Futures Trading Commission as of 30 May 2023
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by aneekaguptaWTE
Can we have an inverse shoulder?Key Takeaways Wheat market is facing both bullish and bearish news, creating risks for traders and emphasizing the importance of risk management. Hard red winter wheat crop is shorter than both USDA projections and trade expectations, but news of overpriced wheat in the US and milling wheat from Europe entering the market created bearish sentiment. World markets, including weather conditions in key wheat-producing countries like Argentina, Australia, the US, Russia, and Canada, will play a crucial role in determining future wheat prices.
PEPPERSTONE:WHEAT
by ShukriMahadi
Wheat (World) - Short Bias; Cheap Ukrainian wheat everywhere!Sure, it is winter in the northern hemisphere so why even bother with the grains at all? ... ... Because cheap Ukrainian wheat had absolutely flooded European markets, so much so that very soon they will have to start dumping some of it into the ocean! (Right now, they are trying to air out these mountains of grain, so it wouldn't mold, but that will go only so far.) Normally, this time of the year, 55-60 ships per week get loaded with Ukrainian wheat, headed for Africa and Asia. As of last week, these numbers are down to 19 ships . Russia closed the Bosporus to Ukrainian wheat (and oil seed) shipments. As an alternative solution, Ukraine is shipping most of its harvest to the EU - mostly Poland & Germany - to load it on ships in those ports. - But guess what ... ... shipping it all to Europe AND THEN load it onto ships makes the whole proposition economically non-viable. (Well below producer cost.) So now, the endless trainloads of grains, continuously pouring into the EU, gets dumped all over EU markets (at 40%-60% discounts!) because long empty local silos are all filled to capacity. There is now zero (0) storage capacity left anywhere in Europe! (... and the endless trainloads just keep on coming.) ... making this trade - not a monster - rather a no-brainer. (Like free beer)
CBOT:ZW1!Short
by Nemo_Confidat
10
Sell wheat everyday 🐻🍞Who sells wheat everyday? It’s the price-reducing wheat bears who want to provide us all with a cheap basic supply of food. "Affordable wheat for all," chant they, offering reduced-price bushels of wheat to anyone who comes their way. At the moment, they are not to be restrained in their sell-off ecstasy, however, we already see the low of the blue wave (v) lying shortly before us, which means that this sell-off should soon come to its end. The wheat price is already in our green target zone here (between USX 662 and USX 472), where we expect a trend reversal. The bulls should therefore report back before too long and point to the need for higher wheat prices. It should be noted that with the end of said blue (v) wave, an overarching and relatively long-lasting correction should also come to its end. Therefore, our green highlighted target zone can serve as an excellent entry opportunity for speculations on the long side.
CBOT:ZW1!Long
by MarketIntel
1
Cotton Cash Contract - Rectangle PatternCommodity: Cotton Cash Contract Introduction: Hello everyone! Today, we'll be analyzing the Cotton Cash Contract on the daily scale traded on Pepperstone. After a clear downward trend, the contract seems to have entered a consolidation phase, possibly forming a rectangle pattern. Analysis: The rectangle pattern we're observing has been forming for around 196 days. The upper boundary of this pattern is approximately at $90, which has been tested three times so far. Meanwhile, the lower boundary is at around $77.50, with two touch points to date. Currently, the price hasn't managed to cross above the 200 EMA. However, if we observe a breakout above the upper boundary, it would place the price above the 200 EMA, potentially paving the way for a long entry. Upon a valid breakout, our projected price target would be $100.660, translating into a potential price rise of approximately 13%. Conclusion: The Cotton Cash Contract's technical analysis suggests a consolidation phase marked by a potential rectangle pattern. A breakout above the upper boundary might signal a shift to a bullish trend and could provide an opportunity for a long position. As always, be sure to conduct your own research and risk management before investing. Thank you for tuning into this analysis. Please like, share, and follow for more insights into the market. Happy trading! Best regards, Karim Subhieh
PEPPERSTONE:COTTON
by KarimSubhieh
Wheat (The revenge of the fallen!) View On Wheat(16 May 2023) Wheat is in * Uptrend in short term (Intraweek) * Uptrend in Mid term (Intramonth) * Downtrend in Long term (Last 3 months) We had a strong wake up call yesterday and it ends with bullish tones. Now $640 region is acting as strong support and it can rise higher for now. We shall see $700 region soon. Let's see. DYODD, all the best and read the disclaimer too. Feel Free to "Follow", press "LIKE" "Comment". Thank You! Legal Risk Disclosure: Trading crypto, foreign exchange or CFD on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor.
FX:WHEATFLong
by SonicDeejay
Trading with Soybeans, Soybean Meal and Soybean Oil FuturesCBOT: Soybean ( CBOT:ZS1! ), Soybean Meal ( CBOT:ZM1! ), Soybean Oil ( CBOT:ZL1! ) This is the second installment on CBOT Soybean Complex. If you have not read the first piece, please click the link at the end of this idea. Let’s start with a discussion of two reports followed by soybean market participants. The Crop Report U.S. Department of Agriculture (USDA) closely monitors agricultural market conditions and publishes the monthly World Agricultural Supply and Demand Estimates (WASDE). WASDE, commonly known as the Crop Report, provides a global view of key agricultural products including wheat, rice, coarse grains (corn, barley, sorghum, and oats), oilseeds (soybeans, rapeseed, palm), cotton, sugar, meat, poultry, eggs, and milk. The Crop Report is the most important report followed by agricultural commodities traders. What’s the key takeaway from the April 2023 Crop Report on Oilseeds? U.S. soybean supply and use forecasts for 2022/23 are unchanged. However, relative to 2020/21, planted acreage is higher while export is lower. Global 2022/23 soybean supply and demand forecasts on lower production, crush, and exports. Global production in current crop year is reduced by 5.5 million tons. Overall, the April WASDE shows plentiful supply, weakened demand and higher inventory, the recipe for price trending down. CFTC COT Report Commodity Futures Trading Commission (CFTC) publishes the Commitments of Traders (COT) reports and provides a breakdown of open interest for futures and options markets. It categorizes the reportable open interest positions into four classifications: • Producer/Merchant/Processor/User: An entity that predominantly engages in the production, processing, packing, or handling of a physical commodity and uses the futures markets to manage or hedge risks associated with those activities. • Swap Dealers: An entity that deals in swaps for a commodity and uses the futures markets to manage or hedge the risk associated with those swap transactions. • Managed Money: Commodity trading advisor (CTA) or Commodity pool operator (CPO). They are engaged in organized futures trading on behalf of clients. • Other Reportable: Every other reportable trader that is not placed above. What’s the key takeaway from the May 2nd COT report on Soybean/Meal/Oil Futures? o Soybean futures ZS open Interest: 601,051, down 4.7% from previous week; o Managed Money increased ZS short position by 80.1%; their long/short ratio is 2.1. Note that the ratio was 8.3 on April 18th. This indicates that speculative traders are no longer bullish on soybeans. o Soybean Meal ZM open Interest: 408,013, down 2.9% from previous week; o Managed Money decreased ZM long position by 22.3%; their long/short ratio is 3.7. Note that the ratio was 7.9 on April 18th. Again, this is a bearish signal. o Soybean Oil ZL open Interest: 472,547, up 0.6% from previous week; o Managed Money increased both long and short positions modestly; their long/short ratio is 0.7, the same with April 18th. Popular Soybeans Futures Trading Strategies – Explanation and Illustration There are different types of traders in the soybean futures market: Producers, Grain Elevator (Storer), Processor, Livestock Farmer (User), and non-commercial traders. We will discuss how they use the futures market, each with a hypothetical trade example for illustration purpose. Investor Non-commercial traders are not participants in the soybean industry. They hold a market view and hope to profit from such view through futures trading. Investors could draw ideas from futures price chart, the Crop Report, and other relevant market information. Case study #1: Directional Trade with Stop Loss Market information 1) April WASDE shows plentiful supply, weakened demand and higher inventory; 2) Following the release of WASDE, soybean price has been trending down; 3) News surfaced that Smithfield, the largest US hog producer, plans to liquidate 10% of its sow. This indicates lower soybean meal demand in the future. Trade Setup To express his market view, on May 10th, a trader sells one July 2023 contract (ZSN3) at 1412’6/bushel ($14.1275), which gives the contract a notion value of $70,637.5. He deposits $5,000 margin on his futures account. At 7.1% of the cost, he participates in the price exposure for 5,000 bushels of soybeans. The use of leverage, in this case by 14.1 times, is an advantage of cost-effective trading with futures contracts. Potential Profit and Loss 1) In June, ZSN3 declines to 1350’0 ($13.50), the trader would gain $3,137.5 = ($14.1275-$13.50) x 5,000. Using the original margin deposit as a cost base, this short futures trade would potentially realize 63% profit, excluding trading fees; 2) If the soybean market rallies to 1480’0 ($14.80), the trader would lose $3,362.5, or a return of -67%; 3) Our trader could set a stop loss at 1450’0 ($14.50), to cap the maximum loss at $1,862.5 and avoid margin calls. An outright trade with futures contract allows the trader to profit from a correct market view. Leverage built into futures could significantly enhance the profitability, while stop-loss could limit the exposure if the view proven to be incorrect. Soybean Farmer and the Production Hedge When a US soybean farmer plants the crops in April, he is said to have a Long Cash position. The farmer is exposed to the risk of falling soybean prices during the November harvest season. To hedge the price risk, our farmer could enter a Short Futures position now, and buy back the futures when he is ready to sell the crops. The effective sales price equals spot price in November plus gain/loss in the short futures position. Since the cash market and futures market are highly correlated, loss (gain) in the cash market will be largely offset by the gain (loss) in the futures market. Case study #2: Production Hedge (Short Hedge) Market information 1) The farmer planted 1,000 acres of soybeans in his Central Illinois farm; 2) Total production cost per acre is estimated at $859, which includes variable costs (seed, fertilizer, pesticide), overhead (building, storage, machinery) and land; 3) Yield per acre is estimated at 69 bushels. His cost per bushel will be $12.45; Trade Setup On May 10th, ZSX3 is quoted at 1254’2 ($12.5425). The farmer expects to sell 69,000 bushels. Since each ZS contract has a notional of 5,000, he needs to sell 14 lots of ZS contracts. Soybean basis in Greene County, Illinois is estimated at $0.20. The Hedging Effect 1) The farmer effectively locks in the sales price in April for his November soybean crop at: $12.5425 (futures) + $0.20 (basis) = $12.7425; 2) Production hedge helps our farmer to protect a profit margin of 29.25 cents =($12.7425 - $12.45) per bushel, or $20,182.5 for his entire crops. The farmer is left with basis risk. In the context of commodity futures trading, basis refers to the difference between the spot price of a commodity and the price of a futures contract for that same commodity. Basis risk is usually smaller than outright price risk. Grain Elevator and Futures Rollover Strategy After the crop is harvested, farmers or merchandisers usually store the soybeans in a grain elevator and wait for the right time and price to sell. Soybeans could be stored for a year but would incur monthly storage costs. The decision to store depends on whether expected future price gains outweigh the storage costs. A merchandizer is exposed to the risk of falling soybean price, which would cause his soybean inventory (old crop) to decline in value. To hedge the price risk, he could employ a rolling futures strategy. Case study #3: Rollover Front-month Soybean Futures “Rollover” refers to the process of closing out all positions in soon-to-expire futures contracts and opening contracts in newly formed contracts. The rollover process impacts market volatility, prices, and volume. Trade Setup 1) Sell 14 lots of July contract ZSN3 at 1412’6 ($14.1275) on May 10th; 2) At any point before expiration, if we decide to sell soybeans in the spot market, we could exit our futures position by buying 14 lots of ZSN3 at prevailing price; 3) If we plan to hold our inventory for a longer period, we will buy back ZSN3, and simultaneously sell 14 lots of August contract (ZSQ3); 4) ZSQ3 is quoted 1345’4 ($13.455) on May 10th. If you hold the soybean from July to August, you will incur extra storage cost, but would get 67.25 cent less per bushel. This is clearly very bearish. The Hedging Effect: Rolling futures positions allows our merchandizer to extend his hedge beyond original futures expiration. You may ask, why not use a longer-dated contract to begin with, say July 2024? This is because the front month contract is usually more liquid. It is easier to put the hedge on and off quickly. By sticking with liquid nearby contracts, we could avoid the cost of price slippage generally associated with less liquid deferred contracts. Soybean Processor and the Board Crush In soybean industry, “crush spread” is the market value of meal and oil byproducts subtracted by the cost of raw soybeans. In the cash market, the relationship between prices is commonly referred to as the Gross Processing Margin (GPM). In the futures market, the crush value is an inter-commodity spread transaction in which Soybean futures are bought (or sold) and Soybean Meal and Soybean Oil futures are sold (or bought). Soybean crush spread is also called the Board Crush. Case study #4: Soybean Crush Spread Trade Setup 1) The November-December Board Crush (buying November Soybean futures and selling December Soybean Meal futures and December Soybean Oil futures) is used to hedge new-crop gross processing margins; 2) CME Group facilitates the board crush that consists of a total of 30 contracts: 10 Soybean, 11 Soybean Meal, and 9 Soybean Oil; 3) Implied Soybean Crush (SOM: Z3-Z3-X3) is quoted at 172’6 ($1.7275) on May 10th. Each contract has a notional of 50,000 bushels and is currently priced at $86,375; 4) If we process 100,000 bushels a month, we would short 2 board crushes. On May 10th, the margin for this spread is $1,650 each. The Hedging Effect: Board Crush enables processors to lock in his operating profit. Livestock Farmer (Soybean User) and the Hog Feeding Spread Livestock farmers buy corn, soybean meal and other ingredients to produce animal feed. For example, hog farmers’ gross profit is represented by gross feeding margin, also known as the hog feeding spread, which is the value of lean hog less the cost of weaned pig, corn, and soybean meal. Therefore, hog farmers are exposed to the risk of rising ingredient costs. To manage price risks, they could trade the hog feeding spread, which isa long hedge by selling CME lean hog futures (HE) and buying CBOT corn (ZC) and soybean meal (ZM) futures. A typical hog feeding spread is expressed as: Hog Feeding Spread = 7 x HE – 3 x ZC – 1 x ZM Case study #5: Hog Feeding Spread Market information 1) USDA daily hog and pork report shows that cash market hog price averaged $73.59/cwt nationwide on May 9th, up 78 cents from prior week; 2) Cash hog is down 31.4% year-over-year. However, it seemed to bottom at $66 in mid-April and rebounded after the news of Smithfield sow liquidation. 3) Our farmer expects hog prices to rise faster than feed prices in the next few months. To capture an expanding margin, he plans to long the hog spread. Trade Setup: For every 280,000 pounds of lean hogs (approximately 1,120 pigs): • Long 7 lean hogs futures HEM3 at 0.84575/lb., giving a total notional value of $236,810, as each contract has 40,000 pounds (lb.); • Short 3 corn futures ZCK3 at 646’4 ($6.465)/bushel. Each ZC contract has 5,000 bushels of corn, leaving this leg of trade at $96,975; • Short 1 soybean meal futures ZMK3 at $415.0/short ton. Each ZM contract has 100 short tons of soybean meal, leaving this leg of trade at $41,500; • The combined total, $98,335, represents the gross margin of raising 1,120 hogs, or about $87.8 per pig. The Hedging Effect: It takes 5 months to grow a piglet to marketable weight. Factoring in breeding sows, the full production cycle for hog farmers could last 1-1/2 years. Pork prices and feed costs could vary significantly during this period. Hog Feeding Spread enables hog producers to lock in their operating profit. Spread Trading in CBOT Soybean Oil and BMD Crude Palm Oil Vegetable oils are the most crucial cooking ingredients in the world. Soybean oil and palm oil dominate the global edible oil marketplace with 2/3 of market share. Soybean oil and palm oil are considered substitute goods because food processors often switch between the two as the prices fluctuate. Soybean oil and palm oil are driven by different market fundamentals. World soybean production is centered mostly in the U.S., Brazil and Argentina, and most palm oil comes from Indonesia and Malaysia. A drought in the U.S. or in South America could drastically alter soybean oil supply one year, while disease in Southeast Asia could affect palm oil supply the next year. This can create tremendous volatility in the spread relationship. The CBOT Soybean Oil futures (ZL) consists of 60,000 pounds, equivalent to 27.22 metric tons. The BMD Crude Palm Oil (FCPO) futures contract is 25 metric tons (mt). Case study #6: Soybean Oil/Palm Oil Spread Observation: Soybean oil and palm oil markets have been in decline since July 2022. In the past two months, soybean oil drops by a faster rate compared to palm oil. There could be plausible cause for the abnormal trend. However, if the relationship were to reverses back to normal, the spread will be enlarged. If an investor holds this view, he could long the spread by buying CBOT soybean oil and selling BMD crude palm oil. Trade Setup • Provided ZL at $0.5255/lb. and FCPO at MYR 3570/mt with prevailing USD/MYR exchange rate at 4.46, the ZL/FCPO spread could be derived at: • ZL = $0.5255 (per lb.) x 2204.622 (lbs. per mt) = $1,158/mt • FCPO = MYR 3570 / 4.46 /mt= $800/mt • ZL/ FCPO spread = $1,158/mt -$800/mt=$358/mt Potential Profit and Loss 1) For an investor, a profit could be realized if the spread gets bigger. He would incur a loss if the spread narrows instead. The USD/MYR exchange rate could affect the trading result; 2) For commercial hedgers such as edible oil processors, hedging would allow them to maintain stable production formulas even though oilseed spot prices change unexpectedly. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CBOT:ZL1!Long
by JimHuangChicago
A Primer on Soybean Crush SpreadSoybeans are one of the most versatile and important agricultural commodities in the world, consumed extensively by humans, livestock, and industry. Soybean prices have an undeniable impact on the global economy and their importance is only increasing with the rapidly growing bio-diesel industry. In our previous paper Heavy Exports Weighing Down Soybeans , we described factors affecting the supply of Soybean and their seasonality. Supply is largely driven by harvest cycles and crop yields. Demand can shift for multiple reasons. Live stock feed, Cooking oil and Biodiesel form the largest demand source for Soybean. These are all derived from the two by-products of Soybean – Soybean Meal (“Meal”) and Soybean Oil (“Oil”)). During Soybean processing, the seed is crushed to separate the oil from the meal. These by-products can be traded as separate commodities. Traders can harvest gain from the shifting relationship between the by-products and soybean using the crush spread. This paper will describe the crush spread, its computational methodology, and the methods for investors to harvest gains from it. The paper will also look into the factors defining the crush spread in 2023. The Crush Spread The Soybean crush spread refers to the value of Soybean’s gross processing margin, which is the difference between the value of the outputs (Meal Price + Oil Price) and the value of the inputs (Soybean Price). The crush spread is traded on the cash and futures markets and is often used by Soybean processors to hedge their margins for the actual process. It can also be used to harvest gains from the shifting dynamics between Soybean and its byproducts. Factors That Affect the Spread The crush spread can be influenced by the price of soybeans, the demand for its byproducts and the cost of production. Production costs can vary due to energy prices, labor conditions, carryover stock, and health of supply chains. Demand for by-products is driven by some common factors such as macro-economic conditions but also by factors unique to each commodity. Meal is used for livestock feed while Oil is used as a cooking oil and as biodiesel. Livestock feed demand is driven largely by China to feed its large swine population. Like soybean supply, feed demand also shows high seasonality. Due to a shortage of grass in the winter, Soybean Meal is consumed during these months leading to higher demand. Additionally, unlike other commodities, Soy Meal cannot be stored for longer than 3 weeks. So, during the US harvest (October), Soy Meal prices plummet due to oversupply. Cooking oil demand is sensitive to the supply and price of Palm oil, which is also widely used for cooking. Both can be used interchangeably; they are the so called substitute products. So, the decision of which product food producers choose depends on prices, supply, and import/export policy decisions. Moreover, Soybean Oil is far more suitable for the production of biodiesel than Palm Oil. This is why Soybean Oil generally trades at a premium of $100-$150 tonnes to Palm Oil. In the US, Soybean Oil demand for biodiesel is even higher owing to a fast-growing renewable diesel industry. Shifting Dynamics of Soybean By-Products Downbeat Macro With recession risks and inflation running high in many countries, the macro-economic outlook is downbeat. This weighs on the demand for Soybean and its by-products, resulting in lower prices and a narrowing spread. China’s Reopening China’s reopening from pandemic restrictions last year is in full swing. Although initial recovery was sharp, conditions have started to cool due to downbeat macroeconomic conditions weighing on export demand and still weak domestic demand. China’s large swine population is a major driver of meal demand. Heading into the winter, in case domestic demand starts to recover, it would lead to far higher meal demand and prices resulting in a narrowing spread. Rising Demand for Soybean Oil In the past, crush demand was driven largely by demand for Meal, Oil was considered a surplus without enough uses. However, rising demand for green energy across the globe and tax incentives for producers have led to a sharp increase in demand for Soybean oil in the past few years, particularly in the US. Biodiesel production capacity nearly doubled between 2021 and 2022. Since then, markets have normalized with higher planting of crops and increased Soybean crushing capacity installed. Despite the downbeat economic conditions, demand for Soybean Oil is expected to increase 4.9% this year after surging 6.5% last year, according to the USDA. With higher demand for Soybean Oil, crush demand will also increase. This would result in a change in the price relationship between Meal and Oil as well as a narrower crush spread due to higher volumes. Harvesting Profit from Crush Spread Investors can take a position on the crush spread in a capital efficient manner using CME’s Soybean (ZS), Soybean Oil (ZL), and Soybean Meal (ZM) futures. CME offers margin offsets for a crush spread position using these contracts. In addition, the Soybean crush can be executed on CME Globex as a single trade. Each of these 3 contracts are quoted in different units. ZS is quoted in cents/bushel. ZM is quoted in dollars/short ton. ZL is quoted in cents/pound. As such, in order to calculate the value of the spread, the price of each contract needs to be converted to cents/bushel. A bushel of Soybean (60 pounds) yields 11 pounds of Soybean Oil and 44 pounds of 48% protein Soybean Meal. The conversion factors are given below Soybean Oil per bushel: ZL Price x 0.11 Soybean Meal per bushel: ZM Price x 0.022 Crush Spread ($/bushel) = (Soybean Oil per bushel + Soybean Meal per bushel) - ZS Price/100 As per each contract's exposure size, a long crush spread position using CME futures comprises long eleven (11) Soybean Meal futures contracts, long nine (9) Soybean Oil futures contracts, and short ten (10) Soybean futures contracts. This position would normally require a margin of $67,625 for the nearest month contracts. However, with the 88% margin offset, investors can go long on the crush spread with exposure to 50,000 bushels for just ~$8,115 in margin. Alternatively, investors can also get direct exposure to the crush spread using CME’s options on the Soybean Board Crush Spread. Each contract gives exposure to 50,000 bushels. Example Trade Like Soybean prices, the crush also shows seasonality. This is due to the combined seasonal effects of Soybean and each of its byproducts. In our previous paper, we highlighted that Soybean prices are at their lowest in October due to the US harvest. Due to a low input cost (Soybean price), Board crush expands during this time. The same uptrend can be seen during the summer months representing the harvest from Brazil and Argentina. It should be noted that seasonal trends are not a guarantee as other factors can have outsized effects on markets. A long position in the Board crush would represent a short position of 10 Soybean contracts and a long position in 11 Soybean Meal contracts & 9 Soybean Oil contracts. As an example trade, consider the board crush in Jan 2019. Going long on the board crush on 9th Jan with an entry level of USD 1.02/bushel and an exit at USD 1.37/bushel would yield 34% profit. However, investors should note that the board crush value is highly volatile, as it is derived from three volatile underlying drivers. So, stop loss needs to be adjusted for the high volatility. Positions on 9th Jan: ● Short 10 ZS1! at entry level of 924 c/bushel ● Long 11 ZM1! at entry level of USD 323.4 /short ton ● Long 9 ZL1! at entry level of 28.6 c/lb Note that the crush declined to 0.91 on 15th Feb representing downside of 10.7%: ● ZS1! at price level 921.5 resulting in profit of USD 1,250 ● ZM1! at price level 310.5 resulting in loss of USD 14,190 ● ZL1! at price level 29.95 resulting in profit of USD 7,290 Net loss: USD 5,650 Crush started to rise in April and peaked at 1.37 (+34%) on 30th May: ● ZS1! at price level 877.85 resulting in profit of USD 23,075 ● ZM1! at price level 327.4 resulting in profit of USD 4,400 ● ZL1! at price level 27.8 resulting in loss of USD 4,320 Net Profit: USD 21,155 Key Takeaways 1) Board Crush or the Crush Spread represents the Gross Processing Margin (GPM) of crushing Soybean into its by-products as quoted by cash and futures markets. 2) Board Crush allows traders to replicate the Soybean Processing Value Chain. It enables traders to harvest gains from changing crush margins while enabling crushers to hedge their GPMs. 3) Board crush can be volatile which requires astute risk management while trading it. 4) Trading board crush using CME futures is margin efficient due to substantial margin offsets (88%). MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
CBOT:ZL1!Education
by mintdotfinance
6
Grain Strain: How Geopolitical Unrest Threatens Wheat Prices AmiOpinion: The recent escalation in the Russia-Ukraine conflict, following the assassination attempt on the Russian president, has raised concerns about the potential impact on global wheat prices. This situation becomes even more significant if Russia decides to withdraw from its agreements with Ukraine. As major players in the global wheat market, Russia and Ukraine together account for about 29% of the world's wheat exports, with Russia being the largest exporter, contributing around 18.5% in 2020. Any disruptions in their wheat production or export capabilities can have substantial implications for international prices, particularly considering the inelastic demand for wheat. Wheat, as a staple food for many populations, has an inelastic demand, meaning that changes in its price have a relatively small impact on the quantity demanded. Given this inelastic nature, disruptions in the wheat supply due to geopolitical issues may result in significant price fluctuations, as consumers' demand remains relatively constant despite price increases. In the event of Russia's withdrawal from its agreements with Ukraine, several consequences could directly or indirectly affect global wheat prices: Intensified conflict and regional instability may disrupt wheat production and transportation. According to the United Nations Food and Agriculture Organization (FAO), the conflict has already led to a 15-20% reduction in agricultural production in affected areas. Further escalation could exacerbate these issues, limiting wheat production and export capabilities for both countries. The resulting supply shortages could disproportionately affect wheat prices, given the inelastic demand. Geopolitical uncertainties created by the conflict could lead to trade restrictions and sanctions. In the past, Western countries have imposed sanctions against Russia in response to its actions in Ukraine. For example, in 2014, the United States and the European Union imposed economic sanctions on Russia, which impacted various sectors, including agriculture. If the situation deteriorates, additional sanctions could limit Russia's ability to export wheat to certain markets, creating supply chain disruptions and increasing the volatility of wheat prices on the global market, even with the inelastic demand. Potential impacts on wheat prices could prompt other major wheat producers to adjust their production levels in response to shifting global demand. For instance, countries like the United States, Canada, and Australia may increase domestic production or seek alternative sources to secure their wheat supplies. As of 2021, these countries collectively contributed around 30% of the world's wheat exports. Changes in their production strategies could further affect global wheat prices, especially considering the inelastic nature of wheat demand. The heightened uncertainty due to the assassination attempt on the Russian president and the subsequent escalation of tensions between Russia and Ukraine could lead to increased speculation in the commodities market. In 2021, the Chicago Board of Trade (CBOT) wheat futures saw significant price fluctuations in response to changing geopolitical situations. Traders may continue to react to the heightened uncertainty by buying or selling wheat futures contracts, which can influence short-term price movements and contribute to market volatility, despite the inelastic demand. In conclusion, the latest developments in the Russia-Ukraine conflict have the potential to significantly impact global wheat prices, particularly if Russia withdraws from its agreements with Ukraine. Consequences of such a decision could include disruptions to wheat production and transportation, trade restrictions and sanctions, adjustments in global wheat production, and increased market speculation. The inelastic nature of wheat demand could exacerbate these impacts, leading to considerable price fluctuations. To mitigate the potential effects of these developments on wheat prices, it is essential for governments, producers, and traders to closely monitor the situation and develop contingency plans to ensure the stability of wheat supplies and markets. Notes on how I personally use my charts/NFA: Each level L1-L3 and TP1-TP3 has a deployment percentage. The idea is to flag these levels so I can buy 11% at L1 , 28% at L2 and if L3 deploy 61% of assigned dry powder. The same in reverse goes for TP. TP1: 61%, TP2:28% and TP3:11%. If chart pivots between TP's, in-between or in Between Sell levels these percentages are still respected. I like to use the trading range to accumulate by using this tactic. Just my personal way of using this. This is not intended or made to constitute any financial advice. This is not intended or made to constitute any financial advice. FED Macro Situation Consideration: All TP's are drawn within the context of a return to FED neutral policy. I do not expect these levels to be reached before tightening is over. NOT INVESTMENT ADVICE I am not a financial advisor. The Content in this TradingView Idea is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained within this idea constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content on this idea post is information of a general nature and does not address the circumstances of any particular individual or entity. Nothing in the idea/post constitutes professional and/or financial advice, nor does any information on the idea/post constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other Content on the idea/post before making any decisions based on such information.
CBOT:ZW1!Long
by TheBitcoinGeneration
1
SUGARUSD Bearish ShortTrading AnalysisSUGAR RAWUSD Bearish trend forming for Sugar Commodity We are seeing a Elliot 5 pattern way theory occurring as well on the 2-3 hour charts. But most importantly sugar is spiraling down towards a major support level. Clearly the uptrend has broken it's trend line with a fake cat bounce/retest making it definite the reversal has occurred. FIB LEVELS also mention that the support is a crucial zone of interest. As it could reverse or keeping it's bearishness due to it's heavy many spikes of volume. A parallel channel has formed. I would place a sell limit in it's latest order block as seen in the picture, also to mention that there are many inside bar candles in this order block which can be used efficiently for the right trade, in this scenario shorting. A nice 650+ pip move if all goes as speculated. - David van Delden
VANTAGE:SUGARShort
by ImperialTrading
$CT1! Cotton... ICEUS:CT1! Cotton! Bless ya cotton socks, they say! I been checking the commodity index and things may get funky... Now I went through sugar, that's looking like it's little over extended, now here's a beautiful chart of cotton! Let's dive into technicals: Pattern: Wedge Highs: 90.15 Lows: 72 Now if we break the lows of 72, I expect 67.55 and then 62.25 areas. However, if we break above the highs of 90.15, I expect 95 and then 105 areas. Now, there are certain things to keep in mind, everyone is discussing it and I've started it since start of the year that key words: Stagflation....and there's another one recession! The market is forward looking...Those that understand economic cycles saw this coming and I well recommending researching into that, as much as technicals are important but it's really important to understand the type of cycle we are in and I had mentioned a little in my past week ahead videos! Have a great weekend, it's long one for some of us! 🌞 Trade Journal
ICEUS:CT1!
by Trade_Journal
Coffee SHORTCommodities Are Best Traded with Trend Following Delivering a comprehensive service of trading systems, risk management strategies and psychological guidelines allows our customers to trade in less than thirty minutes per day. Arabica coffee futures in the US traded around HKEX:194 per pound after hitting an over 6-month high of HKEX:205 on April 18th, on some profit-taking prompted by the recent rise amid low stocks and concerns that the slowing global economy could hurt coffee demand. On the supply side, the latest data showed ICE monitored arabica coffee inventories fell to a 4-1/4 month low of 700,048 bags. Meanwhile, dealers have said exports from key origins such as Brazil and Colombia were slumping. The International Coffee Organization projected another year of strong supply deficit in the coffee market, with a shortfall of 7.3 million bags, mainly due to arabica crop woes in Latin America's top producer. What moves coffee prices? There are several major factors that could affect coffee prices. If you are going to trade coffee it is important to understand the dynamics that drive prices. The ‘Big Four’ The largest buyers of coffee beans on the international markets are known as the so-called ‘Big Four’: Nestle (NESN), Kraft (KHC), Procter & Gamble (PG) and Sara Lee (SLE). Together, they purchase around 50% of all the coffee produced globally. They primarily buy Robusta beans, so their activity exerts a strong influence on prices. Climate As an agricultural commodity, coffee production is largely determined by the impact of weather conditions on sensitive crops. If the climate is conducive to growing coffee plants, prices can drop, but an unfavourable climate can cause prices to rise. This is because good weather during the growing season can increase the supply, while adverse weather conditions can damage crops or hamper their growth. As the five largest producers account for around 65% of global supply, weather conditions can have a significant effect on supply and, in turn, pricing. Arabica coffee prices soared to 10-year highs in late 2021, as drought and frost reduced output in Brazil and heavy rains affected production in Colombia. ICE-certified stocks fell to their lowest level in 22 years. Plant disease Agricultural commodities are also affected by other risks that can influence the condition of plants, such as disease. ‘Coffee leaf rust’ is a disease caused by a fungus that can devastate coffee crops. Robusta beans are more resilient than Arabica beans, which are more delicate and susceptible to damage from bad weather or disease. For example, global coffee prices rose sharply in 2013 after coffee leaf rust damaged crops in Central America and reduced supply. It was estimated that around 70% of Guatemala’s coffee production was affected. Consumer habits Coffee drinking trends are a key driver of demand and price direction. The emergence of specialty coffee shops is increasing demand for premium, artisan beans. Consumption is also changing in different parts of the world, with emerging markets such as in Asia leading demand growth because of rising incomes, changing tastes and growing populations. But the ongoing debate around the health effects of drinking coffee can also affect consumption. Although Arabica and Robusta beans have different flavours, major changes in the price for one can affect the demand for the other. If Arabica prices soar, demand for Robusta as a substitute could increase in response. Geopolitics As more than 90% of coffee is produced in developing countries, social unrest or political instability can disrupt coffee production and market sentiment. Futures prices respond quickly to geopolitical events in major producing nations. With Russia being the world’s sixth largest coffee consumer, the war in Ukraine and resulting sanctions has had an impact on coffee demand, and is expected to cause a supply surplus in the 2022 to 2023 growing season. Distribution costs The cost of transporting coffee around the world is factored into prices. Costs for fuel and shipping determine how expensive it is to distribute coffee. During the Covid-19 pandemic, high freight costs contributed to prices reaching decade highs. US dollar Commodity markets including coffee are often priced in US dollars, so the value of the dollar also affects prices. Dollar-denominated commodities become more expensive for buyers with other currencies when the dollar rises, which can weigh on demand. Meanwhile, coffee becomes cheaper when the dollar falls, increasing international demand.
CAPITALCOM:COFFEEARABICAShort
by DaveBrascoFX
Coffee Futures getting an uncommon sign of over extension.KC is hitting some fibs and speculators have been getting heavily long over the past 3 weeks as per COT data. PMARP showing a good sign of over exuberance. From what I can tell the consensus on it is that there's a big shortage and it cant go down, which is common across a few other commodities at the moment (CL etc). Consensus is rarely correct. Much of the rally on this seems to have been supported by the "Bid everything, muh fed saving the economy" narrative that popped up last month. A similar thing happened in 2008, Bear Sterns went under and JPM "saved the world", VIX got crushed to 16 (VIX is at 16.38 as of writing this) in the 4 weeks following, then we all know what happened from there. Beware of big institutions saving the world narratives.
PEPPERSTONE:COFFEEShort
by InsaneGamingGoblin
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