Commodity ETF Alert June 2012 Portfolio Update

June 26, 2012

Europe On The Brink?

Just when you think things can’t get any worse in Europe… they do.

US commodity markets fell over the past few trading days as Spain’s debt crisis took a turn for the worse.  As a result, the Reuters/Jeffries CRB Index is trading at its lowest level since August 2010.

Take a look…

 

As you may know, the CRB index reflects the performance of a basket of 19 commodities.  And as you can see, 2012 hasn’t been kind to natural resource bulls thus far.  European worries, mixed with a strong US Dollar, have the index down 16% from its highs earlier in the year.

Of course, the question now is…

Where do commodities go from here?

First of all, let me be clear about something.  The European Union (EU) has a very troubling situation on its hands.  If the EU can’t come up with a viable solution in the near future, there could be some large market disruptions coming our way.

However, I still adhere to the viewpoint that EU leaders will find a solution to this pesky issue.  There will likely be some tough medicine involved, but there’s simply too much at stake to let the EU disintegrate.

And once investors realize the EU isn’t going to break apart, there will be a major ‘risk on’ moment where money is feverishly put back to work in the commodities space.

Let’s take a look at our open commodity ETF positions…

Position Updates

. . . . iPath DJ-UBS Copper (JJC) – Buy up to $43.00

Copper hasn’t done much since I recommended it in our last trade alert.  Europe’s ongoing saga, along with fears of an economic slowdown in China, is keeping the red metal under wraps.

However, there’s a bright side to copper’s lethargic price action…

Considering all the troubling economic news over the past few days, copper hasn’t dropped much in recent trading.  As a matter of fact, copper is holding its ground quite nicely.  And as a result, our copper position -JJC- is down less than 1% from our entry point.

What do we do from here?

When Europe comes up with a viable plan to tackle its debt crisis in coming weeks, copper will be one of the first commodities to react positively.  So if you haven’t already, go ahead and buy JJC up to $43.00.

. . . . iPath S&P GSCI Crude Oil (OIL) – Buy up to $20.00

Clearly, the ongoing problems in Europe have bears in control of the oil market.  In fact, WTI crude recently sank below $80 a barrel for the first time since October 2011.

But don’t let crude’s recent weakness fool you…

The global supply/demand equation isn’t nearly as loose as these low prices suggest.  And remember, even though the situation with Iran has progressed, the issues with the rogue country’s nuclear program aren’t completely resolved yet.

Bottom line…

The downside for crude is limited from these oversold levels.  If you haven’t already, buy OIL up to $20.00.

. . . . ETFS Physical Palladium Shares (PALL) – HOLD

As you may know, industrial/precious metals are highly sensitive to fluctuations in the US Dollar.  And in case you haven’t noticed, the dollar has experienced quite a rally over the past few days.

Take a look…

 

As you know, PALL is down from our buy point.  However, once the US Dollar recedes from its recent run-up, we’ll see metals like gold, silver, and palladium regain their footing.

Let’s keep our position in PALL at a hold until further notice…

. . . . Teucrium Commodity Trust Corn Fund (CORN) – HOLD

The move we’ve been waiting for in the corn market is finally here!

Corn futures were limit up on Monday after the National Weather Service forecast more hot, dry weather for the US heartland over the next 8-10 days.

Why’s that a big deal?

A lack of moisture during the sensitive pollination period greatly increases the risks of this year’s US corn crop coming up short.  As a matter of fact, commodity analysts at Macquarie are now forecasting corn yields of 156.5 bushels an acre.  That’s well below the USDA’s lofty 2012 estimate of 166 bushels per acre.

The difference may not sound like much, but if yields come in at the level Macquariesuggests, it will make an enormous difference in global corn supplies.

Our position in CORN is now firmly in the black.  Let’s keep holding it for bigger gains.

. . . . iPath Dow Jones-UBS Cocoa (NIB) – HOLD

Unfortunately, cocoa’s still stuck in the same $2,100- $2,350 trading range that’s kept it confined for over three months now.

But like I said in our last update, it’s in our best interests to remain patient with NIB.  As long as Europe doesn’t drag the global economy into a recession, higher cocoa prices should be right around the corner.

Let’s keep NIB at a hold.

. . . . United States 12-Month Natural Gas (UNL) – HOLD

After bearish Energy Information Administration (EIA) inventory reports drove the price of natural gas down in late May and early June, the seemingly abundant commodity is back on the upswing.  In fact, natural gas is up 26% in the past nine trading days.

What’s behind the recent surge?

Even though natural gas in storage is still at record highs, the rate at which the commodity is being added to storage is well below the 5-year average.

What’s more, hot temperatures across the Midwest and Northeast have people cranking up their air conditioners.  Since utilities have largely switched to natural gas from coal, high electricity demand is helping to reduce natural gas supplies.

Remember, our position in UNL is a long-term play on rising natural gas prices.  Let’s keep this position at a hold as natural gas fundamentals continue firming up.

Category: Commodity Trading