Commodity ETF Alert November 2013 Portfolio Update

| November 26, 2013

 

ARE BEAN BULLS FINALLY READY TO CHARGE?

As you know, I sent out an email on November 14th, alerting subscribers to the opportunity in the Teucrium Soybean Fund (SOYB).

Here’s some additional insight into why we made this trade, and how it’s performing thus far…

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No doubt about it, this summer was nearly perfect for growing North American crops…

Amicable weather allowed US farmers to plant and harvest with relative ease.

And much like corn, this year’s US soybean crop is abundant.  In fact, the USDA’s November 8th WASDE report calls for a bean crop of 3.25 billion bushels.

As a result, soybean ending stocks for the 2013/14-harvest year have jumped to an estimated 170 million bushels.

While this information may sound bearish, you have to remember…

… Investors have been factoring in this bumper soybean crop for months now.

In fact, it’s precisely why the commodity dropped into the $12 a bushel range earlier this summer.

But remember, while the US soybean crop is no doubt large, it still fell short of investors’ lofty expectations.  As you know, many experts thought ending stocks would be 7 million bushels higher than the formal November 8th WASDE estimate.

This bullish factor has likely put in a floor for soybeans for the foreseeable future…

Of course, we’re not interested in buying a commodity just because the price has stopped going down.  We want to invest in assets with a high probability of moving upwards.

And US export data gives soybeans just that potential…

Recent export inspections reveal the US sold 1.38 million tonnes of soybeans in the latest week… that’s double the forecast of some analysts!

Who’s buying up the beans?

… China.

Recent data reveals the Asian nation has already purchased 23 million tonnes of the 2013/14 US soybean crop.  That’s already 37% higher than last year’s total Chinese imports.

What’s more, the huge export rush already has total commitments for the US soybean crop at 35.4 million tonnes… that’s 90% of the total exports expected for the entire marketing season!  At this point of the year, around 55% of exportable soybeans are usually accounted for.

Bottom line…

There’s no question that the US soybean crop is large.  However, export demand is currently running at a record pace.  As a result, the soybean market is tightening quickly.

As of today, the Teucrium Soybean Fund (SOYB) is trading at $23.48, which is just below our maximum buy-up-to-price of $23.75.

If you haven’t already, buy SOYB at $23.75 or lower.

Remember, SOYB is a relatively new, and therefore thinly traded ETF.  So use limit orders, and don’t buy above the maximum price.

Now let’s take a look at other major commodities, along with an update on our open portfolio positions…

 

COMMODITY REVIEW

COMMODITY TICKER CURRENT VALUE LAST MONTH CHANGE
Energy JJE $16.93 $17.28    -2.0%
Grains JJG $45.08 $46.79    -3.7%
Industrial Metals JJM $28.39 $29.55    -3.9%
Precious Metals JJP $63.18 $67.29    -6.1%
Softs JJS $43.50 $48.25    -9.8%
Livestock COW $27.32 $27.84    -1.9%
All Commodities DJP $36.22 $37.57    -3.6%

 

ENERGY COMMODITIES

Big news in the oil markets this past weekend…

World powers reached a historic agreement with Iran over the rogue country’s burgeoning nuclear program.  In the surprising agreement, Iran agreed to halt worrisome uranium enrichment in exchange for reduced economic sanctions.

This is a remarkable development for Middle East peace.  However, it’s too early to know just how sincere Iran is about the agreement.  In the past, the country’s leaders have failed to follow through on promises given.

But if they do follow through, the Iranians may eventually be allowed to resume crude exports to Europe.  As you may know, the European Union has an oil embargo in place, which keeps around 1.5 million barrels a day of crude off the global market.

What’s the news mean for oil prices?

Even though the oil embargo has yet to be lifted, the simple fact that Iran is becoming more amicable will help diminish the fear premium on global oil markets.

And that means we have an even better chance of seeing WTI crude drop into the $80 a barrel range!

As a result, let’s keep holding our position in the US Short Oil Fund (DNO).  We’re sitting on a gain of just over 11% in DNO.  But with this weekend’s news, it’s likely we squeeze additional profits out of this trade.

As far as natural gas goes…

Old man winter is making an early arrival in parts of the US!

According to the NOAA, the Midwestern and Eastern US are expected to be much colder than normal through the end of November.  As a result, the price of natural gas is approaching multi-month highs near $3.80 mmBtu.

For prices to continue higher in December, we’ll need to see continued bursts of cold temperatures.  As you know, bitter temperatures puts heavier demand on natural gas, thus depleting storage levels and sending the price higher.

Since the US 12-month Natural Gas (UNL) is now above our maximum buy-up-to-price of $17.00, I’m moving this position to a hold.

GRAIN COMMODITIES

No doubt about it, US corn, wheat, and soybean harvests are abundant this year.  As you know, expectations of a bumper crop pushed the price of all three grains lower for most of the summer.

However, now that the US harvest season is drawing to a close, the demand side of the equation comes into play…

As I mentioned earlier in today’s report, export estimates are starting to show the bullish potential of the grain markets.  Not only are soybean exports soaring, but so are wheat and corn deliveries.

So just because US supplies are strong, it doesn’t mean all hope is lost for grain bulls. After all, with grain prices the cheapest they’ve been in quite some time, demand for these essential commodities will only rise.

If you haven’t already, go ahead and buy the Teucrium Corn Fund (CORN) up to $32.00 and the Teucrium Wheat Fund (WEAT) up to $16.30.

As you know, we’re currently sitting on losses in these trades.  But with prices where they are, now’s the time to buy the grains complex, not sell.

INDUSTRIAL METALS

No doubt about it, November was a wild ride for the copper market.  Early in the month, the price of the red metal quickly sank to $3.15 a pound on continued uncertainty surrounding Chinese demand.

But the price is recovering nicely over the past few days…

A nine-month low on London Metal Exchange copper inventories means supplies of the essential metal aren’t nearly as abundant as earlier in the year.

If China puts up some strong economic data in coming months, we’ll likely see copper rebound dramatically from these levels.

We’re still sitting on a gain of nearly 5% in the iPath DJ-UBS Copper (JJC).  Keep holding JJC for higher prices.

PRECIOUS METALS

Investors are still scorning gold and silver…

The precious metals dropped to multi-month lows last week when Fed Chairman Ben Bernanke announced he’ll start tapering bond purchases “in coming months”.

The recent drop is surprising as Mr. Bernanke’s hardly committing to anything with these open-ended statements.  As you know, he’s been promising tapering for the better part of 2013, and has yet to make good on it.

However, until we see a strong uptick in inflation levels, we’ll likely see little in the way of bullish investor interest for gold and silver.

Additionally, the supply/demand fundamentals simply aren’t that strong for the metals. So there’s really no need for investors to buy gold and silver hand-over-fist just yet.

Unfortunately, Bernanke’s hopeful statements took platinum and palladium to lower prices as well.  Platinum slipped to $1,380 while palladium is back down to the bottom of its trading range near $720.

But remember, the supply/demand fundamentals for platinum and palladium are completely different than that of gold and silver.  Long-term shortages are developing in both these markets, which make big dips in price a definitive buying opportunity.

In fact, thanks to the recent pullback in platinum, you can buy the iPath DJ-UBS Platinum (PGM) up to $30.50 if you haven’t already.

Palladium is still slightly above our buy zone so I’m leaving our position in the ETFS Physical Palladium Shares (PALL) at a hold.

SOFTS

Soft markets experienced some hefty selling this month.  Cotton, coffee, and sugar are all down dramatically thanks to abundant global supply/demand figures.

The one bullish exception is cocoa…

The sweet bean is once-again running to a new yearly high at $2,800 a tonne thanks to the oncoming holiday season and stronger than expected grinding data.

LIVESTOCK

Even though they’ve weakened slightly in recent days, live and feeder cattle futures are still trading near record highs.  We may see some near-term downward pressure on livestock simply due to their extremely overbought nature.

But in the long run, cattle prices will likely remain strong…

As I’ve stated in past issues, the US cattle herd numbers are sitting at multi-decade lows.  As a result, prices will have to stay buoyed in order to ration supplies.

 

Category: Commodity Trading