Continuing to monitor the Arabica Coffee futures estimating that prices will not be able to trade significantly above the 194 level. This may be a great time to increase short exposure to Coffee futures via lower risk positions in the spread market. Coffee prices may need to fall much further in order to initiate absorption of excess stocks and stimulate reduced output. Coffee continues to trade in a moderate contango. True worries about physical supply should cause coffee to move into a backwardation market which is unlikely. Now may be a good time to begin positioning short on Arabica Coffee futures.
India’s cabinet committee on economic affairs approved a subsidy today for exporting tonnes of sugar. With the global market suffering from large inventories of sugar, India has created a situation where even more supplies of sugar may hit the global markets from the worlds second largest producer. Brazil, the largest producer of sugar in the world, criticized India’s sugar export subsidies sighting enhanced distortion of the global sugar trade. Sugar prices have been on a tear beginning the year 2014 up 6%. Forecasts of dry weather in Brazil have added to concerns over potential reductions in sugar supplies coming from the 2014 sugar harvest.
The Thai baht over the past three months had significantly weakened against the U.S. Dollar in the face of political unrest and massive protests. However, something has changed in Thailand. The currency markets are beginning to price in a recovery in the Thai Baht. The Bank of Thailand’s chief in the face of US Federal Reserve tapering has said their is no need for tighter monetary policy to stem dollar outflows. These comments from the Bank of Thailand chief assert Thailand’s optimism in its economy. The USD/THB currency pair has broke a major uptrend signaling a change in sentiment towards Thailand for the time being. This change in sentiment may be due to a belief in political unrest and massive protests subsiding or a solidified stance on monetary policy. Whatever the case, the currency markets are beginning to re-price risk in the Thai Baht which could mean the Thai Baht could increase against the Dollar.
A spectacular run up in Natural Gas prices possibly due to bad weather and inventory draws downs could be coming to an end. Above is a correlation chart between Light Sweet Crude Oil and Natural Gas prices. Natural Gas is now testing the $100 highs reached by Crude Oil weeks earlier. Hedgers may decide to swap cash flows between Natural Gas and Crude Oil to benefit from differences in margins between these two commodities. If the correlation between Crude Oil and Natural Gas is your guide, Natural Gas prices could be peaking at these levels.
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Investors seem to be a bit more than worried about equity exposure and volatility. The volatility term structure hit a new high today displaying the fear in the markets at this moment. A possibility of tapering by the Federal Reserve could be one reason for the rise in volatility hedging. Gold and Silver prices are also down significantly with Gold spot down -2.16% and Silver spot down -4.03%. Earlier this year, Gold and Silver prices where heavily sold off with Copper prices eventually falling significantly as well, marking a period of deflation in global markets.
By-products of processing soybeans include soybean oil and soybean meal. The crush spread is created to measure the profit margin of the soybean processor.
The crush spread currently being monitored is the January (buy 2 contracts) soybeans/March (sell 5 contracts) soybean oil/March (sell 22 contracts)soybean meal. This ratio creates the greatest accuracy for real world soybean processing margins.
The crush spread has been on an upward incline since the beginning of September. This upward move would imply soybean processors are offsetting risk by selling soybean oil and soybean meal. An increase in the crush spread would also imply soybean processors are expecting expanded processing of soybeans. With record projections of 3.42 bushels of soybeans harvested this year and Brazil on pace to pass the U.S. in Soybean production this year as well, soybean processors should stay very busy for the forseeable future. If this is the case, major profits from the soybean crush spread could be ahead.
Four warehouses in Brazil’s Santos Port holding over 300,000 tons of Sugar went up in flames this previous Friday. A high volume shockwave hit the Sugar futures spread market where commercial players hedge Sugar positions. The Mar 2014 vs May 2014 Sugar spread spiked 0.26 points from 0.16 to 0.42 or just under 300% on Friday alone. Later in the day on Friday, the spread came back down to earth closing at 0.27 still up just under 200% on the day.
Watching the front month vs Dec 13 back month Volatility Index Futures Spread. The spread has been moving upward at a rapid pace displaying the fear being priced into this market. As traders reach for protection now more than later the front month Volatility Index Futures contract is outperforming the back month contract. Closely monitoring this position for a possible breakout here to solidify the traders market hedge exposure. One is of the opinion that the red line above may be breached for a brief period but the better trade is looking to short this spread as the inevitable stimulus of QE continues to have its effect on equity indices to the positive side.
The Baltic Index recently has been on a tear up 5% this Tuesday and up another 2% today. The continued rise in the index is causing shipping stocks to explode to the upside. Dry bulk shipping company Dryships was trading at $2.00 a share just a few weeks ago around August 22nd and is now trading at $3.60 a share. If the Baltic Dry Index continues this upward trend, shipping stocks like Dryships could continue to increase in value.
Here is a chart of the Baltic Dry Index: