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Commodity Trading


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Commodity Trading

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  #1 (permalink)
Sydney, Australia
 
 
Posts: 78 since May 2012
Thanks: 31 given, 101 received

I'm starting a journal to track some of my commodity trades, share ideas and engage with other commodity traders. I know commodity trading isn't necessarily too common in trading forums, but for me it's what suits my style of trading (and personality) the best.

I've been trading commodity spreads for around 2-3 years. I started my trading career as a scalper on bond and equity futures markets but have been phasing out the shorter term trading over the past 12 months.

My focus will be on grain, energy, meat and softs markets.

I consider myself predominately a discretionary futures spread trader.

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  #3 (permalink)
Sydney, Australia
 
 
Posts: 78 since May 2012
Thanks: 31 given, 101 received


I'm currently short a couple of NG spreads that have been trading nicely so far.

The chart below is NG N5 Ė NG U5.

On Monday front month NG hit a new low and on the surface it appears that demand has fallen away as we might expect this time of year.

Not so for the spreads though.

Over the last few sessions spreads have turned around. When this happens it can sometimes indicate a turnaround is coming in the outrights and this can blow out the spreads even further.

As a result I might tighten my stops a touch and Iíll let them play out for the next week or so and see how the spreads continue to trade.

For the technical analysts out there, that does look a bit like a double bottom and it feels like they want to push higher. However for now Iíll stick to my plan and stay short.

Even though the weather seems to be in line with expectations at the moment, any deviation in storage numbers on Thursday might be the catalyst for a big retrace.


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  #4 (permalink)
Sydney, Australia
 
 
Posts: 78 since May 2012
Thanks: 31 given, 101 received

Iíve been watching the May 15 Soybeans Ė Corn spread closely over the last couple of weeks, looking for any kind of strength in soybeans. Overnight we started to get some strength on the back of China and I decided to finally get long here a touch below 580. We got some follow through during the US session which was a nice start.

From a fundamental perspective there are plenty of soybeans around at the moment. Weíve got record crops in South America and strong prospective plantings and weather that is in line with expectations. If we see only an average yield this year, ending stocks could well be the highest theyíve been in more than five years.

As a result soybeans have been really weak.

As a general rule I donít like to fade fundamentals Ė however this is a spread I like the look of.

Given the weak fundamentals and the fact itís an inter-market spread, Iíll be trading small size and keeping a tight rein on this one.

On Wednesday we have NOPA crush numbers out and this could prove decisive. Letís see how this plays out for the rest of the week.


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  #5 (permalink)
Sydney, Australia
 
 
Posts: 78 since May 2012
Thanks: 31 given, 101 received

Soybeans had a positive lead overnight heading into the US session. But from there is was a wild ride.

NOPA crush numbers on the surface appeared bullish for soybeans however there still seems to be daily reports on just how big the South American crop is and that continues to weigh.

My May 15 Soybean Ė Corn spread did push higher and mimicked underlying soybeans.

Iím happy to keep holding here but will tighten my stop.


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  #6 (permalink)
Sydney, Australia
 
 
Posts: 78 since May 2012
Thanks: 31 given, 101 received

Regardless of what the fundamentals are saying there seems to be a little bit of strength coming into soybeans in recent days. Iím already in a soy/corn spread and another soybean calender spread.

For that reason Iím hesitant to get to overexposed here Ė especially given the abundant supply.

However soymeal has really found support over the last few trading sessions.

Iím looking at the July 15 soymeal Ė soyoil spread. Again this one is tracking soymeal which seems to be turning around.

Iíve got a minimum level of expose across my three soybean trades as to not risk too much here as essentially they are all very highly correlated.

There has been a little bit of strength in soybeans since the open of electronic trade so Iíve taken an early position.



Iím long at 12430.

Iím looking at the spread in terms of equity because soymeal and soyoil have different point values.

So for those interested itís ZM x 100 Ė ZL x 600.

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  #7 (permalink)
Sydney, Australia
 
 
Posts: 78 since May 2012
Thanks: 31 given, 101 received

The last two sessions have seen my natural gas spreads break nicely to the downside.

After a little bit of a rally, ironically on the back of an injection into storage, price has fallen away. On Thursday we saw a 63B injection versus a 53B estimate.

Iím looking for the front months to really test the lows and ideally break through.

The next storage report is expected to show a build of approximately 80 billion cubic feet for the week ending April 17, which would be the most on record for the week. Another bearish sign.

So for now Iíll let these spreads continue to play out.

Iím short a few different spreads at various prices, however they are all effectively the same trade.


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  #8 (permalink)
Sydney, Australia
 
 
Posts: 78 since May 2012
Thanks: 31 given, 101 received

Fortunately for us we saw a nice build in NG storage on Thursday that helped push NG lower. We came in at 90 vs 83 expected.

While front month NG is yet to test the lows, two of my three spreads broke through.

My NG N5- NG X5 was the best performer with a clear break of the lows. Not surprisingly this one is also the most volatile.

Iím generally happy with where things are and letís hope for some follow through on Friday.

Iím going to give these spreads another week or so and hopefully that should give them some time to consolidate and push lower. Should they retrace in any meaningful way then Iíll most likely exit.


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  #9 (permalink)
Sydney, Australia
 
 
Posts: 78 since May 2012
Thanks: 31 given, 101 received

Iíve been short a cattle spread (LE V5 Ė LE G6) for a little over a week and itís been a tale of two extremes.

I picked a beautiful entry at parity and immediately saw it move my way. However in the last few days itís really retraced on what looks like a little bit of short covering.

On Friday we got the cattle on feed report and that proved to be bearish versus expectations with placements coming in higher.

Iíve moved my stop to breakeven so Monday looks like a make or break session for this spread.


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  #10 (permalink)
Sydney, Australia
 
 
Posts: 78 since May 2012
Thanks: 31 given, 101 received


My Soybean Ė Corn spread has opened the week with a little bit of strength and Iím going to take it off.

The soybean contract is due to expire soon and I need to be out by Wednesday, so Iíll exit now on a bit of strength.

Overall Iím really happy with this trade. I entered this one more based on technicals, as soybeans had been sold hard on large fundamental supply.

This one may still push higher but Iím happy to lock in around $1300 per/contract.


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  #11 (permalink)
Sydney, Australia
 
 
Posts: 78 since May 2012
Thanks: 31 given, 101 received

I took off all my positions in natural gas prior to the release of the storage numbers and boy am I glad I did.

I didn’t want to give any of the spreads too much wiggle room and as a result had a pretty tight trailing stop. On Wednesday we closed pretty much on the stop and I could very well have held on.

However I was a little nervous about the storage number given the action that we saw the previous week.

The last set of storage numbers were actually quite bearish for NG, however price actually rallied. When I get in a situation where there’s some strength in the face of weakness, I’m getting ready to exit. It said to me that there were buyers and probably a lot of people looking to cover and sure enough they did.

A couple of the spreads actually rallied hard to the point that they would have wiped out all the gains to date.




Whilst I was right this time around, I know that picking an exit is not a perfect science. During the week I exited my Soybean/Corn spread only to continue to watch it rally another 15 points, so I’m not getting too ahead of myself.

This week I’m one all on picking good exits.

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