Weekly Update (Week of 4/3/2023)

 Weekly Update: April 3rd, 2023

Trading Portfolio: (It is a link to Google Sheets)

General Major News/Economic Developments

• Job openings fell below 10 million for the first time in 2 years - signs point towards easing of worker demand from employers
• 1/3 of China's newly constructed housing options went unsold in 2022

Metals

Developments/News

Gold

My prediction last week held up for a short period of time. Gold has busted through the 2000 level with strength and it seems like it will hold here.

Weaker-than-expected US economic data is the main catalyst for this Gold move. As job opening levels dropped to 2-year lows, US Dollar rates also fell to lows. With a 40% chance of .25% rate hikes and a 60% chance of no change, there are mostly clear skies for gold above.

Silver

Silver has been chugging higher alongside gold. We are reaching my $30 target for the year faster than expected. It will be interesting to see the reaction at the top of the channel. This is mostly uncharted territory, so any open positions should generally be held and trailed with a stop loss.

The major macro space is mostly the same for Silver as it is for Gold. US economic data continues to play a large part.

Copper

Technically we are mostly cruising in no-man land with a slight bias to the upside due to the EMA support. Based on that and the macro story below, I picked up 2x /HG contracts at 3.964.

Copper and Zinc mining company Teck Resources rejected a bid from trading superhouse Glencore for $22.5 billion. This shows the interest in copper for both producer/supplier and trading house. Seeing that they rejected an astronomical $22.5 billion offer (equal to their market capitalization), we can assume they see value in owning a copper production firm. 

Agriculture

Developments/News

Coffee

Coffee prices were mixed on Tuesday, with ICE robusta coffee rising to a 7-month high, while Arabica coffee fell back due to concerns about the U.S. economy. The coffee market has been affected by various factors, including global supply concerns, reduced flooding concerns in Brazil's coffee fields, and increased coffee supplies.

Robusta coffee has seen support on global supply concerns, with coffee trader Volcafe forecasting a record deficit of 5.6 million bags in the global 2023/24 robusta coffee market. Additionally, Indonesia, the world's third-largest robusta producer, is expected to see a -20% y/y drop in its 2023 coffee production due to excessive rainfall across its growing regions.

On the other hand, ICE monitored Arabica coffee inventories fell to a 3-1/2 month low, providing support for prices. The National Federation of Coffee Growers also cut its 2023 Brazil arabica production estimate due to heavy rains causing diseases to spread in the south of Minas Gerais.

Meanwhile, reduced flooding concerns in Brazil's coffee fields have allowed farmers back into coffee fields to apply fertilizers and pesticides. This news has been a negative factor for coffee prices. Moreover, ICE robusta coffee inventories rose to a 3-1/2 month high on March 23, and U.S. Feb green coffee inventories rose +5.9% y/y to 6.105 million bags, which has weighed on prices.

The International Coffee Organization (ICO) reported a decline in global coffee exports in October-December, which has also supported prices. In addition, coffee exports from Guatemala, the second-largest coffee producer in Central America, fell -8% y/y in January.

The coffee market has also been affected by production estimates. The USDA cut its global 2022/23 coffee production estimate by -1.3% to 172.8 million bags due to arabica crop woes. The USDA's Foreign Agriculture Service (FAS) also cut its Brazil 2022/23 coffee production forecast by -2.6% to 62.6 million bags.

Overall, the coffee market remains volatile, with various factors affecting prices. Investors and traders need to remain vigilant and informed to make the right investment decisions in this market.

Cocoa

Cocoa sits once again at the top of the range. I don't think there is a trade to be had currently but will wait patiently for something to develop.

On Monday, cocoa prices retreated on easing cocoa crop quality concerns in West Africa. Ivory Coast and Ghana cocoa farmers reported cocoa bean counts of 115 per 100 grams for this year's mid-crop, above the average of 80 to 100 per 100 grams that cocoa exporters typically look for.

Despite this, smaller cocoa supplies from the Ivory Coast have been bullish for prices. Last Friday, NY cocoa posted a 2-1/3 year nearest-futures high, and London cocoa posted a 3-3/4 month high as the Ivory Coast Agriculture Minister said the Ivory Coast mid-crop is expected to fall -25% y/y to 450,000 MT. On Monday, Ivory Coast government data showed that farmers sent a cumulative 1.81 MMT of cocoa to Ivory Coast ports for the 2022/23 marketing year (October 1 through April 1), down -2.7% y/y. The International Cocoa Organization (ICCO) monthly report on March 24 also supported prices as the report said cocoa exports from the Ivory Coast fell -9.3% y/y to 530,314 MT between October and January.

While the ICCO has projected that global 2022/23 cocoa stockpiles would fall -3.5% y/y to 1.653 MMT, concerns about the quality of some West African cocoa crops have limited any declines in cocoa prices. Cocoa farmers continue to struggle with the lack of fertilizer and pesticides as the war in Ukraine has limited Russian exports of potash and other fertilizers worldwide.

There are also bearish factors to consider. An increase in cocoa exports from Nigeria is bearish for prices after the Cocoa Association of Nigeria reported last Monday that Nigeria's Feb cocoa exports rose +15% y/y to 43,405 MT. An increase in European cocoa supplies is negative for London cocoa prices after ICE monitored EU cocoa inventories on March 15 rose to a 6-1/4 month high of 139,060 MT. Additionally, global cocoa demand is tepid, with Q4 North American cocoa grindings falling -8.1% y/y to 107,130 MT, European Q4 cocoa grindings falling -1.7% y/y to 359,577 MT, and Asia Q4 cocoa grindings falling -0.2% y/y to 230,806 MT.

In conclusion, cocoa prices have been fluctuating due to a mix of bullish and bearish factors. While smaller cocoa supplies from the Ivory Coast have been supporting prices, an increase in cocoa exports from Nigeria and an increase in European cocoa supplies have been bearish. Concerns about the quality of some West African cocoa crops and tepid global cocoa demand have also contributed to the fluctuation of cocoa prices.

Wheat

The order for the wheat long is yet to be filled, but it is looking like we will get it somewhere in the grey area as planned. The R/R here will be very nice. 

Wheat futures tried to push higher but ultimately succumbed to selling pressure, ending the day in the red. CBT SRW contracts closed with losses of 2 to 3 1/2 cents, resulting in a fractional weekly loss for May SRW. Similarly, KC futures were down by 1 3/4 to 3 1/2 cents, leading to a net 5 1/4 cent loss for the week. Spring wheat futures also experienced losses of 2 1/4 to 4 1/4 cents, with the May contract facing a 6 1/4 cent loss on the week.

The crop conditions in Kansas, as reported by the National Agricultural Statistics Service (NASS), showed a score of 230 on the Brugler500 scale, which is the lowest among the reported states. This rating is 49 points lower than the national score of 279 on the Brugler500 scale, and the lowest initial rating for the state since the 2012 drought. On the other hand, initial conditions in Texas scored a 253 on the Brugler500 index, which is up by 84 points from last year's start but still 33 points lower than two years ago.

The Brugler500 index is a crop condition rating system developed by agricultural market analyst Alan Brugler. It is a composite index that measures the crop conditions of major crops in the US, including corn, soybeans, wheat, cotton, and more. The index ranges from 0 to 500, with 500 indicating perfect crop conditions and 0 indicating complete crop failure. The index takes into account factors such as weather, soil moisture, pest pressure, and disease outbreaks, among others. The Brugler500 index is closely watched by traders, farmers, and analysts as a key indicator of crop production potential and market trends.

Energy

Developments/News

Crude Oil (Brent)

The huge trade went even higher after the information came out about oil supplies. Missed out on that chunk, it would have been nice to have some size to trail with.

OPEC unexpectedly announced a -1 million bpd cut in crude production. This puts a lot of pressure on supplies and causes per barrel price to increase rapidly. Last week, crude supplies fell -4.3 million barrels.

Energy analyst Paul Sankey predicts that crude oil could hit $100 per barrel.

Crude Oil (WTI)

Crude sits in a supply zone, but that supply zone was used by quite a large move, so the validity is slightly reduced.

The macro story remains the same as Brent's, see above for that information.

Footnotes

Sources include Thinkorswim, Tradingview, Barchart, Wall Street Journal, Financial Times, Investing.com, and Metals Daily.