$US Not a Saviour for All Commodities Today

June 2nd, 2009 Posted in Uncategorized

Yesterday, new lows in the June '09 Dollar Index futures helped propel most markets higher. Today, it was not the global crutch to move most commodity futures markets in the same fashion.

In the grains/oilseed sectors: Wheat, Soybean, Meals, and Rice fell back some. Bean oil, Oats, & Corn rallied. Most commentary I read indicates that pullbacks in beans are buying opportunities. We'll see.

Livestock futures are hurting. The pork complex is on a rather obvious downtrend. Higher feed prices are no help, but I still feel that a position on the long side of the LHZ9 should be built using options. The reco I made 'round about the time of the H1N1 hysteria still is in play. The LHZ9 70 Calls are now worth somewhere close to 2 cents, indicating a loss if you paid 3 cents. The thinking that somewhat tight supplies will inevitably be felt, and then priced into the market, is aiding the strategy to average down with another purchase at close to the 2 cent level. Then again at 1 cent if it really begins to accelerate lower. If the market affords the opportunity to average in, the risk would be 6 cents, or $2400.00, and the average price would be 2 cents. The upside targets remain the same for that option, which is around 4 to 4.5 cents.

Cattle futures are on a good downward slide, too.  August Live Cattle futures, for example, have now eked through the bottom end of a long-established trading range. For the past 3.5 to 4 months or so, that contract has basically been in a well-established value area of about 81 to 85 cents. Today it settled at 80.65. I see support coming in at 80.10, and then 78.15.  Eroding cash trade, larger showlists, the dairy cow buy-back program, and heavy competition from competing protein sources such as pork are more than offsetting the expectations for an uptic in demand from the onset of grilling season and cheaper exports credited to the falling $US. I think the range-bound players are going to look to buy this market soon, either by selling puts or buying futures. I may too.

Speaking of cattle, yesterday's slaughter in the interest rate futures was followed by relative stability today. As I write this, ZBM9 is up almost a point and the ZNM9 is up about a third of a point. The short-dated portion of the curve also came back some today, as year-or-so out Libor and Eurodollar futures bounced up about 5 or 8 points. In my opinion, nothing can save these markets from continued downside save for Fed Intervention, downward movement on the equity futures, or friendlier comments out of PRC with respect to US Debt ownership.

I've been watching a few spreads lately that look to be good risk:reward scenarios. I'll come back to you shortly with their details.

Bob