** Quarterly Overview**

Q3 Overview 2022 – Q4 Outlook 2022 PDF

Q3-2022 Quarterly Commodity Spreadsheet

The TechnoMental Commodity Report

As of the Close of Business on November 30, 2022

TechnoMental Commodity Report PDF-11.30.2022

Weekly Commodity Report Spreadsheet-11.30.2022

  • Stocks and bonds moved marginally higher, in thin trading – The VIX was near the 20 level
  • Bitcoin and Ethereum recovered – Precious metals were mostly higher – Copper and most base metals posted gains
  • Natural gas corrected lower, gasoline, gasoline cracks, and ethanol slipped, while oil, heating oil, and distillate cracks moved higher
  • CBOT soybeans rallied, while corn was only slightly higher – CBOT wheat futures declined – Live and feeder cattle edged higher, while lean hog futures declined – FCOJ corrected lower, while coffee, sugar, cotton, and cocoa futures posted gains
  • January lumber futures edged lower – The dollar index was marginally lower since last week

TechnoMental System Update

The TechnoMental System provides subscribers with eight separate potential trend following portfolios in all of the sectors covered in the weekly report including:

  • Stocks and Bonds
  • Precious metals
  • Base Metals
  • Grains and Meats
  • Soft Commodities
  • Currencies
  • Energy

Subscribers can use any of the portfolios, all of them, or select the ones they wish to use for investment and trading purposes. Automatic execution is available for all of the portfolios for subscribers. The benefit of automatic execution is that buy and sell orders are compiled and executed as soon as the signals come out. 

Important Announcement:

I will not be offering the Technomental Commodity Report through Bubba Trading after today, November 30, 2022.

However, I will be providing the Hecht Commodity Report on Seeking Alpha. While the Hecht Commodity Report does not offer trend-following portfolios, it is the same service offering a comprehensive weekly report on most Wednesday’s, a summary on most Friday’s, and a quarterly report at the start of each quarter. I offer recommendations and the same spreadsheet with the Seeking Alpha report. If you would like to continue with the portfolios, please contact Bubba Trading directly.

You can sign up for a free trial and a discounted subscription rate for the Hecht Commodity Report via this link. Thank you for your continued support.

Summary

On Friday, November 25, stocks turned in a mixed performance during the shortened holiday session. The DJIA was 0.45% higher, and the Russell 2000 moved 0.30% to the upside. The NASDAQ fell 0.52%, and the S&P 500 edged only 0.03% lower. The VIX was at the 20.50 level, up 0.08. The December US 30-Year Treasury bond futures moved 0-02 higher to 127-22. The December dollar index futures edged 0.05 lower to settle at 105.917. Corn and soybean futures edged higher, while wheat declined. January NYMEX crude oil futures fell $1.66 to $76.28 per barrel. Gasoline and heating oil futures fell and underperformed the petroleum futures, sending crack spreads lower. January natural gas futures fell 37.8 cents to $7.330 per MMBtu.

Gold, silver, and copper moved higher, while platinum and palladium prices declined. Live and feeder cattle, and lean hog futures posted marginal losses on the session. Coffee, cocoa, and FCOJ futures rose, while cotton and sugar prices declined. January lumber was at the $422.30 level, down $9.70 per 1,000 board feet. November Bitcoin futures were $95 lower to $16,515. November Ethereum futures rose $15 to $1,190.50 per token.

On Monday, stocks fell, and bonds were steady. The Russell 2000 led the way on the downside with a 2.09% loss. The NASDAQ dropped 1.58%, and the S&P 500 moved 1.54% lower. The DJIA rounded out the losses with a 1.45% decline. The VIX moved 1.69 higher to the 22.19 level. The December US 30-Year treasury bond futures were unchanged at the 127-19 level. The December US dollar index rallied 0.715 to 106.632. Soybean futures rallied, wheat declined, and corn was virtually unchanged. January NYMEX crude oil futures rose $0.95 to settle at $77.24 per barrel.

Gasoline and heating oil futures edged to the downside, pushing crack spreads lower. January NYMEX natural gas futures fell 13.4 cents to $7.196 per MMBtu. Gold, silver, and copper were lower, while platinum and palladium prices increased. Lean hogs led the way lower in the animal protein sector, while live and feeder cattle futures also moved lower. Sugar and cocoa futures posted marginal gains, while cotton, coffee, and FCOJ futures declined. January lumber futures moved $0.80 lower to the $421.50 per 1,000 board feet level. December Bitcoin futures fell $365 to $16,935, and December Ethereum futures declined $15.50 to $1,149.50 per token.

On Tuesday, civil disobedience in China over the COVID-19 lockdowns could cause the government to rethink its approach to the current protocols. If China follows the US and other countries, economic growth could be on the horizon. The small-cap Russell 2000 moved 0.30% higher and was the only leading index moving to the upside. The NASDAQ fell 0.59%, while the S&P 500 edged 0.16% lower. The DJIA was virtually unchanged.  The VIX was 0.35 lower to the 21.86 level. The December US 30-Year Treasury bond futures fell 0-26 to the 126-18 level. The December dollar index moved 0.136 higher to 106.768. Soybean and CBOT wheat futures posted marginal gains, while corn futures edged slightly lower. January NYMEX crude oil futures rallied $0.96 to $78.20 per barrel as the market awaits the early December OPEC meeting and its decision on production policy. Gasoline edged slightly higher but underperformed crude oil, pushing the gasoline crack spread lower. Heating oil futures posted a significant gain, outperformed crude oil, and pushed the distillate processing spread higher. January natural gas futures moved 3.9 cents higher to settle at $7.235 per MMBtu. Gold, silver, platinum, and copper futures rallied, while palladium moved lower. February live cattle and January feeder cattle edged higher, while the February lean hog futures posted a slight loss. Coffee futures led the softs higher, with an over 6.0 cents gain. Cotton and sugar prices moved to the upside, while cocoa and FCOJ were lower. January random-length lumber futures were down only $0.40 to the $422.10 per 1,000 board feet level. December Bitcoin futures were up $200 to $16,190, while December Ethereum futures rose $49.50 to the $1,203 per token level.

On Wednesday, Fed Chair Powell delivered a hawkish speech, but a key takeaway was that the full impact of the recent rate hikes has not filtered through the economy, and a moderating approach may be necessary over the coming Fed meetings. The speech was a sign that a 50-basis point rate hike at the December meeting is on the horizon. The markets loved Chairman Powell’s comments that the central bank would slow down the trajectory of rate hikes and monitor how they flow through the economy. Stocks rallied, with the tech-heavy NASDAQ leading the way on the upside with a 4.41% gain. The S&P 500 moved 3.09% higher, and the Russell 2000 gained 2.72%. The DJIA moved 2.18% to the upside. The VIX fell 1.31 to 20.58. The March 30-Year US Treasury bond futures rose 1-09 to 127-30, and the December dollar index futures moved 0.871 lower to 105.897. March CBOT soybean and wheat futures moved higher, while March corn edged marginally lower. January NYMEX crude oil rallied $2.35 to $80.55 per barrel on the back of bullish API and EIA inventory declines. Gasoline and heating oil futures rallied and outperformed the raw petroleum, pushing gasoline and distillate refining spreads higher. January NYMEX natural gas futures fell 30.5 cents to $6.93 per MMBtu.

Gold futures settled lower, while silver, platinum, palladium, copper, and base metal prices moved to the upside. However, all the metals prices were significantly higher in the aftermarket after Chairman Powell’s speech caused the market to focus on a 50 instead of a 75-basis point rate hike at the December FOMC meeting. February live cattle edged higher, while January feeder cattle futures posted a substantial gain. February lean hogs also moved to the upside. Cotton futures were up the 4.0 cents daily limit, while coffee, sugar, and cocoa futures moved higher. FCOJ fell towards the $2 per pound level. January lumber futures were up $5.60 to $429.40 per 1,000 board feet. December Bitcoin futures rallied $735 to the $17,000 level, while December Ethereum futures moved $84.50 higher to $1,290.

Stocks and Bonds

Comments:

The stock market continued to rally since November 23 as the market rallied after Chairman Powell said that the December rate hike would likely be lower than in the past months. The Chairman’s speech pointed to a 50-basis point increase in the Fed Funds Rate was a bullish sign for stocks on Wednesday. Stocks moved higher and turned a negative on the week into a positive result. The NASDAQ rose 1.62%. The S&P 500 rallied 1.31%, while the DJIA posted a 1.16% gain. The VIX edged only 0.05% higher to the 20.50 level even though the S&P 500 rallied. We are now in the holiday season. While the stock and bond markets moved higher, trading conditions remain thin with limited liquidity.

Chinese stocks far outperformed the S&P 500 index over the past week, as the FXI rose 9.0%. Chinese stocks had underperformed US stocks for months. The potential for the end of COVID-19 lockdowns and a cordial meeting between US President Biden and Chinese leader Xi at the G-20 likely caused confidence to rise and buying in the ETF that holds leading Chinese stocks that trade in Hong Kong and on foreign exchanges last week. However, new outbreaks put the brakes on the FXI, which resumed its underperformance last week. This week, demonstrations that could lead to an easing in the lockdowns caused optimism and investors flocked to Chinese stocks and the FXI ETF. March US 30-Year Treasury bond futures edged 0.32% higher to the 127-30 level.

The stock market remains highly risky as the trend in 2022 remains bearish. Open interest in the S&P 500 rose 0.45%, while the metric in the long bond futures market moved 2.81% to the downside since November 22 as December futures rolled to March. Stocks and bonds should continue to experience significant volatility. End-of-the-year tax loss selling could become a factor in December, but a less hawkish Fed could encourage buying. Expect volatility, and you will not be disappointed.

Trends:

The medium-term bearish trends in stocks and bonds remain primarily bearish, while the short-term trends have turned higher and followed through on the upside. I continue to advocate hedging equity portfolios with tools that allow for upside participation but protect the downside in the current environment.

As I have written over the past weeks:

“I favor buying the volatility index at the current level. The economic and geopolitical landscapes could cause selling to return in the blink of an eye. The market appears too comfortable over the past weeks, which is always a warning sign for a downdraft.”

Stocks and bonds were in bullish trends in late-November. Buying VIX-related products with tight stops led to small profits and losses over the past week.

Recommendations:

  • Buy the VIXY on price weakness with at least a 2:1 reward-risk ratio. The base level on the VIX is between the 20-25 level, which is the buying zone for the VIXY instrument. At the 25.86 level, the VIX is falling towards the neutral level of the trading range. I have used tight stops on long VIX positions. Small short-term losses over the past months have given way to significant gains. I have used very tight stops on long VIX-related long positions. I will continue to buy VIX-related products with tight stops around the current level.
  • I will follow the short-term trends in the stock and bond market with tight stops.
  • Continue to be extra cautious in the current environment as geopolitical events could impact markets in the blink of an eye.

Currencies

Comments:

The December US dollar index edged 0.07% lower since November 23 and was at the 105.897 level on November 30. The dollar index stalled and ran out of upside steam after making a new two-decade high at 114.745 in late September. The Fed minutes and Chairman Powell’s November 30 speech indicated the central bank could revert to a 50-basis point hike at the December meeting, pushing the dollar index below the 106 level on Wednesday.

The euro and British pound were on either side of unchanged over the past week. The euro posted a marginal 0.08% gain against the US dollar, while the pound fell 0.08%. The pound underperformed the euro and the US dollar index over the past week.  

The A$ edged higher and C$ edged lower since November 23, while the Brazilian real posted a 2.05% gain since last week.

The A$, C$, and Brazilian currencies are highly sensitive to commodity prices, which moved mostly lower over the past weeks. Meanwhile, the Brazilian currency had been making higher lows and higher highs since December 2021. Open interest in the dollar index fell 1.85%, while the metric moved 1.42% higher in the pound, 2.19% higher in euro, 1.61% to the upside in the A$, and 1.30% higher in the C$ futures.

The leading cryptocurrency prices recovered over the past week, with Ethereum outperforming Bitcoin. Ether tokens posted a 10.15% gain. Bitcoin moved 3.35% higher since November 23. Ethereum outperformed and Bitcoin slightly underperformed the asset class’s market cap since November 23 as it rose 4.04%. The market cap was just under the $860 billion level. The number of new tokens coming to market continues to rise and was up 46 to 21,888 since the previous report despite the liquidity crisis. The trajectory of the number of new tokens coming to market seems to be slowing in the wake of the FTX debacle.

Trends:

The short-term trend in the dollar index is bearish, while the medium and long-term trends remain bullish after making a new high at 114.745 on September 28 and remaining above the 103.960 break out level. The long-term euro trend remains lower, but the short-term path of least resistance is higher. Trends in other currencies against the US dollar are slightly higher, while the path of least resistance in the Brazilian real against the dollar is consolidating. Cryptocurrencies are attempting to find bottoms in a challenging environment as the dust from the FTX debacle settles.

Recommendations:

  • We are long the FXC ETF at $76.32 and the FXA at $69.58 levels. I rate FXC a hold at $72.75 and FXA a hold at $67.24.
  • I have favored long positions in the dollar index over the past months as it is an implied short position in the euro currency. The higher the index rises, the greater the odds of periodic corrections. Interest rate differentials will determine the path of least resistance for the dollar index and the dollar versus the euro currency. The war in Ukraine on Europe’s doorstep will likely continue to weigh on the euro. The dollar index trend turned higher since the August 10 low.
  • We are long the BITQ ETF product at an average of $7.11 per share level. I rate BITQ a hold at $4.35. This position is a lotto ticket on the crypto asset class.
  • I remain long Coinbase shares (COIN) but am not adding to the long position. I rate COIN a hold at $45.73 per share.

Precious Metals

Comments:

Palladium fell 1.17% since November 23, while rhodium moved 0.76% to the upside. Platinum rose 4.26% to lead the sector and silver moved 1.19% higher. Gold edged 0.03% lower since the previous report. Precious metals were steady, with the only significant move in the platinum futures market which remains above the $1,000 per ounce level.  

Gold and silver mining shares had slightly underperformed the gold and silver futures since November 23 after outperforming last week. However, the mining stocks rallied in the aftermath of Chairman Powell’s November 30 speech.

Trends:

The short-term gold and silver trends remain marginally higher. Platinum’s short-term bullish trend remains intact. Meanwhile, palladium futures continue to be in a bearish trend. The action in the mining shares was a correction from the previous week when they outperformed the metals. Open interest in gold, silver, and palladium moved lower as the futures contracts rolled from December to the next active months. The metric in platinum moved higher, which is a technical validation of the bullish price action in the platinum futures market. The precious metals sector will be highly sensitive to interest rates and the US dollar over the coming days and weeks.

As I pointed out last week:

“The World Gold Council reported that central banks purchased a record 400 tons of gold in Q3, which is a bullish sign for the gold market, and other precious metals, by extension.”

Precious metals prices were higher after the Fed Chairman’s comments on Wednesday in the aftermarket as the market now expects a 50-point hike at the December meeting.

Recommendations:

  • We are long the SILJ ETF product that holds junior silver miners. I rate SILJ a hold at the $10.80 level.
  • I recommend holding 5% to 10% of portfolios in gold.
  • I remain mostly bullish from a long-term perspective but have been on the sidelines over the past weeks. This week, I am prepared to buy gold and silver mining shares and the platinum ETF, leaving plenty of room to add on price weakness.
  • We bought the GDX ETF at the $25.37 level or lower on October 6. At $29.06 per share on November 30, I rate GDX a hold.
  • We bought the SIL ETF at the $25.83 level or lower on October 6. At $28.68 per share on November 30, I rate SIL a hold.
  • We bought the PPLT ETF at the $85.10 level or lower on October 6. At $95.83 per share on November 30, I rate PPLT a hold.

Energy

Comments:

January coal for delivery in Rotterdam moved 13.58% higher, while January NYMEX natural gas futures fell 10.09% higher since November 23. The volatile natural gas market rallied over 16% last week.

January NYMEX crude oil moved 3.35% higher, while February Brent futures moved 2.08% to the upside since the previous report. January gasoline futures edged 0.35% lower since November 23. Gasoline underperformed raw crude oil, pushing the gasoline crack spreads 14.52% lower. January heating oil futures kept pace with the raw crude oil with a 2.65% gain. Distillate cracks edged 1.02% higher over the past week. Ethanol prices for January delivery edged 0.11% lower since the previous report. The potential for a price cap on Russian crude oil at the $60-$70 per barrel level is weighing on crude oil, but the US administration’s plans to buy oil for the SPR at $70 could create a floor for the energy commodity. However, the administration adjusted its plans saying it would buy oil if the price stabilized at the $70 level, trying to game the market if a sharper correction occurs.

The API and EIA reported substantial 7.85 million- and 12.6-million-barrel declines in crude oil inventories for the week ending on November 25. The API said gasoline stocks rose 2.85 million barrels, while the EIA reported a 2.80-million-barrel increase. Distillate stockpiles rose 4.01 and 3.50 million barrels, respectively. The SPR released 1.40 million crude oil barrels for the week ending on November 25. The US SPR continues to fall and was at the 389.1-million-barrel level as of November 25, the lowest level since March 1984. On December 31, 2021, the SPR stood at the 594.7-million-barrel-level, 52.8% above the level on November 25.

As I wrote in previous reports:

“We could see the energy commodity find a bottom when the SPR releases end unless there are production increases or reserve releases from other countries.”

With the mid-term elections in the rearview mirror, we could see SPR sales stop over the coming weeks. Meanwhile, distillate stockpiles in the US are at lows as the temperatures drop. The administration has put pressure on US oil companies, after they reported record profits in Q3, threatening higher taxes if they do not return some of the earnings to US consumers. Crude oil and energy remain political footballs. Gridlock in Washington will likely continue the finger pointing, while the prices remain at the highest in years and the US SPR is at the lowest level in decades. The upcoming December 4 OPEC meeting will be virtual, and we could see volatility going into the meeting as the cartel decides if economic concerns over China cause another production cut with prices around the $80 per barrel level.

January natural gas prices corrected lower over the past week, closing at the $6.930 per MMBtu level on November 30, down 10.09% since last week. The EIA will report natural gas inventory data for the week ending on November 25, on Thursday, December 1. The consensus estimates are for a 41 bcf decline in stocks. Stockpiles fell by 80 bcf, in the first withdrawal of the 2022/2023 peak season for the week ending on November 18. Natural gas in storage across the US was 1.7% under last year’s level and 1.1% below the five-year average. Natural gas stockpiles across the US peaked at 3.644 tcf on November 11, the exact level at the peak in 2021.

The end of the injection season is typically a very volatile time in the natural gas futures arena. Expect lots of action in the natural gas futures arena. I remain cautiously bullish, using tight stops on long risk positions and following short-term trends in the wild natural gas futures arena.

The number of US oil rigs operating was up four at 627 for the week ending on November 25, while natural gas rigs were down two from the previous week at the 155 level. The European winter presents unique challenges for natural gas and coal supplies, given Russia’s cutbacks to “unfriendly” countries supporting Ukraine. Expect lots of volatility in the energy sector during the winter of 2022/2023.

Trends:

Short-term trends in crude oil, gasoline, and heating oil re in consolidation. Gasoline and distillate crack spreads remain elevated. Natural gas volatility remains high and unpredictable and was in a bearish trend on November 16 but that could change in the blink of an eye. Approach all energy markets with a risk-reward plan as two-way price variance is likely to continue. The price action in coal remains bearish. Ethanol reflects gasoline and corn prices in the US.  

The natural gas market shifted its focus to the winter season, with supply concerns plaguing Europe. The move to over $10 for the first time in fourteen years and drop below $5 are examples of the volatile fireworks that are likely on the horizon. Nearby NYMEX natural gas prices have traded in a $6.39 range in 2022, and an even wider band in Europe. Keep an eye on European prices for clues about the path of least resistance of NYMEX natural gas futures. Be careful in energy, but I remain mostly bullish given the geopolitical landscape. According to President Biden, the mid-term elections will not cause the administration to reconsider its energy policy, which is bullish for traditional energy prices as OPEC and Russia continue to dictate the worldwide production that determines the path of least resistance of oil prices.

As I wrote last week:

“I believe crude oil is close to a significant bottom, and natural gas volatility will remain very high over the coming weeks and months.”

The coming OPEC meeting could cause significant volatility in the oil futures arena.

Recommendations:

  • We are long the OIH ETF. I rate the oil services product a hold at $304.85 per share.
  • We are long PBR, the Brazilian oil company. I rate the stock a hold at $11.69 per share.
  • We are long APA Corporation, and I rate the stock a hold at $46.85 per share.
  • I favor the leading oil companies, including CVX, BP, XOM, and the XLE ETF product. The prices have rallied significantly in 2022, and higher highs are likely on the horizon. I am holding a portfolio of these companies at current prices but have no specific price recommendations as I rate them a hold instead of a buy at current levels. I will add to long positions at lower levels. I have left plenty of room to add if prices spike lower.
  • I am using BOIL and KOLD for short-term natural gas trades on the long and short side. These products are leveraged, so they are only appropriate for short-term trades. Use price and time stops when dipping a toe into the natural gas arena on the long or short side. Be very careful in the wild natural gas market!
  • We are long the VDE ETF at the $110 level. VDE closed at $127.68 on November 30.

Grains

Comments:

Over the past week, soybean futures rallied 2.33%, while corn edged 0.11% to the upside. Wheat posted a 2.21% loss since November 23.

January soybean crush spreads at $2.4025 cents per bushel moved 14.25 cents lower from the level on November 23, which tells us nearby soybean meal and oil prices underperformed the raw oilseed futures. The January crush spread moved to a high of $2.7925 on October 31, while the continuous contract reached a new record peak of $3.4025, supporting soybean futures and remain elevated at near the $2.40 level. The current level of the crush spread should continue to provide support for soybean futures prices.  

January ethanol at $2.2875 per gallon wholesale was only 0.11% lower as gasoline futures edged slightly lower over the past week and corn posted a marginal gain. Corn is the primary ingredient in US ethanol production. The January gasoline-ethanol spread fell to 9.72 cents on November 30, with January NYMEX gasoline at a premium to January ethanol swaps. Ethanol slightly outperformed gasoline over the past week, pushing the spread marginally lower.

The March KCBT-CBOT wheat spread moved 2.0 cents lower to a $1.0425 cents premium for the KCBT hard red winter wheat over the CBOT soft red winter wheat since November 16. At $1.0425, the spread remains far above the long-term norm of a 20-30 cents premium for the KCBT wheat, a sign that consumers continue to hedge their future requirements because of supply and price concerns.

Aside from feeding the world, corn and beans play an increasing role in powering the world as the demand for biofuels rises. The fundamentals continue to favor the grains, but bull markets rarely move in a straight line.

As I wrote over the past weeks, when grains were moving lower:

“I view the corrections as buying opportunities but as the grain and oilseed markets have been falling knives, picking bottoms is dangerous.”

Grains were mixed over the past week, but I believe the current environment will support prices.

Prices remain elevated during the offseason. The level of the soybean crush spread, KCBT’s premium over CBOT wheat, and elevated traditional energy prices remain bullish for the grains. The USDA will release the final WASDE report of 2022 on Friday, December 9.

Trends:

The short-term trend in wheat futures is in a slightly bearish pattern. The short-term path of least resistance in soybeans is bullish, while corn futures are consolidating. The longer-term trends remain bullish.

Open interest in CBOT soybean rose by 1.85%, while the metric in the corn futures moved 10.0% lower since November 22 as December futures rolled to March. CBOT wheat open interest dropped by 11.84% over the past week as the contracts rolled. I continue to expect lots of two-way volatility in the grain and oilseed futures markets and continue to favor the upside. The bottom line is grain prices face a supply-side shock as the war in Ukraine continues to prevent the usual flow of agricultural products to worldwide consumers. The war has raged across Europe’s breadbasket throughout the entire 2022 crop year, which has a significant and long-range impact on the global supplies. Expect grain and food prices to remain elevated over the coming months. Logistics around the Black Sea Ports will continue to cause volatility in the grain markets along with the weather conditions in the Southern Hemisphere as Brazil, Argentina, and other production below the equator enters the growing season. The political change in Brazil, replacing President Bolsonaro with President Lula, could cause some price volatility in the agricultural sector as Brazil’s currency responds to a shift towards a socialist government. There were no significant changes over the past week from a fundamental or technical perspective. I continue to believe any significant selloffs in the grains will be buying opportunities if the war in Ukraine continues.

Recommendations:

  • We are long the WEAT ETF product. I rate WEAT a hold at $8.04 per share.
  • We are long two units of the CORN ETF at $26.27 per share. I rate CORN a hold at $26.42 per share.
  • We are long the JJG product at $71 per share. I rate JJG a hold at $76.00 on November 30.
  • We are long the JJA product at $23.34 per share. I rate JJA a hold at $24.98 on November 30.
  • We are long the SOYB product at $24.95 per share. I rate SOYB a hold at $27.75 on November 30.
  • We are long ADM at $71.16 per share. I rate ADM a hold at $97.50 on November 30.
  • We are long BG at $85.18 per share. I rate BG a hold at $104.84 on November 30.

Base Metals & Industrial Commodities

Comments:

Lumber and LME aluminum prices moved lower, while uranium was unchanged since November 23. The Baltic Dry Index, iron ore and other base metals prices sans nickel moved to the upside over the past week.

LME copper, nickel, lead, zinc, and tin prices rose as of November 30, with nickel leading the way on the upside after last week’s double-digit percentage loss. LME nickel moved 3.22% higher, while three-month tin forwards rallied 2.68%. LME zinc edged 0.69% higher. COMEX copper futures and LME copper forwards were 3.30% and 0.31% higher respectively since the previous report because of the one-day lag in settlement prices. LME lead gained 1.96%, whilealuminum fell 2.04%. January random-length lumber futures fell 2.99% to the $419.10 level. Iron ore for January delivery rose 6.36%. The Baltic Dry Index moved 15.49% higher as the market perceived COVID-19 demonstrations in China as a sign the country would ease lockdowns, improving economic growth.

LME and COMEX copper inventories moved in opposite directions since the previous report. The combined copper inventories moved only 527 metric tons lower since November 22. Aluminum inventories fell 2.69% since last week. Tin stocks fell 3.90%, while nickel stocks dropped 4.76% lower. LME zinc stocks moved 1.55% lower, while lead inventories plunged 15.60% since last week. The dollar index moved higher, while bonds were lower. Base metals moved mostly higher as buying emerged after last week’s losses.  

Trends:

Short-term trends in the metals have turned slightly higher. Copper is the sector’s leader, and its long and medium-term trend remained bullish, while the short-term trend has been choppy along with the other base metals.

Interest rates and the dollar should continue to influence short-term trends over the coming weeks and months. The next significant event will be the December FOMC meeting. A 50-basis point hike may cause some buying to return to the industrial commodities, while a 75-basis point increase will likely be bearish.  Meanwhile, the industrial metal-related stocks and ETF products continue to attract buying.

Recommendations:

  • We are long FCX at $11.37. At $39.78, I rate the position a hold.
  • We are long the PICK ETF product at $23.38 per share. I rate PICK a hold at $43.21.
  • We bought CCJ at $22.60 level adding to long positions below the $20 level and rate the uranium producer a hold at $24.38.
  • We bought the DBB ETF product at the $22.38 level. DBB holds long copper, aluminum, and zinc positions. I rate DBB a hold at $20.13.
  • We are long GLNCY at $9.42 per share. I rate this company a hold at $13.50 on November 30.
  • We are long BHP at $48.01 per share. I rate this company a hold at $62.80 on November 30.
  • We are long RIO at $55.07 per share. I rate this company a hold at $68.64 on November 30.

Meats

Comments:

Live and feeder cattle futures for February and January delivery edged marginally higher, with a 0.16% gain in the fat and a 0.68% rally the feeders. February lean hog futures fell 3.89% over the past week.

The February lean hog versus live cattle ratio moved higher to the 1.82400:1 level on November 30 from 1.75030:1 on November 23 as the spread moved away from the long-term norm of 1.4:1. Pork is historically less expensive than beef for February delivery, and beef got more costly over the past week as hogs declined and cattle moved higher. The USDA will release its December WASDE report on Friday, December 9, updating its supply and demand forecasts for the animal proteins for the final time in 2022.

Trends:

The medium-term trends on the weekly charts reflect higher lows and higher highs in the cattle futures, but the trend is less bullish in the feeders. The February lean hogs futures short-term trend turned lower above the 90 cents per pound level. Seasonality is often a powerful force in the meat markets, but production costs remain higher because of the highest inflation in over four decades. High feed and other input costs will continue to underpin meat prices over the coming months. Cattle and hogs remain in mostly bullish trends during the offseason winter months.

Recommendations:

  • We bought the COW ETF product at the $37.02 level, leaving room to add on declines. I rate COW a hold at $39.48 per share.

Soft Commodities

Comments:

Soft commodity prices were mostly higher over the past week, with only FCOJ falling and posting a 2.76% loss. Coffee futures moved 4.39% higher, and cocoa futures gained 2.21%. Cotton futures rose 2.06% and were up the daily limit on November 30. Sugar futures edged 0.41% higher since November 23.  

The total number of open long and short positions moved 1.30% higher in cotton. Open interest in the coffee futures market rose 0.74%. The metric in sugar was 0.41% higher over the past week, and it increased 1.85% in cocoa. FCOJ open interest moved 2.29% higher since November 22.

The Brazilian real was just over 2% higher over the past week, supporting sugar, coffee, and FCOJ prices which remained just above the $2 per pound level.

Trends:

The short-term trends in sugar, coffee, cocoa, and cotton are marginally higher, while FCOJ have corrected from the high after a bullish run. Coffee bounced over the past week and experienced the most significant gain and could be turning higher after finding a bottom at just over the $1.50 level on the continuous futures contract. The volatile cotton futures market also seems to have found at least a short-term bottom.

Recommendations:

  • We are long the CANE ETF product. At $9.47, I rate it a hold.
  • We are long a small position in the JO ETN product. At $48.73, I rate it a hold.
  • We are long two units of the NIB ETN product at an average of $26.29. I rate NIB a hold at $27.02 per share.   

A Final Note

As we head into the final month of 2022, the OPEC and Fed meetings will determine the path of least resistance of markets across all asset classes. Meanwhile, demonstrations in China could set the stage for an economic comeback in the world’s second-leading economy if the government eases the COVID-19 protocols. In a year where the leading stock market indices have posted significant losses, end-of-the-year tax loss selling could impact markets over the coming weeks.

Commodity prices have come down from the 2022 highs, but the potential for future rallies is high. The geopolitical landscape remains tense as the war in Ukraine continues to threaten peace in Europe and causes the divide between the US/NATO and Russia to widen. China could hold the key to the global economy over the coming weeks if the government does not react harshly to the current demonstrations. Meanwhile, the dust has yet to settle in the crypto arena as the saga of the FTX bankruptcy continues to grip the asset class.

I expect another volatile year in the commodities asset class in 2023. I am a buyer of dips in December and will maintain core long positions into 2023.

Thank you for your continued support!

Warm regards,

Andy Hecht

 

 

Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal.  This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.