Current Commodity Futures Positions - 6/29/08

A nice little week - good to be back in the win column. Things cooled off later in the week for me, mostly as wheat plummeted in late trading hours Friday morning. However cattle ended the week very strong, which was great to see.

My new policy of watching the charts, rather than my account, helped me keep my zen about me. I'd recommend this to anyone who feels a pit in your stomach watching big $$$ evaporate by the minute. Better to calculate your position sizes, then put the position on, and detach yourself from it.

On a personal note, I had set a stretch goal of doubling my account during the first half of the year. Then I would have the second half of the year to double it again, and if I came close, then poof - I'd have some degree of financial autonomy.

Unfortunately it didn't happen, though there were some very promising moments (esp. the rocket start early in the year). However can't complain at all about 38% YTD. I'm looking forward to the 2nd half of the year, as I think cattle, sugar, cotton, and coffee all have rally potential. That doesn't mean it will happen, but it's worth keeping an eye on and a toe in the water.

Open Positions

Date Position Qty Month/Yr Contract Strike Call/Put Entry Price Last Price Profit/Loss 06/17/08 Long 1 DEC 08 Cotton 82.20 81.15 ($525.00) 06/26/08 Long 1 SEP 08 Coffee 'C' 153.30 151.95 ($506.25) 05/08/08 Long 1 OCT 08 Live Cattle 105.350 112.400 $2,820.00 05/09/08 Long 1 OCT 08 Live Cattle 106.700 112.400 $2,280.00 06/16/08 Long 1 DEC 08 Live Cattle 112.750 114.900 $860.00 06/19/08 Long 1 FEB 09 Live Cattle 116.200 117.000 $320.00 06/18/08 Long 1 OCT 08 Sugar #11 12.88 12.78 ($112.00) 06/11/08 Long 1 SEP 08 Wheat 867 3/4 908 $2,012.50 Net Profit/Loss On Open Positions: $7,149.25

Account Balances
Current Cash Balance	$85,663.00
Open Trade Equity	$7,149.25
Total Equity	$92,812.25
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$92,812.25

Cashed out: $15,000.00
Total value: $107,812.25

Weekly return: 2.9%
YTD return: 38.0%

***BTW, I usually "cash out" money just to pay for taxes, rent, and cheap beer. So total value is all pre-tax.

Futures thoughts to wrap up the week

Thoughts on the commodity futures markets as we put a wrap up on the week:

• Oil topping 140 as I write - this market continues to defy gravity. Too scary for me to try and play either side of this market.

• The Fed's decision to stay put (a real shocker) really put a kick start in commodities across the board.

• The grains have rallied further this week - I'm glad I still have my wheat position, and wish I still had my corn position.

• Not to dwell on what could have been, live cattle is rallying after a slow start to the week. Personally I am more cautious of the nearer term contracts, but still bullish on the Dec '08 and '09 contracts. However I am not looking to add more yet, as I'm comfortable with this 4 contract base on my pyramid.

• The softs have also been rallying, with coffee leading the charge. I finally jumped into coffee yesterday - and true to form, it's down a bit today. I am cautious of this recent coffee charge, as I'm not sure how much has been pure speculation, and how much is really on supply concerns. But I do think coffee has huge upside potential from here (eventually), so there's no use sitting on the sidelines forever.

• Looks like that dollar pop may be over - and the party may definitely be over on Wall St. I expect the commodity markets to turn even wilder over the next year or two, as the mass exodus to this asset class continues. Net-net this should be a positive thing for us - just take your positions early, and be careful on the leverage, as the volatility will be quite choppy.
  

Warren Buffett Interview on CNBC

Video Link

My notes:

• He is VERY concerned with the current levels of inflation. This is striking, as you rarely hear Warren Buffett mention inflation.
• If he were in Bernanke's shoes, he would "offer his own resignation".
• Still believes the dollar will weaken further over time - mentioned lack of Congressional discipline.
• Oil price is being driven by supply/demand, not speculators. For the first time in his lifetime, there is no excess capacity. Speculators are not driving the price because they are not storing it - for each speculative long, there is a corresponding speculative short.
• And then he rambled on about his socialistic views - I should pay more taxes, blah, blah, blah.
  

How to Save the Airline Industry (High Comedy)

Check out the solution floated by the CEO of Ryanair. Faaaaaaaaaaaaaantastic.

Basics on Trading Meat Futures

Nice article here by Kevin Kerr on the basics of the meat markets and trading meat futures.

Everything sure is setup for higher meat prices. I think this is a temporary breather this week, as the live cattle charts were going parabolic for the last couple of weeks.

I have not checked my account since Sunday - I don't want to see the raw $$$ I'm off. Instead I'm just watching the charts and trying to keep perspective on things - by later next year and early next year, these prices are most likely higher, so I want to ride this through thick and thin.

US Home Prices: Look Out Below!

Geronimo! Gotta admit that, as a renter in an overpriced market, this tickles me just a little bit.

Thank you Agora for this fine chart in the 5 Min Forecast.

Financial Speculators and Congressional Stupidity

Hallelujah for our forward looking government leaders, now on the lookout to protect us innocent civilians from those evil speculators who lurk in the night.

What fools we were for believing that supply and demand, government mandates for corn based ethanol, and a national policy to turn the US dollar into toilet paper have been contributing factors to this historic commodity bull run.

I look forward to the next chapter in government intervention, where our federal and state heroes take a bad problem and make it considerably worse by meddling in an issue in which they have no clue.

There are, however, a few rogue information sources that do not yet believe that evil speculators are the sources of all our worldly problems. I encourage you to take a look at these articles while you still can, before they are wiped froodity speculators, commm existence in the name of homeland security.

• Money Morning: A New Wave of Congressionally Mandated Profits is Just Around the Corner
• Financial Times: Monetary Policy and the Commodity Rally
• (FT.com tip: If you stumble upon a page that asks you to register, just change the word "false" to "true" in the hyperlink)
  

Yahoo News: Record corn prices mean more expensive meat, dairy

Thanks to our boy S'Wheat Times for digging this one out:
Full article on Yahoo

Weekly Positions Update - 6/22/08

Sticking with the rules here, I'm now into cotton and sugar on their respective breakouts. Still like the live cattle and added some longer dated contracts this week. Will probably not add to this position, as it's heavy enough.

Got scared out of corn early - I ended up selling at the break even mark. Wheat is now breaking down a bit, as are the rest of the grains. Time will tell if this is a breather, or if things were overdone during the past breakout. I'm leaning towards breather, as I think things are worse in the Midwest than many believe.

And how about coffee and it's 7-cent pop on Friday...don't we wish we were in that one :( Well prior to the breakout, it was the pure definition of range bound. So unless you caught it right on the breakout, it's really tough to kick ourselves over missing it. Hey, if it's really heading higher, we'll have plenty of time to get into the trade.

Open Positions

Date Position Qty Month/Yr Contract Strike Call/Put Entry Price Last Price Profit/Loss Market Value Action 06/17/08 Long 1 DEC 08 Cotton 82.20 79.99 ($1,105.00) 05/08/08 Long 1 OCT 08 Live Cattle 105.350 112.100 $2,700.00 05/09/08 Long 1 OCT 08 Live Cattle 106.700 112.100 $2,160.00 06/16/08 Long 1 DEC 08 Live Cattle 112.750 113.600 $340.00 06/19/08 Long 1 FEB 09 Live Cattle 116.200 116.100 ($40.00) 06/18/08 Long 1 OCT 08 Sugar #11 12.88 13.00 $134.40 06/11/08 Long 1 SEP 08 Wheat 867 3/4 873 1/2 $287.50 Net Profit/Loss On Open Positions: $4,476.90

Account Balances
Current Cash Balance	$85,680.27
Open Trade Equity	$4,476.90
Total Equity	$90,157.17
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$90,157.17

Cashed out: $15,000.00
Total value: $105,197.17

Weekly return: -2.7%
YTD return: 34.5%

***BTW, I usually "cash out" money just to pay for taxes, rent, and cheap beer. So total value is all pre-tax.

Daily Reckoning article: Commodity bull run in early stages

I find it's always good to check your assumptions periodically. It's even better to check them again. And better yet to recheck them one more time.

I have a long term belief that the commodity bull still has years to run. And it's refreshing to step back, look at the big picture (especially on down days), and realize that no, yesterday wasn't the absolute top of the bull market.

For a quick refresher, check out this solid article by Puru Saxena for the Daily Reckoning, outlining why the commodity bull has plenty of room left to run.

Jim Rogers on Bloomberg

Full video

Quick notes:

• Short investment banks - all investment banks go to "8" in a bear market
  
• Short Fannie Mae and Citibank
• Still likes Japanese Yen, Swiss Franc, Chinese Renminbi
• Recently bought airlines hand over foot (I find this very interesting) - says bankruptcies are a sign of a bottom rather than a top
• Still likes agriculture, but is cautious short term - believes gov't is hell bent to sent down agriculture prices, and if they do, he will buy with both hands
  

Not to worry - just a little correction

Jurgens Bauer on the soft commodities

I don't see too many free columns from good old Jurgens anymore, but they're always worth a read. Comments on coffee, cocoa, sugar, and cotton.

I love reading takes from these old-time commodity traders, as they provide good, rational perspectives. Plus always amusing to see how baffled they are at the circus these markets have turned into.

Weekly Positions Update - 6/15/08

Open Positions Date Position Qty Month/Yr Contract Strike Call/Put Entry Price Last Price Profit/Loss 06/12/08 Long 1 SEP 08 Corn 734 1/4 768 1/2 $1,712.50 05/08/08 Long 1 OCT 08 Live Cattle 105.350 109.950 $1,840.00 05/09/08 Long 1 OCT 08 Live Cattle 106.700 109.950 $1,300.00 06/11/08 Long 1 SEP 08 Wheat 867 3/4 907 1/2 $1,987.50 Net Profit/Loss On Open Positions: $6,840.00

Account Balances
Current Cash Balance	$85,793.95
Open Trade Equity	$6,840.00
Total Equity	$92,633.95
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$92,633.95

Cashed out: $15,000.00
Total value: $107,633.95

Weekly return: -0.9%
YTD return: 37.8%

***BTW, I usually "cash out" money just to pay for taxes, rent, and cheap beer. So total value is all pre-tax.

Recent Dollar Strength

The dollar rally continues into the weekend, with two main drivers to thank:

1. The belief that the Fed will raise rates later this year to combat inflation.
2. The belief that the US economy will turn up soon, and the world will again look to the US as a place to invest.

I don't think either of these reasons hold much water. Instead, I'll go with the fact that everyone was short the dollar, so it was due for a rally.

Regarding the belief that the Fed will soon raise rates, I think Chuck Butler said it best in his newsletter this morning:

Listen to me now, and hear me later... THE FED ISN'T GOING TO RAISE RATES! The ECB IS, but the Fed ISN'T! At least not for sometime, THE ISN'T GOING TO RAISE RATES! Did you hear me? Oh, just in case you were busy listening to someone on CNBC tell you that everything is beautiful, I said... THE FED ISN'T GOING TO RAISE RATES!

As for when the economy will turn around - that's a bit tougher. I'm a fan of John Mauldin's point of view that we will experience "Muddle Through" growth over the next several years.

Everyone knows the negatives - skyrocketing oil and commodities, indebted consumers, gov't debt, etc. On the positive side though, when this alternative energy does begin to come online, I believe it will most likely be driven by American entrepreneurs.

It's dangerous to short America - though I think that's still the right trade, at least when this dollar rally is over. But it is likely that different parts of the American economy will experience vastly different fortunes over the next 5-10 years. And don't forget the Midwest - the US is a huge grain exporter, and eventually grain prices will get high enough for our farmers to make a lot of $$$.

Runaway Grains, Never Coming Back

Looks like this corn crop is toast, and the other grains could be in trouble too. High input costs (diesel, fertilizer, etc) are really hammering farmers and their motivation to replant crops this late in the year.

I ponied up for a wheat and a corn contract last night. A little bummed I got into corn so late, but I got stopped out a month ago fair and square - it happens. All we can do is look ahead, and looking ahead now, the upside seems to far outweigh the downside. No telling how high the grains can go - we may be on the verge of a global famine.

Given this, as we've discussed before, meat prices must rise - no way around it! The cattle contracts look especially attractive. Both lean hogs and pork bellies already have premiums priced in for the distant contracts, but I'm not seeing that in the longer term cattle contracts.

A Host of Kevin Kerr Videos

4 videos from his blog - good TV. The guy is right on the ground following the grains, gotta love that.

I also love the pained look on his face when he talks about these shortages, when you know the guy is trading these markets and making millions. Priceless.

Indian Farmers Turning Away From Sugar

Looks like the specs are piling into the near-term sugar contracts, based on forecasts that India will be a net importer of sugar.

Their farmers are forgoing sugar in favor of higher priced crops. Well gee, it's about damn time!

Not quite to a breakout yet - we'll see if this gap up holds.

Money Morning: Avoid Coffee & Cocoa, Buy Sugar

Nice simple breakdown of 3 of our favorite softs - coffee, cocoa, and sugar - by the folks at Money Morning.

I did not realize the coffee harvest is looking so good - suppose that's why coffee cannot break out of it's range. Same with cocoa - I have been avoiding due to the sharp recent drops - it looks like cocoa has no business at these prices.

We'll continue to keep a close eye on sugar prices - keep waiting for the next big sugar rally!

Livestock Report

Have to admit - I'm a bit frustrated with the weakness in the meats, especially in the face of this grains rally. Doesn't seem to make much sense, and I can't see a scenario where meat prices are not higher in 6-12 months.

This livestock report helped calm me down - it looks like farmers are still slaughtering livestock ahead of schedule, since it's not worth feeding them at these high prices. If that's the case, this pullback represents a fantastic buying opportunity.

Weekly Positions Update - 6/08/08

Alright back in the saddle here. Was attending my 5-year college reunion past 4 days - man did I miss some crazy action on Thu/Fri.

Back this week and we'll try to figure out where these crazy markets are heading!

Open Positions Date Position Qty Month/Yr Contract Strike Call/Put Entry Price Last Price Profit/Loss 05/21/08 Long 1 JAN 09 Feeder Cattle 113.950 112.500 ($725.00) 05/21/08 Long 1 JAN 09 Feeder Cattle 114.000 112.500 ($750.00) 05/27/08 Long 1 JAN 09 Feeder Cattle 115.200 112.500 ($1,350.00) 05/08/08 Long 1 OCT 08 Live Cattle 105.350 107.575 $890.00 05/09/08 Long 1 OCT 08 Live Cattle 106.700 107.575 $350.00 05/21/08 Long 1 JUN 08 Swiss Franc 0.974100 0.9796 $687.50 Net Profit/Loss On Open Positions: ($897.50)

Account Balances
Current Cash Balance	$94,414.89
Open Trade Equity	($897.50)
Total Equity	$93,517.39
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$93,517.39

Cashed out: $15,000.00
Total value: $108,517.39

Weekly return: -2.1%
YTD return: 39.0%

***BTW, I usually "cash out" money just to pay for taxes, rent, and cheap beer. So total value is all pre-tax.

Bernanke's Recent Dollar Jawboning

Chuck Butler gives a fantastic rant on Bernanke's recent tough talk in his morning column. Not much too add to Chuck's commentary - nicely done Chuck!

From a trading perspective - I'm trying to pare back all position sizes, and I still can't seem to do it fast enough. Meats have taken a turn down this week, erasing many gains from the previous couple of weeks.

Proceed with caution is all I can say - it looks like this commodity correction is not through yet. Remember oil will probably have to come down from the high 120's. Fundamentally there's no reason for it to be there. Long term, yes, it's going higher. But there's plenty of oil right now - this one really was a speculation run-up, I think.

Weekly Positions Update - 6/01/08

You know, I wish I had something interesting or insightful to say. Last week sucked, and I'm just glad to be out of my losing positions (silver - ouch, pork bellies - rallied since, of course).

Did a bit of thinking, and it's probably time I start following my own advice. Keep position sizes manageable, and just play the long term trends. Large position sizing has me jumping in and out of things too often - and I'm just getting chopped to hell by the volatility of it. I love the prospects of meat over the next year, and need to just keep things manageable so that I can stay in this trade.

In the meantime I'll continue to keep an eye on the softs (sugar, coffee, cotton in particular) to see when things look closer to a breakout.

Open Positions

Date Position Qty Month/Yr Contract Strike Call/Put Entry Price Last Price Profit/Loss 05/21/08 Long 1 JAN 09 Feeder Cattle 113.950 115.250 $650.00 05/21/08 Long 1 JAN 09 Feeder Cattle 114.000 115.250 $625.00 05/27/08 Long 1 JAN 09 Feeder Cattle 115.200 115.250 $25.00 05/08/08 Long 1 OCT 08 Live Cattle 105.350 108.300 $1,180.00 05/09/08 Long 1 OCT 08 Live Cattle 106.700 108.300 $640.00 05/21/08 Long 1 JUN 08 Swiss Franc 0.974100 0.9577 ($2,050.00) Net Profit/Loss On Open Positions: $1,070.00

Account Balances
Current Cash Balance	$94,414.89
Open Trade Equity	$1,070.00
Total Equity	$95,484.89
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$95,484.89

Cashed out: $15,000.00
Total value: $110,484.89

Weekly return: -9.4% <------- This is not good. C'mon man, get your head outta yer ass!
YTD return: 41.6%

***BTW, I usually "cash out" money just to pay for taxes, rent, and cheap beer. So total value is all pre-tax.