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How to Use Intermarket Analysis? - Crude Oil Potential DirectionAn example of Crude Oil and Palm Oil in my intermarket analysis to demonstrate how I identify potential upcoming trends and why I believe both are about to move. To help narrow down potential opportunities in other markets, you can apply the techniques I am about to share. Micro WTI Crude Oil Futures & Options Ticker: MCL Minimum fluctuation: 0.01 per barrel = $1.00 Disclaimer: • What presented here is not a recommendation, please consult your licensed broker. • Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises. CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
NYMEX:CL1!Long
by konhow
Is Soybean Oil Heating Up? Of the grains and oilseeds, soybean oil has been the clear laggard. Corn, wheat, soybeans, and even soybean meal have seen notable rallies over the course of the last 4-6 weeks. However, there are indications that may soon change. As ingredient buyers know, soybean oil typically trades at a significant premium to its rival palm oil. The chart below overlays a 5-year continuous chart of front month soybean oil futures prices along with a 5-year continuous chart of Malaysian palm oil futures. As displayed by the chart, in each instance over the past 5 years in which SBO’s premium has eroded relative to palm oil, we’ve seen soybean oil prices rally in excess of 15%. Fund Positioning : Extreme fund positioning is typically viewed as a contrary indicator. As such, managed money funds holding their largest net-short position in soybean oil futures of any point in the last 5-years adds to the bullish case in the immediate term. Per the last CFTC Commitment of Traders report, managed money was holding a net-short position of 58,748 contracts. In the instance that prices grind higher, short-covering on behalf of managed money could accelerate a move to the upside. Technicals : Lastly, the technical landscape of soybean oil also looks constructive. There is significant bullish divergence between the two most recent lows, and a standard 14-day RSI. In other words, the most recent successive lows came on less conviction. A break and close above the most recent swing high of 50 should lay the groundwork for a test of the swing-highs observed last July between 64 and 66. Futures trading involves substantial risk of loss and may not be suitable for all investors. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results. Blue Line Futures is a member of NFA and is subject to NFA’s regulatory oversight and examinations. However, you should be aware that the NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets. Therefore, carefully consider whether such trading is suitable for you considering your financial condition. With Cyber-attacks on the rise, attacking firms in the healthcare, financial, energy and other state and global sectors, Blue Line Futures wants you to be safe! Blue Line Futures will never contact you via a third party application. Blue Line Futures employees use only firm authorized email addresses and phone numbers. If you are contacted by any person and want to confirm identity please reach out to us at info@bluelinefutures.com or call us at 312- 278-0500 Performance Disclaimer Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.
CBOT:ZL1!Long
by Blue_Line_Futures
Trading with Soybeans, Soybean Meal and Soybean Oil FuturesCBOT: Soybean ( CBOT:ZS1! ), Soybean Meal ( CBOT:ZM1! ), Soybean Oil ( CBOT:ZL1! ) This is the second installment on CBOT Soybean Complex. If you have not read the first piece, please click the link at the end of this idea. Let’s start with a discussion of two reports followed by soybean market participants. The Crop Report U.S. Department of Agriculture (USDA) closely monitors agricultural market conditions and publishes the monthly World Agricultural Supply and Demand Estimates (WASDE). WASDE, commonly known as the Crop Report, provides a global view of key agricultural products including wheat, rice, coarse grains (corn, barley, sorghum, and oats), oilseeds (soybeans, rapeseed, palm), cotton, sugar, meat, poultry, eggs, and milk. The Crop Report is the most important report followed by agricultural commodities traders. What’s the key takeaway from the April 2023 Crop Report on Oilseeds? U.S. soybean supply and use forecasts for 2022/23 are unchanged. However, relative to 2020/21, planted acreage is higher while export is lower. Global 2022/23 soybean supply and demand forecasts on lower production, crush, and exports. Global production in current crop year is reduced by 5.5 million tons. Overall, the April WASDE shows plentiful supply, weakened demand and higher inventory, the recipe for price trending down. CFTC COT Report Commodity Futures Trading Commission (CFTC) publishes the Commitments of Traders (COT) reports and provides a breakdown of open interest for futures and options markets. It categorizes the reportable open interest positions into four classifications: • Producer/Merchant/Processor/User: An entity that predominantly engages in the production, processing, packing, or handling of a physical commodity and uses the futures markets to manage or hedge risks associated with those activities. • Swap Dealers: An entity that deals in swaps for a commodity and uses the futures markets to manage or hedge the risk associated with those swap transactions. • Managed Money: Commodity trading advisor (CTA) or Commodity pool operator (CPO). They are engaged in organized futures trading on behalf of clients. • Other Reportable: Every other reportable trader that is not placed above. What’s the key takeaway from the May 2nd COT report on Soybean/Meal/Oil Futures? o Soybean futures ZS open Interest: 601,051, down 4.7% from previous week; o Managed Money increased ZS short position by 80.1%; their long/short ratio is 2.1. Note that the ratio was 8.3 on April 18th. This indicates that speculative traders are no longer bullish on soybeans. o Soybean Meal ZM open Interest: 408,013, down 2.9% from previous week; o Managed Money decreased ZM long position by 22.3%; their long/short ratio is 3.7. Note that the ratio was 7.9 on April 18th. Again, this is a bearish signal. o Soybean Oil ZL open Interest: 472,547, up 0.6% from previous week; o Managed Money increased both long and short positions modestly; their long/short ratio is 0.7, the same with April 18th. Popular Soybeans Futures Trading Strategies – Explanation and Illustration There are different types of traders in the soybean futures market: Producers, Grain Elevator (Storer), Processor, Livestock Farmer (User), and non-commercial traders. We will discuss how they use the futures market, each with a hypothetical trade example for illustration purpose. Investor Non-commercial traders are not participants in the soybean industry. They hold a market view and hope to profit from such view through futures trading. Investors could draw ideas from futures price chart, the Crop Report, and other relevant market information. Case study #1: Directional Trade with Stop Loss Market information 1) April WASDE shows plentiful supply, weakened demand and higher inventory; 2) Following the release of WASDE, soybean price has been trending down; 3) News surfaced that Smithfield, the largest US hog producer, plans to liquidate 10% of its sow. This indicates lower soybean meal demand in the future. Trade Setup To express his market view, on May 10th, a trader sells one July 2023 contract (ZSN3) at 1412’6/bushel ($14.1275), which gives the contract a notion value of $70,637.5. He deposits $5,000 margin on his futures account. At 7.1% of the cost, he participates in the price exposure for 5,000 bushels of soybeans. The use of leverage, in this case by 14.1 times, is an advantage of cost-effective trading with futures contracts. Potential Profit and Loss 1) In June, ZSN3 declines to 1350’0 ($13.50), the trader would gain $3,137.5 = ($14.1275-$13.50) x 5,000. Using the original margin deposit as a cost base, this short futures trade would potentially realize 63% profit, excluding trading fees; 2) If the soybean market rallies to 1480’0 ($14.80), the trader would lose $3,362.5, or a return of -67%; 3) Our trader could set a stop loss at 1450’0 ($14.50), to cap the maximum loss at $1,862.5 and avoid margin calls. An outright trade with futures contract allows the trader to profit from a correct market view. Leverage built into futures could significantly enhance the profitability, while stop-loss could limit the exposure if the view proven to be incorrect. Soybean Farmer and the Production Hedge When a US soybean farmer plants the crops in April, he is said to have a Long Cash position. The farmer is exposed to the risk of falling soybean prices during the November harvest season. To hedge the price risk, our farmer could enter a Short Futures position now, and buy back the futures when he is ready to sell the crops. The effective sales price equals spot price in November plus gain/loss in the short futures position. Since the cash market and futures market are highly correlated, loss (gain) in the cash market will be largely offset by the gain (loss) in the futures market. Case study #2: Production Hedge (Short Hedge) Market information 1) The farmer planted 1,000 acres of soybeans in his Central Illinois farm; 2) Total production cost per acre is estimated at $859, which includes variable costs (seed, fertilizer, pesticide), overhead (building, storage, machinery) and land; 3) Yield per acre is estimated at 69 bushels. His cost per bushel will be $12.45; Trade Setup On May 10th, ZSX3 is quoted at 1254’2 ($12.5425). The farmer expects to sell 69,000 bushels. Since each ZS contract has a notional of 5,000, he needs to sell 14 lots of ZS contracts. Soybean basis in Greene County, Illinois is estimated at $0.20. The Hedging Effect 1) The farmer effectively locks in the sales price in April for his November soybean crop at: $12.5425 (futures) + $0.20 (basis) = $12.7425; 2) Production hedge helps our farmer to protect a profit margin of 29.25 cents =($12.7425 - $12.45) per bushel, or $20,182.5 for his entire crops. The farmer is left with basis risk. In the context of commodity futures trading, basis refers to the difference between the spot price of a commodity and the price of a futures contract for that same commodity. Basis risk is usually smaller than outright price risk. Grain Elevator and Futures Rollover Strategy After the crop is harvested, farmers or merchandisers usually store the soybeans in a grain elevator and wait for the right time and price to sell. Soybeans could be stored for a year but would incur monthly storage costs. The decision to store depends on whether expected future price gains outweigh the storage costs. A merchandizer is exposed to the risk of falling soybean price, which would cause his soybean inventory (old crop) to decline in value. To hedge the price risk, he could employ a rolling futures strategy. Case study #3: Rollover Front-month Soybean Futures “Rollover” refers to the process of closing out all positions in soon-to-expire futures contracts and opening contracts in newly formed contracts. The rollover process impacts market volatility, prices, and volume. Trade Setup 1) Sell 14 lots of July contract ZSN3 at 1412’6 ($14.1275) on May 10th; 2) At any point before expiration, if we decide to sell soybeans in the spot market, we could exit our futures position by buying 14 lots of ZSN3 at prevailing price; 3) If we plan to hold our inventory for a longer period, we will buy back ZSN3, and simultaneously sell 14 lots of August contract (ZSQ3); 4) ZSQ3 is quoted 1345’4 ($13.455) on May 10th. If you hold the soybean from July to August, you will incur extra storage cost, but would get 67.25 cent less per bushel. This is clearly very bearish. The Hedging Effect: Rolling futures positions allows our merchandizer to extend his hedge beyond original futures expiration. You may ask, why not use a longer-dated contract to begin with, say July 2024? This is because the front month contract is usually more liquid. It is easier to put the hedge on and off quickly. By sticking with liquid nearby contracts, we could avoid the cost of price slippage generally associated with less liquid deferred contracts. Soybean Processor and the Board Crush In soybean industry, “crush spread” is the market value of meal and oil byproducts subtracted by the cost of raw soybeans. In the cash market, the relationship between prices is commonly referred to as the Gross Processing Margin (GPM). In the futures market, the crush value is an inter-commodity spread transaction in which Soybean futures are bought (or sold) and Soybean Meal and Soybean Oil futures are sold (or bought). Soybean crush spread is also called the Board Crush. Case study #4: Soybean Crush Spread Trade Setup 1) The November-December Board Crush (buying November Soybean futures and selling December Soybean Meal futures and December Soybean Oil futures) is used to hedge new-crop gross processing margins; 2) CME Group facilitates the board crush that consists of a total of 30 contracts: 10 Soybean, 11 Soybean Meal, and 9 Soybean Oil; 3) Implied Soybean Crush (SOM: Z3-Z3-X3) is quoted at 172’6 ($1.7275) on May 10th. Each contract has a notional of 50,000 bushels and is currently priced at $86,375; 4) If we process 100,000 bushels a month, we would short 2 board crushes. On May 10th, the margin for this spread is $1,650 each. The Hedging Effect: Board Crush enables processors to lock in his operating profit. Livestock Farmer (Soybean User) and the Hog Feeding Spread Livestock farmers buy corn, soybean meal and other ingredients to produce animal feed. For example, hog farmers’ gross profit is represented by gross feeding margin, also known as the hog feeding spread, which is the value of lean hog less the cost of weaned pig, corn, and soybean meal. Therefore, hog farmers are exposed to the risk of rising ingredient costs. To manage price risks, they could trade the hog feeding spread, which isa long hedge by selling CME lean hog futures (HE) and buying CBOT corn (ZC) and soybean meal (ZM) futures. A typical hog feeding spread is expressed as: Hog Feeding Spread = 7 x HE – 3 x ZC – 1 x ZM Case study #5: Hog Feeding Spread Market information 1) USDA daily hog and pork report shows that cash market hog price averaged $73.59/cwt nationwide on May 9th, up 78 cents from prior week; 2) Cash hog is down 31.4% year-over-year. However, it seemed to bottom at $66 in mid-April and rebounded after the news of Smithfield sow liquidation. 3) Our farmer expects hog prices to rise faster than feed prices in the next few months. To capture an expanding margin, he plans to long the hog spread. Trade Setup: For every 280,000 pounds of lean hogs (approximately 1,120 pigs): • Long 7 lean hogs futures HEM3 at 0.84575/lb., giving a total notional value of $236,810, as each contract has 40,000 pounds (lb.); • Short 3 corn futures ZCK3 at 646’4 ($6.465)/bushel. Each ZC contract has 5,000 bushels of corn, leaving this leg of trade at $96,975; • Short 1 soybean meal futures ZMK3 at $415.0/short ton. Each ZM contract has 100 short tons of soybean meal, leaving this leg of trade at $41,500; • The combined total, $98,335, represents the gross margin of raising 1,120 hogs, or about $87.8 per pig. The Hedging Effect: It takes 5 months to grow a piglet to marketable weight. Factoring in breeding sows, the full production cycle for hog farmers could last 1-1/2 years. Pork prices and feed costs could vary significantly during this period. Hog Feeding Spread enables hog producers to lock in their operating profit. Spread Trading in CBOT Soybean Oil and BMD Crude Palm Oil Vegetable oils are the most crucial cooking ingredients in the world. Soybean oil and palm oil dominate the global edible oil marketplace with 2/3 of market share. Soybean oil and palm oil are considered substitute goods because food processors often switch between the two as the prices fluctuate. Soybean oil and palm oil are driven by different market fundamentals. World soybean production is centered mostly in the U.S., Brazil and Argentina, and most palm oil comes from Indonesia and Malaysia. A drought in the U.S. or in South America could drastically alter soybean oil supply one year, while disease in Southeast Asia could affect palm oil supply the next year. This can create tremendous volatility in the spread relationship. The CBOT Soybean Oil futures (ZL) consists of 60,000 pounds, equivalent to 27.22 metric tons. The BMD Crude Palm Oil (FCPO) futures contract is 25 metric tons (mt). Case study #6: Soybean Oil/Palm Oil Spread Observation: Soybean oil and palm oil markets have been in decline since July 2022. In the past two months, soybean oil drops by a faster rate compared to palm oil. There could be plausible cause for the abnormal trend. However, if the relationship were to reverses back to normal, the spread will be enlarged. If an investor holds this view, he could long the spread by buying CBOT soybean oil and selling BMD crude palm oil. Trade Setup • Provided ZL at $0.5255/lb. and FCPO at MYR 3570/mt with prevailing USD/MYR exchange rate at 4.46, the ZL/FCPO spread could be derived at: • ZL = $0.5255 (per lb.) x 2204.622 (lbs. per mt) = $1,158/mt • FCPO = MYR 3570 / 4.46 /mt= $800/mt • ZL/ FCPO spread = $1,158/mt -$800/mt=$358/mt Potential Profit and Loss 1) For an investor, a profit could be realized if the spread gets bigger. He would incur a loss if the spread narrows instead. The USD/MYR exchange rate could affect the trading result; 2) For commercial hedgers such as edible oil processors, hedging would allow them to maintain stable production formulas even though oilseed spot prices change unexpectedly. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CBOT:ZL1!Long
by JimHuangChicago
Midterm perspective for FCPOFCPO is probably preparing to trending higher in the future but I'm a bit CAUTIOUS because the price hasn't broken the important level yet (strong resistance) which is around 4500. Currently, the pattern which is unfolding is a ZigZag (thought to be). Assuming this assumption holds true, wave C should ends about the same length of wave A, around 5000 - 5200 levels. There're evidences which supports this assumption: 1. There are 5 waves in wave A 2. Fibo retracement level for wave B in a ZigZag is around 0.618 level 3. By EW rules for ZigZag, wave C should have 5 waves. 4. ZigZag price movement is contained within parallel channel - they tend to in most cases. We're already seeing 5 waves unfolding in wave C but seems relatively short than assumed projection (5000 level). The only possible explanation is that wave (3) in wave C is an extension. Disclaimer This is NOT buy/ sell call but for learning purposes.
MYX:FCPO1!Long
by faridah_sanny
Next Possible Direction For FCPOAs expected market has moved towards the north and seems to have exhausted its uptrend momentum at least for now. Correction is now more likely to occur after 5 waves move have already unfolded in the wave 3 Primary. Given that correction in the Primary Wave 2 is a Zig Zag, the rule of alternation could be at play here for Primary Wave 4 - most probably flat correction, triangle or double three. I'm inclined into assuming that it is flat correction. A break below 3848 would invalidate this assumption and suggest another wave is unfolding. Disclaimer: This is NOT buy/ sell call but for learning purposes.
MYX:FCPO1!Short
by faridah_sanny
Crude Palm Oil’s underperformanceThis chart caught our attention recently. The Crude Palm Oil – Soybean Oil Spread (in USD per Metric Ton) is trading close to an all-time high now. This spells trading opportunity for us as Palm Oil and Soybean Oil are generally considered substitute products, which means, at a large enough price difference, buyers may hop over to buy the cheaper one. Eventually closing the price gap back to its historical mean. Further comparison of Palm Oil against its other substitute, the European Low Sulphur Gasoil Financial Futures, also shows the spread between these products near the high. A price comparison among the 3 products, Palm Oil, European low Sulphur Gasoil and Soybean Oil underscores this price disparity even clearer. The prices of the 3 products have generally trended together, up until July 2022 when Palm Oil started to underperform. Stepping back into the macro side, some potential tailwinds for Crude Palm Oil include; 1) The reopening of China, which would increase the demand for palm oil from the world’s 2nd largest importer of the product. 2) Biofuel Mandates, which would put higher demand pressure on Palm Oil. 3) Slowing production growth in palm oil could lead to supply-demand imbalances, pushing palm oil higher as supply falters. One way to trade this price divergence would be to short the Soybean Oil – Palm Oil spread. This trade can be set up by selling 1 Soybean Oil Futures and buying 1 USD Malaysian Crude Palm Oil Futures. However, do note that in such a set-up, the position is not fully ‘hedged’ as the contract units are different, 1 Soybean Oil Futures has a contract unit of 60,000 Pounds (~27.21 metric tons) while 1 Crude Palm Oil Futures is for 25 metric tons. Another option would be to trade the exchange listed Crude Palm Oil – European Low Sulphur Gasoil Spread (POG) which handles the construction of the spread and is financially settled, removing delivery risk. While it’s hard to ‘call’ the top, such price divergence provides interesting opportunities that we leverage if risk is managed properly. These trade set-ups allow us to express the view that Palm Oil’s underperformance will be closed, either by Palm oil catching up with its substitutes or if its substitutes fall in prices. The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Sources www.cmegroup.com www.cmegroup.com jakartaglobe.id oec.world
CME:CPO1!Short
by inspirante
Direction of FCPO #5As you guys can see, it is what we predict from previous our chart analysis. It is following the direction that I have been showed. So now lets see either the market can rebound and go up towards the strong resistance ( yellow box ) or it will continue downwards. Besides that, do not neglect that we can see there is a form of pattern have shown which is Head And Shoulder ( HNS ), same goes to this concept, have to break the neckline, and then we can make decision where is the direction of the market. We will see tomorrow to see what market brings to us.
MYX:FCPO1!
by Karkoon