Are We Finally Reaching A Top In Natural Gas?

Natural gas tumbled more than 11% in Monday trade, with the front month March contract finishing at $5.445 / mmbtu - its biggest one day fall in more than six years.

This is poised to be an interesting week for natural gas - especially for the March contract - as it expires on Wednesday.

The latest NOAA 8 to 14 day outlook is still pointing to large areas of the central and eastern U.S to have below average temperatures, however the forecast is beginning to look a lot more mild.


As it stands I'm currently short the Jul14/Sep14 spread and continuing to hold, looking for a move lower.

My thinking here is that we've basically seen all natural gas spreads get pushed out well above what we might expect historically for this time of year.

That said, supplies are at a record deficit of 34 percent to the five-year average so it's certainly not unjustified.

However markets by their very nature do tend to overshoot the mark as they seek out a fair price. The main problem being the fact that we have the potential to get stopped out in the process and miss the entire move.

As a result I think the best course of action for those looking for some exposure to the potential drift lower is to take a trade in the less volatile shoulder months (May–June and September–October), to hopefully avoid any potential carnage and give us the best risk/reward we can.

I would certainly avoid the front months at the very least.

Strength In Soymeal

I don't usually focus on outrights but soymeal has come up on my radar.

Soymeal values worldwide are being boosted by poor availability in Argentina, the top exporter, where farmers are hanging on to soybeans, as a hedge against buoyant inflation and a falling peso.

My personal indicators are showing solid strength and as a bonus we also have a seasonal window.

I don't put as much weight in the outrights in terms of their seasonality but it's nice to have.

I'm very interested to see how this one trades on Tuesday. For now it's one to watch.

Potential Cyclone Hurting NG Spreads

The National Hurricane Center is showing a weather system in the northwestern Caribbean Sea that stands a 50% chance of developing into a tropical cyclone in the next five days as it heads into the southern Gulf of Mexico near the Yucatan Peninsula and eastern Cuba.

NG spreads got hit badly in Tuesday (and Monday for that matter) trading and I think we have to cover out shorts here.

The Nov13/Jan14 bear spread was essentially a play on the late heat wave heading into the shoulder season and this has fundamentally changed things.

Quick Grain Stocks Preview

A quick look at the numbers ahead of quartelry grains stocks.

I'm keenly watching wheat and wondering if potential bullish news is already priced in. Time will tell.

I also just read this on Agrimoney:

While analysts have underestimated corn and soybean stocks in four of the last six years, in wheat, they have a greater tendency to put their inventory guess in too high.

Natural Gas Continues To Look Weak

Thursday's natural gas storage number only helped to send an already weak spread, even lower.

Storage came in at 87 BCF vs the market consensus of 76 BCF. The October contract was a bit all over the place as it was going off the board, however our spread continued its path to a lower close .

Looking at the weather situation, the NOAA 8-14 day forecast is looking a lot less supportive than what it was only a week or two earlier.

There also doesn't appear to be much in way of storm activity threatening natural gas operations in the Gulf.

So for now I'm happy to continue to hold my short (Nov13/Jan14 bear spread) position as we continue to move into the shoulder season.

Is The PEDv Virus Behind The Rally In Hogs?

Lean hogs hit a record high in Wednesday trade and are up 6% over the past month, with traders keeping a close eye on slaughter rates and the size of the herd.

Concerns are mounting that the USDA's hogs and pigs report will show an unseasonal drop in slaughter rate, thought to be down to the PEDv diahorrea virus.

The opinion of analysts on whether the herd has grown or shrunk is mixed with the range of estimates ranging from a contraction of 3.6% to expansion of 0.3%.

I'm still in my bear spread but have a tight stop and will keeping a very close eye on the action over the next couple of days.

The USDA's quarterly hogs and pigs report is due out at 2 p.m. CDT.

Will Cattle Numbers Continue To Tighten?

Cattle prices jumped Thursday ahead of the Cattle on Feed data which is expected to show tightening supplies of beef.

With feeder margins now around negative $29 and an apparent declining feedlot herd, I'll be interested to see if the trend of lower placements continues with Fridays data.

From Cattlenetwork:

Friday’s USDA cattle report is expected to show fewer Cattle on Feed compared to the previous year and placements at their lowest level since the USDA started tracking data in 1996.

August placements are expected to fall from the previous year with numbers forecasted to be 8.9 percent lower than Sept. 1, 2012 data according to Allendale, Inc.
  Some analysts were anticipating higher placements in the August report. Last month’s placements in feedlots during the month of July totaled 1.72 million. The July total was a 10 percent decrease from the same time a year earlier.

The decline is expected to continue as Allendale says cattle feeders remain wary of placing new cattle given the continued loss situation on outgoing cattle. Feeder margins are still in the red, however they have improved over the past month averaging negative $29 per head.

Cattle on feed projections are also lower, with Allendale expecting Friday’s report to show a 6.6 percent decline compared to a year earlier. Last month’s report showed 10 million cattle and calves on feed for slaughter market on August 1, moving six percent lower than the same time period in 2012. The decrease in last month’s data set a new five-year low.

The lower figures reveal decreased beef production numbers lie ahead, which could be impacted further if cow-calf producers decide to retain animals to expand their herds.

The USDA Cattle on Feed report will be released Friday at 7:30 a.m. CST.