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Global Commodity Technical Analysis Report

Basic Materials Outperformed Agri Commodities, 2 Commodities in a ‘Sell’ Zone – Corn, Soybean Oil  

May 26, 2021

Global Commodity Market Wrap-Up

The precious metals and energy commodity prices witnessed a sequential weekly gain outperforming agricultural commodities. Gold prices witnessed an elevated interest from the investor community backed by low interest rate regime and softening of yields. However, as mass vaccination picks up and with the resurgence of long-term bond yields in the US market, the demand for the yellow metal may turn down. A rebound in industrialization across the globe kicked up the demand for silver, with prices firming up. 

This week made a return of LNG prices as the demand from emerging Asia is picking up ahead of the Northern Hemisphere spring season. The Iran supply woes continue to linger around crude oil prices. The inflation worries in the US pulls down the US dollar, which may be a cause of concern for the crude oil price movement. The agriculture commodities took a jolt from heavy rains in the Corn Belt. The onslaught of La Nina may drag down the recovery in harvests in North America, South America, and Europe markets. The upcoming US specific macro events that may impact the market sentiments include an update on US GDP, 1st Quarter 2021 (Second Estimate), Australian Quarterly GDP data, Natural Gas Inventory, Crude Oil Inventory, and Unemployment Claims released weekly.

Having understood the global commodities performance over the past one week, taking cues from major global economic events, and based on our technical analysis, noted below are our recommendations with the generic insights, entry price, target prices, and stop-loss for Corn July Futures (CBOT: Cn1) and Soybean Oil July Futures (CBOT: BOn1) for the next 1-2 weeks’ duration:

Corn July Futures Contract (CBOT: Cn1)

Price Action and Technical Indicator Analysis:

CBOT Corn July Futures' prices witnessed a sharp rally from the starting of April 2021 that last till the 1st week of May 2021 and prices gained ~41.80% during the tenure. Post that prices entered the correction phase and recently broke a major support level USc 629.50 on May 25, 2021 and sustaining below the breakout level, indicating the probability of further downside movement. The breakout is supported by the rise in the volumes, thereby higher market participation supporting a downward direction.

On a daily chart, prices are trading below the trend-following indicators 21-period SMA; however, sustaining above the 50-period SMA. The leading indicator RSI (14-period) is trading in negative territory at ~42.45 levels and supporting a negative stance. Now the next crucial support level appears to be at USc 561, and prices may test that level in the coming sessions (1-2 weeks).

World Corn Supply and Demand Balance Sheet

Recently in May 2021, the USDA has released the world corn supply and demand projection for 2021-22 citing higher ending stock for 2021-22 to 292.3 million metric tons from 283.53 million metric tons in 2020-21 in its May 2021 estimate. The rise in ending stock was mainly contributed by increase in Corn production in the US (world’s largest producer of Corn). to 380.76 million tons for 2021-22 increased from 360.25 million tons in 2020-21. Notably, the report indicates higher world corn production to 1189.85 million tons for 2021-22 compared to 1128.46 million tons’ production estimated in the prior year resulting in the recent decline in corn prices from higher levels.

As per the above-mentioned price action and technical indicators analysis, we can conclude that Corn July Futures (Cn1) is looking technically well-placed for a ‘Sell’ rating. Investment decision should be made depending on an investors’ appetite on upside potential, risks, and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered. Technical summary of our ‘Sell’ recommendation is as follows:

CBOT Soybean Oil July Futures (CBOT: BOn1)

Price Action and Technical Indicator Analysis:

Soybean oil futures has shown a steep rally from the low of USc 49.15 made on 12 April 2021 to the recent high of USc 70.49 tested on 18 May 2021, a gain of ~43.42 percent in the short span. On the daily chart, soybean oil price has broken out from an upward sloping trend line support at USc 67.30 level on May 19, 2021. Since the breakout, prices are sustaining below an upward sloping trend line. However, the price is above 21-period and 50-period SMA, which may act as a crucial support level. The momentum oscillator RSI (14-Period) is trading at ~65.42 levels and formed a negative divergence indicating bearish momentum in the commodity. Now the next crucial support level appears to be at USc 60, and prices may test that level in the coming sessions (1-2 weeks).

World Soybean Oil Supply and Demand Balance Sheet

Soybean oil ending stock might decline for 2021-22 as per the USDA world soybean oil supply and demand projection to 4.09 million metric tons from 4.46 million metric tons in 2020-21 in its May 2021 estimate. Despite the rise in soybean oil production to 62.25 million tons for 2021-22 compared to 60.49 million tons production estimated in the prior year, the ending stocks are consistently declining due to consecutive rise in demand. Soybean oil prices increased many folds in the recent times, however,  the decline in ending stock may raise concerns on the supply of commodity.

As per the above-mentioned price action and technical indicators analysis, we can conclude that Soybean Oil July Futures (BOn1) is looking technically well-placed for a ‘Sell’ rating. Investment decision should be made depending on an investors’ appetite on upside potential, risks, and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered. The summary of our recommendation is as follows:

Upcoming Major Global Economic Events

Market events occur on a day-to-day basis depending on the frequency of the data and generally include an update on employment, inflation, GDP, WASDE report, consumer sentiments, etc. Noted below are the upcoming week's major global economic events that could impact the commodities prices:

Disclaimers 

Investment Related Risks: Based on the technical analysis, the risks are defined as per risk-reward ratio (~0.80:1.00), however, returns are generated within 1-2 weeks’ time frame. This may be looked at by Investors with sufficient risk appetite looking for returns within short investment duration. Investment recommendations provided in this report are solely based on technical parameters, and fundamental performance of the commodities has not been considered in the decision-making process. Other factors which could impact the commodity prices include market risks, regulatory risks, interest rates risk, currency risks, and social and political instability risks etc.

Entry Price: For the recommendation(s), the Entry Price is assumed to be in a range. However, a slight deviation on either side in the ‘Entry Price’ can be considered depending upon the potential expected or indicated.

Note: How to Read the Charts?

The Green colour line reflects the 21-period moving average while the red line indicates the 50- period moving average. SMA helps to identify existing price trend. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.

The Black colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

The Blue colour bars in the chart’s lower segment show the volume of the commodity. Commodity with high volumes is more liquid compared to the lesser ones. Liquidity in commodity helps in easier and faster execution of the order. 

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance. 

Risk Reward Ratio: Risk reward ratio is the difference between an entry point to a stop loss and profit level. We suggest ~80% Stop Loss of the Target 1 from the entry point.

The reference date for all price data, volumes, technical indicators, support, and resistance levels is May 26, 2021 (Chicago, IL, USA 02:30 AM (GMT -5). The reference data in this report has been partly sourced from REFINITIV.

Note: Trading decisions require a thorough analysis by investors. Technical reports in general chart out metrics that may be assessed by investors before any commodity evaluation. The above are illustrative analytical factors used for evaluating the commodity; other parameters can be looked at along with additional risks per se.


Disclaimer-

Kalkine Equities LLC provides general information about companies and their securities. The information contained in the reports, including any recommendations regarding the value of or transactions in any securities, does not take into account any of your investment objectives, financial situation or needs. Kalkine Equities LLC is not registered as an investment adviser in the U.S. with either the federal or state government. Before you make a decision about whether to invest in any securities, you should take into account your own objectives, financial situation and needs and seek independent financial advice. All information in our reports represents our views as at the date of publication and may change without notice.

Kalkine Media LLC, an affiliate of Kalkine Equities LLC, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.