Global Commodity Market Wrap-Up

The Commodity prices witnessed downside correction from higher levels last week. As per the recently released WASDE Report, the production and ending stocks are expected to increase for 2021-22 for commodities like Wheat, Coarse Grains, Corn, Soybean which may restrict the continuous rally in the commodity prices going forward.

Meanwhile, weakening of the dollar index which is inversely correlated with the commodity prices also fueled the spike in prices for precious metals during the last couple of weeks as weak dollar supported the demand for commodities and the overall bullish momentum. The United States being a global economic barometer can influence the overall commodities market movement. The upcoming macro events that may impact the market sentiments include an update on 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 Natural Gas June Futures (NYMEX: NCM21) and Soybean July Futures (CBOT: Sn1) for the next 1-2 weeks’ duration:

Natural Gas June Futures Contract (NYMEX: NCM21)

NYMEX Natural Gas June Futures started to move upside from April 2021 and witnessed ~24.30% gains. Recently prices broke an upward sloping trend line by an upside but were unable to sustain above the breakout level. Prices started to move downside after forming a bearish engulfing candlestick pattern (bearish reversal) at a higher level and for the short term, we may expect further downside movement in the price.

On a daily chart, the leading indicator RSI (14-period) is trading at ~58.34 levels and moving downside after testing an overbought zone. However, the trend-following indicators 21-period SMA and 50-period SMA are sustaining below the current market price and acting as a support levels for the commodity. Now the next crucial support level appears to be at USD 2.790, and prices may test that level in the coming sessions (1-2 weeks). Any further move below USD 2.790 accompanied by higher volumes may extend selling in the commodity.

US Natural Gas Inventory vs. NYMEX Natural Gas Prices 

As per the weekly data released by the US Energy Information Administration on May 13, 2021, working gas in underground storage stands at 2,029 billion cubic feet (Bfc) compared to 1,958 Bfc in the prior week, a rise of 71 Bfc for the week ending May 13, 2021. The storage is down by 18.9 percent compared to a year ago. The following chart represents a comparative analysis of US Natural Gas storage and price action for the past 6 month:

As per the above chart analysis, the working gas in underground storage has been declining continuously and fell over 50 percent as compared to October 30, 2020 and reached around its 2-year lows.

As per the above-mentioned price action and technical indicators analysis, we can conclude that Natural Gas Futures (NCM21) 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 July Futures (CBOT: Sn1)

The CBOT Soybeans futures price broke out of its rising channel pattern on the daily chart at USc 1586 level on 18 May 2021 and is sustaining below the lower band of the pattern. The price registered a decisive break out of the channel pattern that suggests a change in the trend from upward to downtrend. However, prices are trading above the 21-period SMA and 50-period SMA. On the daily chart, the momentum oscillator RSI (14-Period) is trading at ~56.21 levels, and formed a negative divergence indicating bearish momentum for the commodity. Now, the next support level appears to be at USc1467, and the commodity may test that level in the short term (1-2 weeks).

World Soybean Supply and Demand Balance Sheet

Recently in May 2021, the USDA has released the world soybean supply and demand projection for 2021-22 citing higher ending stock for 2021-22 to 91.11 million metric tons from 86.66 million metric tons in 2021-21 in its May 2021 estimate. The report mainly pointed out increasing soybean production to 385.53 million tons for 2021-22 compared to 362.95 million tons’ production estimated in the prior year resulting in the recent drift down in soybean prices from higher levels.

As per the above-mentioned price action and technical indicators analysis, we can conclude that Soybean July Futures (Sn1) 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 19, 2021 (Chicago, IL, USA 03:33 AM (GMT -5).

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.