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commodity spreads


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commodity spreads

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  #1 (permalink)
brentf
winnipeg canada
 
Posts: 17 since Apr 2014
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I have traded commodity spreads for the past 30 years, looking to collaborate with another party to incorporate strategies into algorythims..any interest ?

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  #3 (permalink)
brentf
winnipeg canada
 
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In the mean time, lets have a discussion on grain spreads, lots of opportunity this summer, want to get long new crop bean spreads...

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  #4 (permalink)
brentf
winnipeg canada
 
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New crop bean spreads at a carry, rationale is that carry reflects record large production. Carryout projected approx 200 m bus, not a lot of room for error. I think spreads are undervalued, at a carry the risk/reward potential favours long side of spread. Buy nov/may spread. Want to avoid the may/july for now.

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  #5 (permalink)
Kurtas
Brno/Czech Republic
 
Posts: 19 since Feb 2013
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Thanks for tip, spread BUY Soybean Nov / July is really oversold and currently is moving arround historical lows. According to SeasonAlgo there is 94% correlation with 2004 year (see stacked chart - bold black line vs cian line), this spread moved long from -260 to -120 = profit 7k $ in year 2004 (during May-June) but then turn back to short and hit historical low at -328 point. Overall historical low was reached last year at -360.

So that the spread can be very volatile and now there is not any long seasonal move, rather there is a short seasonal move from half of June.

Are there some same fundamentals as in 2004? That would give us a reasonable reason to try open long position.

Image - stacked chart
Image ZSX-ZSN seasonal patterns

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  #6 (permalink)
brentf
winnipeg canada
 
Posts: 17 since Apr 2014
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new crop bean spreads at a carry due to large carryout for next year, market now at 395 million bus, compares to 130 for this year. tipping point for bean spreads something less than 175 mil bushels so there is room for carryout to be reduced before market react. Nonetheless, a low risk spread, if chinese demand surprises like it did this year or weather threatens crop spread will be good value. Also looking at corn spreads, Z14/z15 has potential, carryout at 1.6 bil bushels, tiiping point at 1 billion, demand and /or weather issues will put value into this spread.

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  #7 (permalink)
Kurtas
Brno/Czech Republic
 
Posts: 19 since Feb 2013
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Do you know if in the 2004 year was the same situation?

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  #8 (permalink)
brentf
winnipeg canada
 
Posts: 17 since Apr 2014
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In 2003/04 crop year the soybean carryout was 112 mil bushels which was historically tight. Nearby prices moved higher in order to ration supply and avoid running out of supplies. 2004/05 saw an increase in supplies leaving a more comfortable carryout. It should be noted that o er the past 15 years all figures on soybean balance sheet have increased so that a 150 bus carryout, for example,is very much different than it was 15 years ago. Same goes for corn. A more meaningful measure is the stocks to use ratio which the trade will eventually defer to.

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  #9 (permalink)
Kurtas
Brno/Czech Republic
 
Posts: 19 since Feb 2013
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I would try to enter into Buy ZS X/ U ... it's looks more safely than X / N combination, also there is a seasonal move, selected seasonal window have 80% win in last 15 years according to SeasonAlgo


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  #10 (permalink)
brentf
winnipeg canada
 
Posts: 17 since Apr 2014
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Yes there is seasonality in the bean spreads, that is an advantage over other commodity futures. However, the seasonality of the bean spreads is changing as a result of the large increase in SA production. US calendar spreads no longer have to reflect a rationing of product throughout the entire year, only until SA becomes available to market, about late jan/feb. Having said that the old crop/new crop bean spreads are at large inverses because China double booked US and SA beans this year, not sure they will make that mistake again. All I'm saying is that the seasonality that have characterized bean spreads now have to take into account SA production. Re U beans, referred to as the "bastard month" because it is now always clear whether it is representative of old crop or new crop. This should be taken into consideration if trading this spread.

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