Cordier: Sugar Market Looking Sweet for Call Sellers
Good afternoon. This is James Cordier of OptionSellers.com, with a market update for July 29th. This past weekend, I was enjoying a glass of my favorite Italian Red, chatting with friends of mine. Yes, believe it or not, I don’t work every single day of the week. They were asking me questions about my staff and the market. I guess that means that I do work every day of the week. They asked me how large our staff was. They were thinking that we need dozens of people to follow data points, picking up headlines, and trying to decipher all of that information into trade opportunities. It was quite interesting.
I was simply mentioning Rosie, David, Michael and our staff at FCStone that help us out on a couple different things, but actually gathering data is quite easy. Anyone listening to me now can Google production of oil in Texas or the production of cocoa in the Ivory Coast. It’s quite easy to do. The trick is, and what’s in the secret sauce, is trying to decide what it means to the market. What’s already priced in, what’s yet to be priced in, and what are future trends of production in different commodities. One thing that’s quite interesting that we find is that many investors have a difficult time differentiating the difference between headlines and facts and statistics for commodities.
Example about a month ago, all of the headlines in crude oil was Nigeria was a huge problem, we had declining production in the United States, we had a fire in Canada, and crude oil was trading around $51 a barrel. Those were headlines. We went on CNBC to talk about they are just headlines, they’ll probably be short lived. The statistics that investors needed to know when crude oil was at $51 was that supplies in the United States, the largest consumer of oil in the world, are at all-time highs like, they are today. Production in Iran and Iraq is setting all-time highs, like it is today. 20-30 cargos of crude oil floating around just about every importing nation around the world waiting to get the call to drop their oil in port. There is so much oil right now on the seas and basically with no home. What happens is as demand starts to fall in August and September, all that oil is looking for a home and what happens is, without anyone bidding on it, the price comes down. People start discounting oil, especially Iran will be doing this fall, and lo and behold, those stats were the important gauges to measure, and now oil, one month later, is no longer at $51 but today is trading at $41.
Other markets that we follow, for example, sugar, a market that we were delving into just recently over the last week or so. Understanding fundamentals and stats, for example, in sugar, this year anyone can look at the stats, you can Google production for world supplies for sugar. We are going to have a slight deficit this year. Now, is that already priced in or is that yet to be priced in? This is the secret sauce. Sugar recently rallied from $0.13 to $0.20 over the last 35-45 days. That is priced in the deficit. What we want to do then is look at seasonality and what happens in August and September. Sugar normally falls as the largest producer in the world starts their harvest.
One thing that I was interestingly speaking with friends over the past weekend were conversations like contango and backwardation. Certainly, a lot of terms that aren’t spoke of in Tampa very often, but they did understand it. What’s interesting is sugar is in backwardation and what that means going out 1 year, look at what the price is. Lo and behold, the prices of sugar one year out are approximately 15% below what they are now. That tells us that the shortage won’t last. We recently sold sugar calls above the market about 30-40% recently. We think as the Brazilian harvest coincides with the seasonal fallout in sugar will cause this trade to work just fine.
Trading seasonally, trading with stats, trading with headlines is what we compile. I can do it myself and I have a great staff that helps me out from time to time. They are always contacting me and letting me know if there’s something I need to look at. Something I say to David practically everyday is if there’s anything I need to see then let me know. I have a great staff, but it’s not dozens of people. It’s just a great small staff and we don’t want to be employing hundreds of people to become small traders and traders that are going to take over different accounts. I do all the trading. We take a look at several different factors that cause opportunities and bring opportunities to my desk, and I do all the trading for them. I make all of the decisions and I have a great staff around me that helps me compile data.
Anyone interested or doesn’t have an account with us already can contact Rosemary to find out about becoming a client. As always, it’s a pleasure speaking with you and we look forward to doing so again in 2 weeks. Thank you.