Now that crude oil has stabilized somewhat, it's worth checking in on some other important commodity prices to take stock of where we've been and where we might be headed.
Natural gas certainly looks interesting at the moment. After plunging alongside crude oil for the last several years, natural gas prices have bounced in a big way in recent weeks.
Just the other day, natural gas was up nearly $0.15 to settle at $2.617 per million British thermal units - the highest price for the contract since September of 2015. It makes one wonder if the production declines in the oil patch aren't spreading to natural gas, which could mean there's more room to the upside in this particular commodity.
Gold is another of the big trading commodities that has made notable, if inconsistent, progress in 2016. After a big move up in the first quarter of the year, gold had been stagnant for most of the second quarter - that is until the jobs report was released at the start of June. A report that many believe will force the Federal Reserve to stave its hand at the next meeting.
Gold has rallied significantly in the days since the jobs report and now stands near the highs of the year at about $1280/ounce. Actions or indications by the Federal Reserve on interest rate moves will continue to affect the direction of gold in 2016.
Cotton, recently covered on Splash Into Futures with Pete Mulmat, is another commodity that might offer opportunity in 2016. Cotton is one of the "softs," or “grown”commodities, like sugar, corn, wheat, soybean, coffee, and cocoa. The other group being the "hard" commodities - those that are mined from the earth, like gold, silver, and copper.
Pete highlights on Splash Into Futures that cotton prices have recently risen from 57 cents a pound to 67 cents a pound - which is about the same level it peaked out at last year around this same time. Pete then details some of the specific drivers of the cotton trade, particularly those that affect the upcoming harvest as well as the dynamics of international trade in this “soft” commodity.
As most cotton in the United States is planted in the Mississippi river delta region, Pete says that flooding or extremely dry conditions in this part of the country can affect pricing if harvests are off target. Likewise, Pete also explains how production and inventory levels in China and India can also affect trading.
It should be noted that China is currently sitting on extra cotton inventory that was built up during the worldwide financial crisis. That reality could cap further upside in price as China could start unloading inventory at any time and consequently stop prices from spiking significantly.
One other factor to keep in mind is that cotton prices can be correlated to the price of oil. A competitor of cotton, polyester, is made primarily from petroleum products. Therefore, as oil prices go down, polyester can become more attractive relative to cotton.
To learn more about the cotton trade, we recommend you watch the entire episode of Splash Into Futures dedicated to this topic. The tastytrade learn page and search functionality can also be utilized for more information on cotton, or any other trading topic that might be of interest to you.
Staying current with the Splash Into Futures series is a great way of staying current with all the trends unfolding across the commodities complex.
In an upcoming blog piece, we’ll take a closer look at natural gas and highlight some compelling tastytrade programming covering this commodity.
We hope you’ll reach out with any comments or questions on “hard” or “soft” commodities trading at firstname.lastname@example.org.
Thanks for reading!
Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.