As we look back on the first two quarters of 2017, most commodities have been stuck in a longer-term bear trend. Commodity prices have been reacting to a build-up in supply and a lack of demand across the board. Commodity futures markets are following economic fundamentals – big supply and little demand are causing prices to move lower. Eventually production will slow down, especially when prices drop below the cost of production. The lower prices will attract new demand and markets will re-balance, causing prices to return to a more “normal” level. With equities making new all-time highs almost weekly, investors have been hesitant to invest in other markets.

Nowhere is this more obvious than in the energy markets, and more specifically in crude oil futures, where crude oil prices have dropped down to $42 a barrel. Crude oil traded as high as $58.03 to start the year and has moved steadily lower. With global economic sanctions and new trade agreements, energies could be headed for yet another move lower. 

The metal futures have been more volatile. Fundamentally, gold tends to be traded as both a safe haven and a currency, and the first half of 2017 has been no different. With changes in leadership both in the United States and abroad, the metals become more relevant during times of uncertainty. Gold futures have traded between $1,155 and $1,300, and have tried to break and hold above $1,300 with no luck thus far. Investors are likely to see a trading range between $1,215 and $1,295 over the next quarter. 

Cocoa futures have been one of the most volatile markets of 2017. With swings of 100 points on a given day, this market has been a challenge for investors. The economic factors of supply and demand are the main force influencing cocoa pricing. Production levels year-to-date appear to be higher than in the previous year, and demand has been weak in Europe and North America. Cocoa will stay range bound until more news arises to help investors decide on a side of the market. Look for another quarter of uncertainty and prices between $1,800 and $2,100.  

Lower commodity prices continue to create good buying opportunities for investors. While it is still too soon to say that we’ve seen the bottom in many commodities, I do see the downside risk as limited, as it is my opinion that commodities prices will move higher as we enter the second half of the year. Next quarter, look for buying opportunities in soybeans and corn – a rebound in prices is forming. Also worth noting is the upside potential in both the bond market and the indices. If the Fed elects to keep rates constant in September and holds off on a rate hike until December, equities could see another good rally in the Fall. It appears the Fed would like to raise rates up to three times in 2018, but that will of course depend on whether Fed Chair Yellen is still at the helm.

As an investment philosophy, I strive to apply a combination of fundamental and technical analysis to each trade in order to achieve a balance between risk and return based on each client’s unique investment objectives.  

Please contact me to learn more, or to discuss investing in futures and options in greater detail. 



Peter Mooses

Peter Mooses

Follow Peter on Twitter @PMoosesRJO. Peter's interest in trading began during a college internship with Bunge North America on the floor of the Chicago Board of Trade, where he assisted commodities traders and performed market research and analysis. Upon earning a B.A. in economics from the University of Iowa, Peter served as an analyst, transaction manager and team lead in the Global Trust Divisions for LaSalle Bank and Bank of America, where he managed transaction activity in multi-million dollar client fixed income and asset-backed securities portfolios. After years in the banking industry, it became apparent that Peter's real passion lies in futures trading. He joined RJO Futures because he enjoys the analytical aspects of futures trading and appreciates the economic impact that commodities have across all markets. Peter believes in utilizing market analysis and trends to help clients achieve balance between risk and return, while always keeping their investment objectives top of mind.