FCPO, 11th June 2014

Overview: A moderate El Nino weather pattern would reduce palm oil output by as much as 12 percent in Malaysia, the world’s second-largest producer, IOI Corp. (IOI) Chief Executive Officer Lee Yeow Chor said. Prices may advance to a range of 2,650 ringgit ($827) a metric ton to 2,850 ringgit from August if the event occurs, Lee said in an interview in Kuala Lumpur. Futures closed at an eight-month low of 2,385 ringgit yesterday. An El Nino pattern as severe as in 1997-1998 may cut production by as much as 15 percent, Lee said, without specifying a period for the decline.

Forecasters from the U.S. to the United Nations have warned such an event may happen this year, and Goldman Sachs Group Inc. says disruptions associated with El Ninos have been most important for cocoa, coffee, sugar and palm oil. An El Nino pattern, which can roil agricultural markets worldwide as farmers contend with drought or too much rain, may be established by August, according to just over half of the climate models surveyed by Australia’s Bureau of Meteorology. “The effect of the dry weather accompanying El Nino will not be so quick, it will stretch on for a period of time,” Lee said yesterday, referring to the impact on output. “The effect of the reduced production will also be seen in a delayed manner” on prices, he said. (Bloomberg)

Technical: Benchmark Aug contract –

(i) Daily chart – MACD crossed down signal line, generated sell signal and stay below Horizon zero. Price stays below Daily 50 MA.

(ii) Minutes chart – 20 EMA crossed down 40 EMA, generated sell signal. MACD crossed down signal line, generated sell signal and stay below Horizon Zero. Support and resistance levels are expected to peg at 2390 and 2350 respectively.

Strategy: FCPO had breakdown but not going through with average volume. Both daily and minutes charts are still showing weak signal and benchmark price is testing ytd low. Downward movement is likely to continue if price could not be supported above 2390 today. Position traders who sold at breakdown yesterday may try to short with cut loss at above 2400.

Intraday suggest trading range:

Suggest to buy at 2425 breakup, with cut loss at below 2415 while targeted profit at 2445.

Suggest to sell at 2365 breakdown, with cut loss at above 2375 while targeted profit at 2345.

Note: Although the above trading ideas are great starting points, they should not be taken as complete trading recommendations. For more concrete trading idea, please email to chewchin8529@gmail.com.

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