• The Softs sector has seen incredible rallies over the past few years, driven in large part by bullish fundamentals indicated by backwardated forward curves. 
• Energies have been a roller coaster ride, with WTI crude oil continuing to show bullish fundamentals yet noncommercial traders reluctant to buy. 
• Based on its forward curve, soybean meal is one of the more bullish commodity markets in early May, based on its forward curve. 

Just over a year ago, I wrote a piece titled, “Are Commodities a Good Investment?”. In it I discussed how US stock indexes were in solid long-term uptrends, and for some of that newly made money to find its way over to the commodity complex we would need to see increasingly bullish real fundamentals. What do I mean by that? When it comes to fundamental analysis you have those analysts who live in a world of make-believe and impatiently wait for each and every handout of manna from the various government agencies. This type of fundamental analysis is easy as it takes no mental ability to simply regurgitate imaginary numbers[i]. On the other hand, we have real fundamentals shown to us every day by how markets trade and how contracts of individual markets line up with each other pricewise. As I look across the commodity complex Monday afternoon, that’s what stands out to me: How many different markets in a wide variety of sectors are showing bullish real fundamentals. 

Let’s start with Softs. As I talked about frequently the past few years, Softs have been a baton race to new all-time highs with one market accomplishing the feat before handing off to the next. The latest has been cocoa, with the nearby July futures contract (CCN24) reaching a high of $11,722 (per metric tons). As my friend Myra Saefong wrote for MarketWatch last Friday, cocoa had dropped 30% from its recent high. A look at the daily chart shows the July contract hit a low of $6,990 last Friday, down a total of 40%. Did cocoa’s real fundamentals suddenly change? Myra talked to other analysts who pointed out demand destruction likely took place. Others pointed out the weather had improved slightly, fitting with the idea that cocoa, like most production commodities, are weather derivatives at heart. But have real fundamentals changed? At Monday’s close, cocoa’s forward curve was still backwardated with the July-September futures spread showing an inverse of $422 while the July 2024-May 2025 forward curve showed a $1,797 backwardation. That’s still long-term bullish. 

Energies have been in the news a lot lately, with the war in Gaza seemingly escalating on a weekly basis while OPEC-plus is set to extend its production cut for another three months in June. On the other side of the ledger, the US continues to run as the largest producer in the world. With everything going on in the world, both politically and economically, WTI crude oil’s forward curve is still showing a solid backwardation. Monday’s close saw the nearby spread at an inverse of $0.34 while the 6-month June to December forward curve was inverted by $2.72. This seems to be an open invitation to investment traders to buy, particularly with the spot-month contract (CLM24) moving sideways between $65 and $95 and sitting near its midrange of $80. Yet weekly CFTC Commitments of Traders report (legacy, futures only) show funds are reluctant to buy, with the most recent update showing an increase of only 625 contracts in the net-long futures position. The difference between crude oil and corn is funds were adding long futures, an indicator of new buying interest. 

Soybean meal is one of the more fundamentally bullish markets, from a real point of view, as July (ZMN24) gained $2.20 (per short ton) on August, the nearby spread closing at an inverse of $2.50. Further out, the July-October spread was showing a $7.50 backwardation. Demand for US soybean meal seems to be picking up as we get deeper into the 2024, with the projected pace of export shipments at 13,692 thousand short tons, up 10% from last year’s reported 12,457 (tst)[ii]. Additionally, total crush through the end of March was 1.373 bb of soybeans, up 70 mb (5%) from the same time last year. On its weekly chart, July posted a bullish breakout last week, driven in part by new noncommercial buying as this group added 17,676 contracts to their net-long futures position as of Tuesday, April 30. This change included an increase of 10,300 contracts of long futures, again reflecting algorithms recognize bullish real fundamentals. 

What will the next market be? Much will depend on global weather. The July-August soybean futures spread closed at an inverse of 2.75 cents Monday, the first time finishing a session inverted since April 15. However, the longer-term outlook isn’t quite as bullish, though the November 2024-July 2025 forward curve shows a carry/contango of 11.5 cents. This isn’t a bullish amount of carry/contango, but it isn’t bearish either. It tells us the commercial is keeping a close eye on the market as the US planting season progresses. What about new-crop corn? The Dec24-July 2025 futures spread was showing a carry of 24.25 cents at Monday’s close.

[i] One way to track this is to keep tabs on who all is talking about NASS’ completely made-up Crop Progress and Condition numbers Monday afternoon. That is one of the best indicators you’re dealing with a Regurgitator. 

[ii] You’ll notice these numbers are not pulled from USDA’s monthly supply and demand updates, but rather weekly export sales and shipments reports. 

• Sugar Prices Post Moderate Gains as Sugar Production in India Falls
• Cocoa Prices Finish Sharply Lower as Open Interest Plunges
• Arabica Coffee Closes Lower as Global Supplies Rebound
• Cotton Continuing Weakness on Monday