Bullish Commodities? Not So Fast | Lukas Kuemmerle

Episode Summary

Executive Summary: The episode features commodity analyst Lukas Kimmela explaining his framework for trading commodities using fundamentals, positioning, seasonality, and futures term structure. He is bullish on natural gas, live cattle, coffee, and Bitcoin; bearish on soybean meal, copper, several softs, and many precious metals; and neutral to slightly bullish on crude oil. The discussion centers on Russia/Ukraine, inflation, shipping, fertilizer costs, and how backwardation/contango shapes near-term commodity moves.

Main Topics: Commodity market outlook by sector (Priority: 5/5): Kimmela gives a rapid-fire view across energies, metals, grains, softs, and Bitcoin, identifying which markets he sees as bullish, bearish, or neutral over a three-month horizon. Technical and quantitative commodity analysis (Priority: 5/5): He explains his process: blending fundamentals with CFTC positioning, term structure, seasonality, and cycle analysis, emphasizing historical patterns over narratives. Natural gas and crude oil fundamentals (Priority: 5/5): Natural gas is his strongest bullish energy view due to seasonality, tight supply, and Russia-related disruption; crude is only slightly bullish/neutral because of strategic reserve releases and political uncertainty. Soybeans, soybean meal, and fertilizer-driven crop shifts (Priority: 4/5): He is bearish on soybeans and especially soybean meal because farmers are shifting acreage toward soybeans from corn due to high fertilizer costs, which should increase soybean supply relative to demand. Wheat, grains, and the Ukraine war premium (Priority: 4/5): He argues wheat prices overshot on fears of a total Black Sea supply loss and have already corrected as the market recalibrates to a less extreme supply disruption. Shipping rates and soft commodities (Priority: 3/5): He links elevated container and dry-bulk shipping costs to support for commodity prices, especially softs, while noting container rates may be rolling over as China lockdowns and slowing demand weigh on freight. Dollar, Europe, and geopolitical constraints (Priority: 4/5): He notes the usual inverse commodity-dollar relationship has broken down, and says Europe—especially Germany—faces severe vulnerability because Russian energy dependence makes a rapid cutoff unrealistic.

Key Arguments: He uses term structure, not just charts, as a core signal: backwardation can support bullishness, but extreme backwardation can also indicate crowded trades and near-term downside risk. Natural gas is bullish because demand is strong, inventories need rebuilding in the spring/summer build-up phase, and Russian supply disruption tightens the market. Crude oil is only neutral/slightly bullish because SPR releases, political uncertainty, and possible supply responses from OPEC or Iran make the outlook less clean than for gas. Soybean meal is his clearest short because fertilizer prices are pushing farmers to plant more soybeans relative to corn, implying more soybean supply and lower meal prices later. Wheat likely peaked when markets priced in the most extreme Black Sea disruption; once that fear eased, prices fell and he does not expect new highs soon. Copper is bearish in the medium term because of slowing economic momentum and a historical tendency for prices to weaken when inventories are refilled. Soft commodities are influenced by shipping costs and consumer demand; falling container rates would be a bearish signal for some softs like cotton, sugar, and cocoa. Bitcoin remains bullish to him because of its scarcity and resilience, even though macro liquidity conditions would normally argue for caution. The Russia-Ukraine war extended the commodity bull market by disrupting both energy and grain flows, and any meaningful peace deal would likely pressure commodity prices lower. The usual commodity-dollar correlation has weakened, so a strong dollar no longer automatically invalidates bullish commodity views.

Data Points: Natural gas view: Bullish - Kimmela’s three-month outlook at the start of the interview. Crude oil view: Neutral to slightly bullish - His short-term stance despite energy tightness. Live cattle view: Very bullish - He cites bullish seasonality ahead. Gold and silver view: Neutral to slightly bearish - He points to real yields and recession risk. Platinum and palladium view: Slightly bearish - He emphasizes industrial use and news sensitivity, especially Russia’s role in palladium supply. Soybeans view: Slightly bearish - He expects more soybean acreage due to fertilizer economics. Soybean meal view: Bearish / short - He says this is a trade he is currently executing. Coffee view: Bullish - He sees favorable dynamics in soft commodities. Orange juice view: Bearish - Part of his soft commodities downside view. Bitcoin view: Bullish - He views it as scarce digital gold. Russia share of palladium supply: About 40% - He notes Russia is the main supplier and palladium is highly news-driven. Soybean fertilizers share of operating costs: About 18% - Used to explain why soybeans are less fertilizer-intensive than corn. Corn fertilizers share of operating costs: About 37% - Supports his view that farmers may prefer soybeans when fertilizer prices spike. US natural gas consumer prices: Rose more than 75% year to date - He cites German household pain from energy inflation. Strategic Petroleum Reserve release: About 1 million barrels per day for six months - He says this is short-term bearish for forward crude contracts. Potential Iran supply increase: Up to 750,000 barrels per day - He cites this as a possible oil supply source if a nuclear deal is reached. Commodity bull market timing: Extended over an unknown time - He says the Russia-Ukraine invasion prolonged the bull market. Spring/summer build-up phase for natural gas: Roughly six months - He says this seasonal period begins in spring and supports price strength.

Pivotal Quotes: "We are in the midst of a huge commodity bull market." — Jack Farley: Opening framing of the episode’s central market theme. "What I saw was just human nature and human psychology." — Lukas Kimmela: Explaining why crowded sentiment and extreme backwardation mattered in his earlier bearish call. "The market became a little bit more confident that this view was probably too extreme and therefore prices from wheat crashed back down." — Lukas Kimmela: His explanation for why wheat’s war premium faded after the initial spike.

Implications: Listeners should expect commodity trading to remain highly geopolitical, with term structure, seasonality, and inventory trends more useful than headlines alone. Energy and grains may stay volatile, while freight, fertilizer, and policy shifts can rapidly reshape relative value across markets.