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August 2012 Archives

August 1, 2012

August Weather Critical to Success of Soybean Crop

Wednesday, August 1, 2012

The condition of the U.S. Soybean crop continues to deteriorate, with the USDA reporting only 29% of the crop rated good to excellent, which is down 2% from last week, with the poor to very poor rating rising to 37%. Though timely rains in the next few weeks may help Soybeans, current weather forecasts are not predicting that much needed rainfall will be widespread the next several days.

Fundamentals

The devastating drought in the central part of the U.S. has already severely curtailed Corn production, as high head and dry conditions occurred during the key pollination period. Now that the calendar has moved to August, many traders will turn their focus to Soybeans, which are now beginning to enter their critical growing stage. Current weather forecasts are not encouraging for Soybean producers, as the 6 to 10-day forecast is calling for above normal temperatures and below normal rainfall for areas just west of the Mississippi River, as well as Southern Illinois and Indiana. Current analysts' estimates are for average Soybean yields to be near 38 bushels per acre, which is well below the 40.5 bushels per acre estimate from the USDA in the July crop report. Even though Soybean futures are trading near historic highs, global demand continues to rise. U.S. Soybean exports continue to remain robust, as below average production out of South America last season left little competition for the U.S. for Soybean exports. With the potential for a below 3 billion bushel Soybean crop in the U.S., Soybean futures prices may need to move even higher to help ration demand and prevent a stocks-to-usage ratio from becoming negative.

Technical Notes

Looking at the daily chart for November Soybeans, we notice prices gapping higher on Monday, after less than expected rainfall occurred over the weekend. Note how prices are holding above the 20-day moving average, after two tests of this indicator last week failed to draw prices lower. Momentum has fallen from overbought levels, and the 14-day RSI now reads a supportive 62.55. Last week's low of 1536.00 looks to be support for November Soybeans, with resistance seen at the contract high of 1691.50.

Mike Zarembski, Senior Commodity Analyst



August 2, 2012

All Eyes on the ECB

Thursday, August 2, 2012

Many currency traders are closely watching the policy statement from the ECB today. A strong, aggressive statement may be needed for the battered currency to find buying pressure. Anything short of this could add to the negative market sentiment. Technically, it is imperative that the Euro hold 1.20. Failure to do so could continue the march toward parity.

Fundamentals

The Euro is up ahead of a meeting of ECB policy makers. This is the first time the central bank has had a meeting since its head, Mario Draghi, pledged to protect the pan European currency. This may be easier said than done, as investors have avoided the currency and the exposure to toxic sovereign debt that comes with it. Whatever measures are announced today must be aggressive, as that is what the market is expecting. Many believe the ECB needs to pull out all of the stops to prevent a significant economic contraction. Anything short of an aggressive action could easily bring out the Euro bears. Some investors have found solace in the US Dollar and Japanese Yen, as well as the Swedish Krona and Norwegian Krone, all of which may be seen as overbought presently. A strong policy statement from the ECB could trigger some short -vering in the Euro and, conversely, profit-taking from longs in the aforementioned currencies.

Technical Notes

Turning to the chart, we see prices continuing to trend lower on the daily, continuous Euro chart. Thus far, prices have managed to stay above the 1.20 level, which can be seen as a critical support level. The 50-day moving average is the closest upside test, along with the 1.2350 level. More significant resistance can be found at 1.2750. The RSI indicator has recovered from oversold conditions and now sits near the neutral 50 level.

Rob Kurzatkowski, Senior Commodity Analyst


August 3, 2012

Is There Still Room for a Bullish Run in Natural Gas Futures?

Friday, August 3, 2012

A higher than expected storage build last week (+ 28 bcf vs. + 23 bcf estimate) sent front month futures below $3. However, Gas in storage is only 14.5% above the 5-year average, vs. 60% above back in March and limits concerns of a storage glut going into winter. Some traders may wish to see if Thursday's close below the recent uptrend line on the daily chart is nothing more than a "bear trap" or a signal that the recent up-move may be near an end.

Fundamentals

The nearly 4-year bear market in Natural Gas futures appears to have potentially run its course, as a surge in usage by power producers due to record or near record summer temperatures throughout a huge portion of the U.S. has alleviated some of the concerns of a storage glut going into the winter. However, now that front month futures are trading near their 2012 highs, some traders may be wondering how much farther this price recovery has to run. One issue that might help stall the price recovery is that when Natural Gas is trading back above $3/MMbtu, Coal starts to look attractive again to electric utilities to help fire their generators. In addition, though Gas rig counts are at 13-year lows, it is the residual Gas that is produced from the "shale plays" for Oil and Gas liquids that is keeping supplies of Gas at ample levels, especially with the ability to hedge this production in deferred futures months, which are trading above $4/MMbtu. Large speculators are still net-short Natural Gas (just over 72,000 contracts according to the latest Commitment of Traders report) but the net-long position is less than half as large as it was earlier in the year. This short-covering buying is helping to keep the bullish momentum going. However, commercial traders are beginning to lighten-up on their net long positions, especially at prices above $3. Should we see front month futures approach $4MMbtu, commercial selling, especially by producers, may become heavy, particularly if Oil prices remain high, making "shale" drilling especially attractive.

Technical Notes

Looking at the daily chart for September Natural Gas, we notice prices have once again fallen below both the 20 and, more importantly, the 200-day moving average. Though prices have rallied just over $1 since mid-June, it still does not appear that the market has become overbought. The 14-day RSI has skirted the 70 level but has not yet moved into overbought territory, with a current reading of 57.27. Prices were holding just above the uptrend line drawn from the mid-June lows, though Thursday's sharp sell-off has sent the market just below this key indicator. The next resistance area for September Natural Gas is seen at the recent high of 3.277, with support found at the July 17th low of 2.711.

Mike Zarembski, Senior Commodity Analyst


August 6, 2012

Stock Index Futures Rally on "Decent" Non-farm Payrolls Report

Monday, August 6, 2012

Though Friday's NFP figures were a welcome sight after several months of below expectation gains, the 160,000 plus jobs created only meets the requirements to match that of the rate of increase in the population and will do little to actually decrease the unemployment rate, which may act as a brake on further strong gains for equity index futures.

Fundamentals

Equity markets erased last week's losses on Friday, as the widely anticipated Non-farm Payrolls figures were better than anticipated. The Labor Department announced that 163,000 jobs were created in July, which is well above the pre-report estimate of 100,000 jobs. Once again, all of the gains were in the private sector, which rose by 172,000, while public sector employment fell by 9,000 last month. However, the more politically important unemployment rate rose by 0.1% to 8.3%. The revisions to prior months' totals were mixed, with June's payrolls revised lower by 16,000 jobs, but May's figures were raised by 10,000. The government's totals were closely aligned with that of the ADP/Macroeconomic advisors' private employment survey, which reported that 163,000 jobs were created. Stock index futures soared after the figures were released, with gains being possibly exaggerated by market weakness the past few sessions. Going forward, we may start to see more discussions on the "U6" employment figure, which includes part-time workers that wish to work fulltime, as well as more marginally attached workers who would like to work but have become discouraged. This figure, which some analysts claim better reflects the employment picture, rose by 0.1% to 15%, a headline figure few would be excited about.

Technical Notes

Looking at the daily continuation chart for the E-mini S&P 500 futures, we notice prices forming an up-sloping channel beginning at the recent major lows in early June. The rally since June has been in a series of fits and starts, with each rally to a new interim high being met with several sessions of price weakness before moving to new highs. Prices are above both the 20 and 200-day moving average, and momentum is positive, with the 14-day RSI reading 60.87. The next major resistance level is seen at the May 1st high of 1411.75, with support found at the July 25th low of 1321.25.

Mike Zarembski, Senior Commodity Analyst


August 7, 2012

RBA Keeps Rates Steady

Tuesday, August 7, 2012

Currency traders may want to keep a close eye on the interest rate movements of New Zealand, which may influence flow of cash into the Aussie Dollar. Economic projections and the movement of the commodity markets are likely going to be primary outside influences on the Aussie as well.

Fundamentals

The Australian Dollar has been the main beneficiary during the commodity market rally. This resulted in the exchange rate of the currency making a ten- cent swing versus its American counterpart in a little more than two months. The Aussie has also benefited from stronger interest rates than other industrialized nations. While the RBA's target rate of 3.5% can be seen as modest, it is significantly higher than the near zero rates in Europe and the US. The RBA's decision to keep interest rates unchanged helped propel the currency to its highest level in four months. There is also talk of New Zealand possibly cutting rates further, which could make the Aussie even more attractive to currency traders seeking commodity exposure.

Technical Notes

Turning to the chart, we see the Australian Dollar rallying from 0.9500 to 1.0600 since the beginning of June. Prices moved through resistance at 1.0250 without slowing down. The next test is near the 1.0600 level, with a much more substantial test at 1.0750. The market is overbought on the RSI, which could trigger some profit-taking. It is also interesting to note that the RSI is diverging from prices, suggesting a direction shift may take place, but the timing is unknown.

Rob Kurzatkowski, Senior Commodity Analyst



August 8, 2012

Oil Prices Attempting a Breakout to Multi-month Highs

Wednesday, August 8, 2012

Expectations are that the Energy Information Administration (EIA) weekly U.S. Energy Stocks Report due to be released this morning will show that U.S. Oil inventories fell by 900,000 barrels last week. If that is indeed the case, U.S. Oil inventories will have fallen over 7 million barrels during the past two weeks, and this would be the 6th week in the past 8 that we have seen Oil inventories declining.

Fundamentals

The Oil markets have been anything but exciting during the past several weeks, as prices remain within a relatively narrow $5 range. Crude fundamentals have been a mixed bag, with concerns about global demand remaining weak, especially in Europe, being offset by lower production out of the North Sea and the beginning of the main portion of the Atlantic hurricane season. With the lack of a definitive fundamental bias to prices, the direction of the Oil market has been seemingly influenced by any significant movement in the value of the U.S. Dollar, with Oil prices gaining when the Dollar has been weak and faltering when the Dollar has been strong. Stronger crude product prices, especially Gasoline, may be keeping a floor in Oil prices near the $87.50 area,as refinery issues in the Midwest are keeping refined product supplies relatively tight. The most recent Commitment of Traders report shows non-commercial traders lightening-up on their net-long positions, shedding 12,550 contracts for the week ending July 31st. Though last Friday's better than expected Non-farm Payrolls report sent prices soaring, we will need to see vastly improved economic data going forward to keep the upward momentum.

Technical Notes

Looking at the daily chart for September Crude Oil, we notice prices trading at the upper-end of the recent price consolidation that spans back to the start of July. Prices are now above the 20-day moving average (MA), but still need to rally over $5 to reach the widely watched 200-day MA. Momentum has turned positive, with a current reading of 58.83. The 200-day MA, currently near 97.32, is seen as the next resistance level for September Crude, with support found at the August 2nd low of 86.92.

Mike Zarembski, Senior Commodity Analyst


August 9, 2012

Chinese Stimulus Hopes Lift Crude

Thursday, August 9, 2012

Crude Oil futures hit fresh 3-month highs on speculation that China may try to kick-start growth with stimulus. The expectation of a new batch of stimulus spending and Iran's saber-rattling seems to have many traders' focus at the present time. However, this may be a bit misguided, especially if inventory levels see significant increases. Some traders may look to upcoming inventory data to bring the market back to earth if things quiet down on the Iranian front.

Fundamentals

Crude Oil futures reached 3-month highs after China reported tamer than expected inflation data. Additionally, China released weaker than expected manufacturing data. The results of both reports suggest that the People's Bank of China may be open to more stimuli. The weaker manufacturing data is especially worrisome, as it would indicate not only weak domestic demand, but also anemic demand from the US. The PBoC has primarily been focused on easing inflationary pressures in recent years, but economic data that has been trickling in since the beginning of the year suggests that inflation may be the least of the bank's concerns. Many traders appear to have been focused primarily on the Iranian embargo, which has created escalated hostilities between the nation and the West. What has seemingly slipped under the radar is the fact that OPEC out-produced projected demand by 2.1 million barrels a day in Q2.

Technical Notes

Turning to the chart, we see the September Crude Oil contract coming up to test the 95.00 resistance level. The chart confirmed a head and shoulders bottom, suggesting prices could reach the high 90's, or possibly even test the $100 a barrel mark, which is both technical and psychological support. The RSI has come off overbought levels and is showing strong bearish divergence from prices.

Rob Kurzatkowski, Senior Commodity Analyst


August 13, 2012

Bullish Breakout for Cotton Prices

Friday, August 10, 2012

The current strength in Cotton prices has been somewhat muted due to slack demand from China, the world's largest Cotton consumer. However, with prices still reasonable near 75 cents per pound and with some concerns about new crop supplies, we may see China re-enter the market in the next few months to help restock inventories while prices remain low. Current estimates for this morning's USDA crop production report are for 2012-13 U.S. Cotton production to total 16.8 million bales, down from 17.0 million bales in the July report.

Fundamentals

After prices have traded around 70 cents per pound for the last few months, Cotton bulls are starting to flex their muscles, as prices have broken out to the upside. The catalyst for the renewed bullish optimism can be found in India, where lower than expected monsoon rains are threatening the country's Cotton crop. Some areas are already expecting Cotton production to be down 10-15% for the new crop, with lower planted acreage and reduced yields forcing the world's second leading Cotton producer to potentially import Cotton in the coming months. Quite a change from earlier this year when India was exporting record totals following huge production totals last season! Here in the U.S., the weekly crop progress report showed 41% of the crop is rated good to excellent, which is down 3% from the previous week. The biggest drop was seen in Texas, where the good to excellent rating fell by 10% in 1 week to 24%. Record high Corn and Soybean prices may encourage less acreage being planted to Cotton by Southern Hemisphere producers, which has the potential to severely cut into the global Cotton supply into 2013.

Technical Notes

Looking at the daily chart for December Cotton, we notice prices breaking-out to the upside out of an upward sloping wedge formation. Thursday's move to 3-month highs was muted due to long liquidation selling by weak longs ahead of the USDA report. Prices are now trading above the 20-day moving average (MA), but remains well below the 200-day MA which currently resides about 10-cents higher. Momentum as measured by the 14-day RSI is positive, with a current reading of 62.82. 79.17 is seen as the next major resistance point for December Cotton, with support found at the 20-day moving average, currently near the 71.99 area.

Mike Zarembski, Senior Commodity Analyst



Grain Markets React to USDA Report

Monday, August 13, 2012

With Corn futures prices near record highs, further gains will be hard fought, as many traders fear further demand destruction due to high prices, as well as the potential for waiver being granted for the current ethanol mandate. The current net-net long position by large speculators totals almost 320,000 contracts, which would be quite a feat to liquidate easily should prices fail to make new highs in the coming days. Small speculators are holding a net short position currently in Corn, and we may need to see this position liquidated prior to calling a top in this historic bull market.

Fundamentals

Traders knew that this year's U.S. Corn and Soybean crops would fall way short of expectations due to the devastating drought that affected a large swath of the central portion of the U.S. Now we have the first government estimate based on actual field observations in the USDA August Crop report released this past Friday. The USDA lowered its Corn production estimate by 17% to 10.779 billion bushels, which is a far cry from the 14 plus billion bushel estimate predicted earlier this year. The USDA lowered its average yield estimate to 123.4 bushels per acre, which is the lowest average yield in 17 years. The Soybean production estimate was also lowered, with the USDA forecasting the 2012-13 crop at only 2.692 billion bushels, which is a drop of over 300 million bushels from the July estimate. The average Soybean yield was lowered by over 4 bushels per acre to 36.1 bushels per acre. Though the production estimates were deemed bullish by traders, the ending stocks estimates were deemed neutral, especially for Corn. Here the USDA estimated 2012-13 Corn carryout at 650 million bushels, which is in line with pre-report forecasts. Globally, grain supplies will remain tight, especially in the near-term. However, with Corn and Soybean prices at or near record highs, the USDA expects higher production from non-U.S. producers, raising its 2012-13 production estimates from Brazil, Argentina, and China, though it is still too early to tell what Mother Nature has in store for South American production. We must not forget that we were expecting a record harvest in the U.S. as far back as early June. So we can see how quickly the predicted outcome can change.

Technical Notes

Looking at the daily chart for December Corn, we notice that Corn prices raced to new all-time highs shortly after the USDA report was released. However, after falling just short of 850.00 in the Dec. futures, long liquidation selling occurred as weak longs booked profits and traders started to focus on potential demand destruction due to high prices and the potential for increased production outside the U.S. We are seeing a bearish divergence forming in the 14-day RSI, which may be signaling that a much needed price correction might be in the works. The 14-day RSI has fallen below overbought levels, with a current reading of 66.14. Support is seen at the 20-day moving average, currently near the 796.00 level. Resistance is found at 850.00.

Mike Zarembski, Senior Commodity Analyst


August 14, 2012

Stocks Ready for a Breather?

Tuesday, August 14, 2012

Stock prices have steadily been climbing higher, tallying 5 consecutive weekly gains. The gains in equities have been aided by stronger commodity prices, which have wetted some traders' appetites for risk. While the market has been in a "bad news in good news" phase and expecting poor economic conditions to lead to expansionary government policy, many traders are beginning to wonder how much bad news is too much. Furthermore, while it seems many investors have shrugged-off a weak Q2 earnings cycle, another quarter of lackluster gains could change investors' tunes.

Fundamentals

Stock prices have been climbing over the past several weeks on expectations that governments may continue easing. This has been a classic bad news is good news situation for traders, with disappointing US employment numbers and weak Chinese manufacturing data opening the door for more liquidity. Tamer Chinese inflationary figures also suggest that conservatism could take a back seat to more aggressive policies. The US slowdown has had a negative impact on corporate profits, as evidenced by a lackluster Q2 earnings season. Nevertheless, many investors remain convinced that governments will take steps to intervene and prevent a prolonged contraction. Ultra low treasury yields give US-based traders very little incentive to shift capital into the Bond market and suggest that traders and investors will continue to look for higher yielding assets.

Technical Notes

Turning to the chart, we see the E-mini S&P trading in an upward channel since forming a relative low in early June. Prices have closed above the May 1st relative high at 1400.50. The next upside target would be the March 26th relative high at 1415.00. Prices moving higher have resulted in the RSI indicator moving into overbought territory, which combined with fairly significant resistance, could result in prices pausing or pulling back. It is also interesting to note the negative divergence between the momentum indicator and RSI/prices, which is hinting that prices could pull back.

Rob Kurzatkowski, Senior Commodity Analyst


August 16, 2012

Cattle Prices Rise on Potential Labor Day Demand

Wednesday, August 15, 2012

The severe drought that has plagued a vast portion of the U.S. appears to have set-up a difficult period for livestock producers this year. The rapid decrease in herd sizes as lighter weight cattle and breeding inventories are brought to market may start to weigh on near-term futures, but likely sets the stage for potentially sharply higher prices in 2013.

Fundamentals

Cattle bulls are back in the saddle, as increased demand tied to the upcoming Labor Day holiday has supported beef prices. Wholesale beef prices rose sharply over the weekend, and meat processers were seen paying between $1.19 and $1.20 per pound in the cash cattle markets. Seasonally, we generally see a rise in beef demand in August, as retailers place their orders for the Labor Day holiday and the start of the autumn grilling season (think football tailgating). This year, the supply and demand dynamics in the Cattle market are being altered by the historic drought that struck the central U.S. The high cost of livestock feed and drought-riddled pastureland has forced producers to send their Cattle to market earlier than anticipated. This should keep near-term supplies of Cattle robust, but will portend to potentially tight supplies next year, which should lend support to 2013 futures. In the near-term, we may see front month October futures finding some resistance at current price levels, especially with futures trading at a $6-$7 premium to cash prices.

Technical Notes

Looking at the daily chart for October Live Cattle, we notice prices trading at highs not seen since May of this year, as increased seasonal demand has offset some of the increased supplies coming to market due to herd liquidations. Prices are above the 20-day moving average and are now approaching the 200-day MA, currently near the 126.800 price level. The 14-day RSI has turned positive, with a current reading of 62.14. The recent low made back on August 2nd of 123.550 looks to be support for October Live Cattle, with resistance found at the May 21st high of 127.050.

Mike Zarembski, Senior Commodity Analyst


Coffee Bears Continue to Have Upper Hand

Thursday, August 16, 2012

Coffee futures have continued to slump, losing half of their value since early May of 2011. Weather conditions in Brazil will, along with the physical market, continue to be a major influence on prices in the near-term. If current conditions persist, growers should be able to shrug-off the slow start to the harvest and come out unscathed. In that scenario, the overabundance of supplies will continue to be a major concern. Technically speaking, traders may want to pay attention to the 150.00 level to determine the intermediate direction of the market.

Fundamentals

Coffee futures have been unable to capture any bullish momentum, as drier weather in Brazil has aided the harvest. The harvest began with a slow start due to heavy rains, which caused some alarm among growers that both the quality and quantity of the crop would be affected. Since the slow start, weather conditions have improved and can be seen as ideal for harvesting Coffee beans. The Arabica harvest is seen as a month behind the previous two years, but the gap is shrinking quickly. The Robusta harvest is, by most accounts, almost finished. Supply has been a concern even before the improvement in harvest conditions. The ICE exchange inventory levels have been climbing, rising 0.01% on Tuesday, bringing the inventory increase to 4% for the month of August. That is the largest increase in ICE stocks since October of 2010. The cash market has seen plenty of sellers but very few bids. By many accounts, the lack of buyers has caused sellers to become increasingly desperate, which has put pressure on prices.

Technical Notes

Turning to the daily chart, we see December Coffee prices continuing on the downtrend that began in May of last year. In the near-term, prices were able to hold the 150.00 level, which can be viewed as a pivotal technical level for Coffee. Failure to hold 150.00 would signal a continuation of the downtrend and could bring fresh selling pressure with it. On the other hand, if Coffee manages to hold 150.00, prices could stabilize, or possibly could begin a reversal pattern. The most recent wave of selling has resulted in oversold conditions on the RSI indicator.

Rob Kurzatkowski, Senior Commodity Analyst



August 17, 2012

Wheat Futures Weaken as Corn Prices Consolidate

Friday, August 17, 2012

Wheat futures are beginning to look vulnerable for a price correction, as the market has failed to make new highs lately. A fall below 850.00 would give some credence to the bear camp, with a chart gap at 815.00 a potential downside target.

Fundamentals

With all the headlines being granted to both Corn and Soybeans as the U.S. drought has sent both markets to all-time highs, Wheat futures have been more of a follower to its more popular grain complex cousins, with prices rising mainly due to bullish fundamentals for Corn. Now that Corn futures prices are beginning to consolidate, we are starting to show some weakness in Wheat prices, with the December futures now trading at 1-month lows. High grain prices in the U.S. are starting to hurt U.S. Wheat exports. Most notably, Egypt was able to tender for Wheat from Russia at a much lower price than was offered by U.S. merchants. Though the drought has ravaged the U.S. Corn crop this year, Mother Nature was more benevolent to Spring Wheat growers in the northern plains, which have largely escaped the hot and dry conditions seen to the south and east. 61% of the Spring Wheat crop was rated good to excellent in Monday's Crop progress report. This compares favorably to the 10-year average of 62%. Now that most of the winter Wheat crop has been harvested, many traders will start to turn their attention to the 2012-13 new crop, where topsoil conditions will take center stage this fall once planting begins. In parts of Kansas and Oklahoma, we are seeing topsoil conditions being rated as short to very short for a vast portion of the Wheat growing regions. The amount of rainfall in the next 6 to 8 weeks will be a major determinant if the winter Wheat planted this fall will be able to get off to a good start or will be stressed from a lack of moisture, which can stunt growth and weaken the yield potential of next year's harvest.

Technical Notes

Looking at the daily chart for December Wheat futures, we notice prices falling below the 20-day moving average, triggering a sell-signal for short-term momentum traders. This sell-off in prices may have been triggered from an unsuccessful test of the contract highs last week, as prices failed to move above the 950.00 level on above average trading volume. Technicians may view this as a "double-top" formation, setting an area of stiff resistance for Wheat bulls. Looking at the 14-day RSI, momentum has fallen sharply, where readings have fallen from the upper 70s to below 50, before rebounding to the current reading of 51.65. A chart gap formed at 815.00 looks to be the next support point for December Wheat, with resistance seen at the August 10th high of 945.50.

Mike Zarembski, Senior Commodity Analyst


August 20, 2012

Oil Market Rally Being Tempered by Talk of SPR Release

Monday, August 20, 2012

Oil market fundamentals are favoring the bulls, though the ability to move prices above $100 per barrel may be a challenge -- especially given the large speculative long position and talk of a potential release of Oil stockpiles from the Strategic Petroleum Reserve.

Fundamentals

Oil futures have been in a bullish mode for the past 3 months, with prices up nearly $20 per barrel from the June lows. U.S. Oil inventories have been falling since early June (last week Oil inventories fell by 3.7 million barrels), and the Energy Information Administration (EIA) recently announced that U.S. Oil usage levels are up 3.2% from year ago levels. On the Brent side, maintenance on North Sea Oil fields have tightened supplies of this global benchmark grade, allowing the Brent/WTI spread to rise to a $20 plus premium during the past several sessions. In addition to tighter supplies and an apparent increase in U.S. demand, some traders are continuing to add some "risk premium" into the price of Crude, as the turmoil in Syria and continued stalemate curbing on Iran's nuclear ambitions has few willing to dismiss potential supply disruptions from the region. Though the fundamentals do seem to justify the bullish stance, many traders may become a bit more reluctant to continue to bid-up Oil prices, with talk beginning to circulate in the market of a potential release of Oil and Oil products from the Strategic Petroleum Reserve. Though the International Energy Agency (IEA) denies having been contacted by U.S. government officials regarding any release, traders should not dismiss the possibility of some action being taken to help control rising Gasoline and Oil prices, especially with the November U.S. elections approaching. Large speculators have been increasing their already ample net-long position in Crude, with the most recent Commitment of Traders report showing non-commercial traders adding over 28,000 net-long positions for the week ending August 7th. This hefty long position could act as an accelerant to a meaningful price correction should the SPR release become reality.

Technical Notes

Looking at the daily chart for October Crude Oil, we notice that despite prices trading at 3-month highs, the October contract still remains below the widely watched 200-day moving average, which is currently located over $1.00 per barrel higher. The 14-day RSI is strong as it approaches overbought levels, with a current reading of 67.13. Some technical traders believe that a large "V"-shaped bottom is forming on the daily chart, which would require the front month futures to close above $100 per barrel to confirm. The next significant resistance level is seen at the 200-day moving average, currently near the 97.50 area. Near-term support is found at the August 2nd los of 87.20.

Mike Zarembski, Senior Commodity Analyst



August 21, 2012

New Crop Beans Hit New Highs

Tuesday, August 21, 2012

Bean traders may wish to focus their attention on the rains this week. If a more significant portion of the Midwest sees rains, there could be modest improvement in crop conditions - perhaps even enough to cool some of the ration buying. Technically, it appears that prices are breaking out, which may be viewed as potentially having a positive impact on prices.

Fundamentals

Soybean futures have crossed through the $17 level for the first time, driven by strong demand for the oilseed. A portion of the growing region is expected to see some rainfall, around ΒΌ - 1 inch. The rain, however, is only expected in a fifth of the Midwest. The rain would be a huge boost for the Soybean crop. Currently, only 31% of the Bean crop is rated either good or excellent, which is only a modest increase over the 30% rating last week. The smaller new crop has users stockpiling to meet future demand, which is causing cash market demand for Beans to remain strong, even in the face of rising prices.

Technical Notes

Turning to the November Soybean chart, we see prices breaking out of a consolidation pattern. Given the preceding uptrend, the breakout can be seen as a continuation. The measure of the wedge consolidation suggests that prices could move above the $18 level. The RSI is still lagging behind prices, which could be an indication that prices could take a negative turn at some point.

Rob Kurzatkowski, Senior Commodity Analyst


August 22, 2012

Sugar Struggles as Prices Fall Below 20 Cents

Wednesday, August 22, 2012

Sugar prices appear oversold after falling over 4 cents per pound over the past 4 weeks. However, any bounce may be short-lived while the Brazilian harvest is under way and hedge selling is prevalent.

Fundamentals

Sugar futures have not been very sweet for commodity bulls lately, as prices continue to hold near 2-month lows. Prices have fallen just over 4 cents per pound over the past 4 weeks. Harvest conditions in Brazil, the world's largest Sugar producer, have improved the past few weeks, adding producer hedge pressure to a market that is already in a surplus. Some traders are awaiting the report due out on Thursday from Unica, Brazil's main sugar growers' association, which will report Sugar crush tonnage for the first half of August. Current estimates are for a bearish report, as producers are taking advantage of the good weather to increase Sugar cane crushing. Large speculators have been in a long liquidation mode, with the most recent Commitment of Traders report showing large non-commercial traders shedding nearly 34,000 contracts as of August 14th, which was before the lead month October futures fell below support at 20 cents. Though the current psychology of the market favors Sugar bears, there are some bullish rumblings, especially going into next year. First is the belief that India will not export as much Sugar as expected due to a weak monsoon season this year. In addition, weather forecasts calling for an El Nino event possibly starting later this year could affect the South American Sugar Cane crop going into 2013. This event may cause traders to add a "weather" premium to prices in the deferred month futures.

Technical Notes

Looking at the daily chart for October Sugar, we notice prices hovering near support at 20.00. Volume has started to pull back during the past several sessions, as it appears that much of the selling is tied to long liquidation and not new selling interest. The 14-day RSI is approaching oversold territory, with a current reading of 30.72. Should the 20-cent level fail to hold on a closing basis, we do not see any technical support until the June 4th low of 19.24. Resistance is found at the 20-day moving average, currently near the 21.42 level.

Mike Zarembski, Senior Commodity Analyst


August 23, 2012

Fed Gives Gold Bulls What They Want

Thursday, August 23, 2012

It looks as though the Fed is prepared to feed the market's addiction to cheap money, which can be seen as favorable for Gold futures. If the Fed is successful in stimulating the economy, food inflation could be joined by inflation from other raw goods. Technically, it looks as though traders finally received their wish, as the market has broken out of the wedge that has been forming over the past several months.

Fundamentals

Gold futures have rallied to their highest levels since early May after the FOMC Minutes left the door open for more stimulus from the Fed. The minutes indicate that "many members" of the committee believe that the Fed needs to be more accommodating unless the US recovery picks up again. More liquidity from the Fed can be construed as negative for the US Dollar and, as a result, likely bullish for Gold. Also, stimulating growth could spark inflation, which outside of food prices, has been relatively tame. According to Bloomberg, total Gold assets in ETFs/ETNs are up to 2,442.26 metric tons.

Technical Notes

Turning to the chart, we see the October Gold contract breaking out of the 3-4 month wedge formation to the upside. The measure of the move suggests that the Gold contract could attack the 1750 level. The next significant upside test comes in at the 1700 level. Currently, the RSI is overbought, which may cool buying pressure in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst


August 24, 2012

Tropical Storm Isaac Keeps Natural Gas Traders on Alert

Friday, August 24, 2012

Natural Gas prices may become more volatile in the coming weeks, as we move closer to the heart of the Atlantic hurricane season in September. A "weather" premium may be imbedded in prices, as many bearish traders are having a difficult time moving the October futures below 2.720, though a move above major resistance at 3.000 may be difficult unless we see a long-term shutdown of Gas production in the Gulf of Mexico due to storm damage.

Fundamentals

Natural Gas futures prices are attempting a rebound from 2-month lows, as some traders cover short positions ahead of the arrival of Tropical Storm Isaac. August is considered by many traders as the "real" start of the Atlantic hurricane season, which usually reaches its peak in September. The National Hurricane Center (NHC) expects Isaac to be upgraded to a hurricane today, with the current track of the storm expected to reach the tip of Florida by Monday. However, there are some private forecasts having Isaac track further west and potentially reaching the Oil and Gas producing regions of the Gulf of Mexico. Though Gas production in the Gulf has diminished in its importance due to the huge boom in production from shale formations, it still accounts for about 6.5% of U.S. Natural Gas production and any major shutdown of production in the Gulf could be viewed as bullish for near-term futures. In addition, the mid-term weather forecasts are calling for above normal temperatures in the central portion of the U.S. into the beginning of September. This could cause Natural Gas consumption to increase as Gas fired power generation increases to meet potentially increased cooling demand. The weekly EIA Gas storage report shows U.S. Gas inventories rose by 47 billion cubic feet (bcf) last week to stand at 3.308 trillion cubic feet (tcf). Though the amount of Gas placed in storage last week was below the 5-year average of 53 bcf, the total Gas in storage is at record levels for this time of year. Though many traders may be reluctant to push futures prices lower in the coming weeks as we move to into the peak of the hurricane season in the month of September, any major rally attempts may be capped unless overall demand improves significantly.

Technical Notes

Looking at the daily chart for October Natural Gas, we notice prices briefing moving to 2-month lows on Thursday, as the weekly EIA Gas storage report was viewed as bearish by some traders. However, buying interest was found once again as prices neared the 2.720 level, a support point that Gas bears have failed to take-out after several attempts the past 2 weeks. Prices are holding just below both the 20 and 200-day moving averages, and momentum as measured by the 14-day RSI has turned lower, with a current reading of 44.46. Thursday's low of 2.720 looks to be support for the October futures, with resistance found at the 20-day moving average, currently near the 2.917 area.

Mike Zarembski, Senior Commodity Analyst


August 27, 2012

Bears Feast as Pork Prices Tumble

Monday, August 27, 2012

Hog herd liquidation due to high feed costs combined with above average hog weights is weighing heavily on from month futures prices while seasonality factors also favor weak pork prices as we move into fall. Longer term traders may wish to focus on 2013 contracts where the potential for tighter supplies due to smaller breeding stock could make for an interesting trading environment next year.

Fundamentals

Hog producers are having a rough go of it lately, as record high feed costs and plunging pork prices have made Hog production an unprofitable proposition. The outcome of poor profit margins is a huge number of Hogs being sent to market as producers are reducing herd sizes or leaving the business entirely. Lean Hog futures prices have plunged, with the October futures trading at or near contract lows which are nearly $18 per hundredweight lower than the highs seen early in 2012. Pork cut-out values are down over $5 per pound in a week's time as current demand is not keeping up with supplies. To make matter worse, Hog weights are above the average for this time of year adding to the supply surplus in the market. Bargain hunting bulls will note the large discount of the October futures to the CME Lean Hog index, with the October futures currently trading at a $16 discount to the index. Any bounce in cash prices could spark a short covering rally in the futures although seasonal tendencies are for lower cash prices going into the fall. Large speculators are still holding a net-long position in Lean Hog futures, with the most recent Commitment of Traders report showing large non-commercial traders net-long 29,550 contracts as of 8/21. Unless we start to see cash market prices begin to stabilize, large specs may begin to liquidate their long positions which would exert even more pressure on already depressed futures prices.

Technical Notes

Looking at the daily chart for October Lean Hogs, we notice prices trying to find some support near 72.000. The 14-day RSI is holding just above oversold levels with a current reading of 31.11. Though the market looks to be oversold and a rally back towards resistance at the 20-day moving average (currently near 76.250) would not be a out of the question, it would take a rally back above the 200-day moving average (currently near 83.300) to turn around the bearish sentiment.

Mike Zarembski, Senior Commodity Analyst

August 28, 2012

Ivory Coast Turmoil, Dry Weather Spark Cocoa

Tuesday, August 28, 2012

Cocoa futures have benefited from a combination of cheap money, poor growing conditions, and political turmoil in the Ivory Coast. The situation in the Ivory Coast is definitely one that many traders will wish to monitor. The concern over the poor midcrop may be a bit overblown, especially in light of the fact that demand has been soft. The large net long also may make existing longs a bit jittery and may trigger some profit-taking.

Fundamentals

Dry weather conditions have helped push Cocoa futures back up to the 2500 level. The poor growing conditions have taken their toll on the midcrop, reducing the near-term supply of Cocoa beans. The Cocoa market has also gotten a boost from reports of civil unrest in the Ivory Coast. The fresh violence in the Ivory Coast has the potential to lead to another situation where exports are reduced or blocked by either rebel groups or the government. There is a sizable net long position by funds at the present moment, which could be seen as fundamentally overbought.

Technical Notes

Turning to the chart, we see the December Cocoa contract trading below resistance at the 2500 level. Prices have failed to get through the 2500 level, despite testing resistance several times in recent sessions. If prices are unable to hold recent lows at 2380, the December Cocoa contract could test the 2250. The RSI indicator has diverged from prices, hinting at possible weakness.

Rob Kurzatkowski, Senior Commodity Analyst



August 29, 2012

Cotton Traders on Alert for Isaac

Wednesday, August 29, 2012

Cotton's recent price rally on low volume leaves the market vulnerable to long liquidation selling, especially if Hurricane Isaac fails to cause any significant damage to the Cotton crop in the Mississippi Delta region.

Fundamentals

Cotton traders are keeping an eye on Tropical Storm Isaac, as it is expected to become a category 2 Hurricane as it enters the Gulf of Mexico. The current anticipated path is expected to generate heavy rains in the Mississippi Delta region that could damage the maturing Cotton in the region. This fear is supporting December Cotton futures despite "bearish' news out of China, where the country is expected to release nearly 1 million tons of Cotton from state-owned reserves. The release of reserves into the market has many traders speculating that Chinese imports will be lower than expected this year, as weak demand due to a slowing of the country's economy should allow for a global surplus of Cotton going into 2013. Both large and small speculators are holding a net-long position in Cotton, with the most recent Commitment of Traders report showing non-commercial traders adding over 6,000 new net-long positions for the week ending August 21st. This was at the height of the recent rally in December Cotton, and prices have since slipped from 4-month highs. Should the storm damage to the Southeastern U.S. Cotton crop be minimal, we may see Cotton prices decline as weak longs begin to exit the market.

Technical Notes

Looking at the daily chart for December Cotton, we notice prices moving slowly higher since contract lows were made back in June. Though we are currently trading above the 20-day moving average, we will still need to see prices rally another 8 cents per pound to test the widely watched 200-day moving average. Trading volume has been relatively lackluster the past several weeks, and momentum as measured by the 14-day RSI is neutral, with a current reading of 57.10. The recent high of 77.49 made on August 21st looks to be the next resistance area for December Cotton, with near-term support seen at the August 13th low of 71.59

Mike Zarembski, Senior Commodity Analyst


August 30, 2012

Great Plains Farmers Hoping for Rain Ahead of Wheat Sowing

Thursday, August 30, 2012

Sowing season for Winter Wheat is almost upon us, and much of the growing region is still reeling from drought conditions. When conditions in Kansas are being referred to as "Dust Bowl like", it is not meant as hyperbole. A very moist winter is a must for many farmers, suggesting some traders may want to keep an eye on precipitation levels in the coming weeks. Also, the National Oceanic and Atmospheric Administration (NOAA) typically releases its winter forecast in mid-October, which will give us a better idea of what potential weather patterns the Great Plains may see.

Fundamentals

Farmers in Kansas are going to be planting Winter Wheat into the driest ground in over 20 years. Like much of the Midwest, Kansas has been ravaged by droughts. The situation has gotten to the point that every single county in the state was declared a disaster area. The situation is a very difficult one for farmers and users alike. Consumers could see further increases in prices given the fact that global supplies are tight going into the planting season. Over 70 % of the US Wheat crop is Winter Wheat. For large portions of the Midwest and Great Plains, a wet winter is going to be a must in order to have acceptable yields, as there is virtually no sub-moisture.

Technical Notes

Turning to the chart, we see the December KC Wheat contract consolidating near the 900 level. Given the preceding uptrend, the bias can be interpreted as being to the upside. Prices have been centering around the 20-day moving average in recent trading sessions. The recent consolidation has brought the RSI indicator back into neutral territory.

Rob Kurzatkowski, Senior Commodity Analyst


August 31, 2012

Volatile Trade Seen for OJ Futures as Hurricane Season Peaks

Friday, August 31, 2012

Orange Juice futures have been range bound since the end of May, though we are starting to see more volatile trade as we enter the peak Hurricane months of September and October. Issues with disease affecting the citrus groves of Florida may be lending a longer-term bullish bias for the market.

Fundamentals

Orange Juice futures traders are in "weather market" mode, as the Atlantic hurricane season is reaching its most active month of September. The citrus groves in Florida, which is the top citrus producing state in the U.S., missed a direct hit by Isaac, as the storm moved to the south and west of the citrus growing regions of the state. Though prices fell after Isaac passed the region, the possibility of additional storms reaching the area are keeping traders from becoming aggressively short the market. Longer-term, the Florida citrus industry is facing an upward battle with disease, as an outbreak of citrus-greening disease threatens the state's citrus groves. This disease can shorten the lives of trees, potentially curtailing production sharply as the disease spreads. In addition, the high retail price of orange juice has many consumers looking to juice alternatives, and as a result, we have seen Orange Juice consumption fall by 1/3 in the last 10 years. Even after the hurricane season subsides in late fall, the OJ futures market may keep some of its "weather premium" as we move into winter and the potential for a damaging freeze enters many traders' thoughts.

Technical Notes

Looking at the daily chart for November Orange Juice, we notice prices rallying over 10 cents per pound, as Hurricane Isaac was thought to pose a threat to the citrus groves of Florida. After Isaac moved further west, prices gave back their gains, as the storm was no longer a threat. This is not unusual market behavior, as traders bid-up prices in anticipation of a direct hit and quickly remove the "weather premium" after the fact, unless severe damage occurs. Chartwise, we see prices holding above the 20-day moving average but still trading 30 cents below the widely watched 200-day moving average. The 14-day RSI has moved to neutral to positive territory, with a current reading of 57.67. The August 22nd high of 122.75 looks to be near-term resistance for the November futures, with support seen at the 20-day moving average, currently near the 112.00 level.

Mike Zarembski, Senior Commodity Analyst