« August 2012 | Main | October 2012 »

September 2012 Archives

September 4, 2012

Big Ben Statement Boosts Gold

Tuesday, September 4, 2012

Big Ben essentially issued a blank check from the Fed, indicating the bank will take steps to inject liquidity into a slowing US economy. After very weak manufacturing numbers from Europe and China, many traders likely will shift their focus toward US manufacturing data when the ISM number is released later this morning. If the ISM number disappoints and is followed by equally disappointing job numbers, the Fed could take swift action. An injection of liquidity could be seen as extremely positive for Gold, as it could breed inflation. If, on the other hand, we see stronger numbers this week, the Dollar could strengthen, causing Gold to lose some of its appeal.

Fundamentals

Speaking at Jackson Hole, Fed Chairman Ben Bernanke did not disappoint liquidity addicts by indicating the US central bank will supply stimulus as needed. The statement can be seen as positive for Gold futures, as more easing could stimulate growth and create conditions ripe for inflation. Eurozone manufacturing data, released yesterday, showed manufacturing contracting more than previously expected during the month of August. This comes on the heels of Chinese factory data showing a contraction for the first time in 10 months. These disappointing reports certainly indicate a high likelihood of additional central bank stimulus. In the US, the ISM is releasing its report of manufacturing activity for August. The consensus estimate is exactly 50.0, indicating analysts are not expecting growth or contraction. Overall, this is a report-heavy week in terms of job data. Thursday is a particularly report-heavy day, with Challenger Job Cuts, ADP Employment Growth, Initial and Continuing Claims, and also ISM Services data all slated to be released. Friday, on the other hand, only has Non-Farm Payroll data, possibly the most vital economic report at the present time, for traders to digest.

Technical Notes

Turning to the October Gold chart, we see prices remaining above the wedge formation that the market broke out of last month. Thus far, there has not been an explosive move after the confirmation of the breakout. Gold may gain further technical momentum if prices are able to close above the 1700 level. The real upside test for the Gold market would be the 1800 level if the market can muster enough momentum to test it. Breaking through 1800 would put Gold into uncharted territory. Currently, the RSI indicator is at overbought levels.

Rob Kurzatkowski, Senior Commodity Analyst


September 5, 2012

Are Record Prices Enough to Ration Soybean Meal Demand?

Wednesday, September 5, 2012

Strong crush margins and steady export demand are supporting the bullish argument for Soybean Meal futures. Though prices are at all-time highs, there is little evidence that demand is being curtailed, and we may need to see prices rise even higher to help ration supplies.

Fundamentals

New Crop Soybean futures continue to climb, with the November futures nearing the $18 leve, as poor U.S. yields and continued strong demand support prices. This year's devastating drought has lowered many traders' expectations for average Soybean yields, with reports from crop tours in the western Corn Belt lowering already pessimistic yield expectations. Though Soybean prices are now at record highs, Soybean demand has not fallen as much as expected. The USDA is expecting the Soybean stocks/usage ratio to fall to 40-year lows, and they have lowered U.S. exports to 1.110 billion bushels for the 2013-13 season. However, new crop export totals are already running ahead of the USDA forecast at more than double the average export pace for this time of year. In addition, U.S. Soybean crush demand is running ahead of expectations, as U.S. exports of Soybean Meal continue to impress, as lower crush totals from South America have led buyers to the U.S. to meet their protein needs. The Soybean Meal futures term structure is in a huge backwardation, with new-crop December 2012 futures trading at a nearly $160.00 premium to next year's December 2013 contract, reflecting the current tight supplies and strong demand for Soybean Meal. Many traders will be eagerly awaiting the USDA September Crop report due out on September 12th to get a better outlook on the size of the U.S. Soybean crop, as well as any demand and export adjustments the USDA may be forced to make given recent export totals.

Technical Notes

Looking at the daily chart for December Soybean Meal, we notice that the chart action is the most bullish of the grain complex, with prices currently trading at all-time highs. Trading volume has remained relatively consistent, with only a few minor "correction days" the past few weeks. Prices remain well above the 20-day moving average (MA), and the 14-day RSI is strong, with a current reading of 69.00. There is a bearish divergence forming in the 140-day RSI, which may be signaling that a downward price correction may be near. The next resistance point for December Meal is seen at 550.00, with support found at the 20-day MA, currently near the 507.70 price level.

Mike Zarembski, Senior Commodity Analyst



September 6, 2012

ECB, Inventories in Focus

Thursday, September 6, 2012

The Crude Oil market has been one of the main beneficiaries of the liquidity Kool-Aid party, as many traders expect both inflation and demand to increase as a result of the Central Bank policy. The view may be a bit short-sighted in light of the fact that global demand has not been robust. Both fundamentally and technically, Crude Oil may run into a barrier near the $100 level. Some traders may perhaps wish to consider taking profits near $100 due to demand simply not being able to justify the levels. There is also plenty of chart congestion near the price.


Fundamentals

Crude Oil futures are stronger this morning, after the API report yesterday indicated that US supplies have fallen to five-month lows. Today's EIA report is expected to show that inventory levels have fallen for the fifth time in the past six weeks. The drop in Crude Oil and product levels is not exactly a surprise, as refiners cut their raw Crude inventories and output in the wake of Hurricane Isaac. There is also optimism among many Oil traders that the ECB rescue plan will be a success, because it has to succeed, otherwise the worries over Europe could flare-up again. Fed Chairman Bernanke's carte blanche for more liquidity also has excited many Oil bulls. The question that many have been asking themselves is to what extent this fresh liquidity has been priced into the petroleum market already. While Oil has gotten a nice boost from the Central Bank printing Monopoly money and tighter inventory levels, demand/consumption must rise or the rally has the potential to fall flat on its face.

Technical Notes

Turning to the chart, we see October Crude Oil futures failing to maintain enough momentum to test the $100 level. In recent sessions, prices have been able to hold the 20-day moving average. For bulls, it is important that prices hold the 20-day, as a solid close below the moving average could indicate that a near-term high is in place. Prices could simply be taking a pause to test the $100 level. Crossing this resistance level will be no easy task, as the resistance is stout. The RSI indicator has come back down into neutral territory after being overbought, which may explain the market's hesitation to initially test $100.

Rob Kurzatkowski, Senior Commodity Analyst



September 10, 2012

Bond Traders Cautious Ahead of Non-Farm Payrolls Report

Friday, September 7, 2012

Better than expected data on U.S. Jobless claims and a strong ADP private jobs report for August has stalled the recent rally in U.S. Treasury Bonds futures ahead of today's U.S. employment report for August. Though Bond prices look toppy on the daily charts, market participant's poor reception to the European Central Bank ("ECB") announcement of a Bond buying program may see some traders return to "risk adverse" assets like Treasuries should the Eurocurrency continue to struggle.

Fundamentals

U.S. Treasury Bond futures prices remain relatively resilient, fighting back any major sell-off attempts, as slowing growth concerns have some traders looking for Bond yields to remain low. Federal Reserve Chairman Ben Bernanke, speaking in Jackson Hole, Wyoming, voiced his concerns about the state of the U.S. economy, particularly in regards to the stubbornly high unemployment rate. His statements give Bond bulls fresh fuel to bid Treasury prices higher in anticipation of additional easing measures from the Fed, including the possibility of another round of quantitative easing ("QE") -- especially should future economic data remain bleak. On Thursday, the ECB lowered its economic growth forecast for Europe to -0.4% for this year, but kept its benchmark interest rate unchanged at 0.75%. Though ECB President Mario Draghi announced a plan for an unlimited Bond purchase program to help control rising Eurozone interest rates, it remains to be seen how effective this plan will be. Many traders' initial reaction was to sell the Euro, as the lowered Eurozone growth prediction trumped an already anticipated Bond purchase program. This morning we will see the report from the Labor Department on U.S. Non-Farm Payrolls ("NFP") for August, with the current consensus calling for about 130,000 net new jobs being created last month, with all of the jobs coming from the private sector. The private sector jobs estimate from Automatic Data Processing & Macroeconomic Advisors came out above expectations, with 201,000 private sector jobs created in August. This may raise some traders' estimates for this morning's report. However, should the NFP numbers disappoint (i.e. less than 100,000 jobs being created), it may be the final catalyst towards the Fed taking additional action including QE in the near future.

Technical Notes

Bond futures prices have rebounded the past few weeks, after a successful test of the 200-day moving average gave technical traders a bullish signal. Prices are now above the 20-day moving average, although momentum has turned neutral, with a current reading of 51.18. There is some discussion among market technicians that a potential head and shoulders top may be forming. This chart pattern would be validated should the recent rally fail to send prices above the June 4th high of 152-19. A move above the contract high of 153-11 would set-up the possibility of prices moving above the 160-00 level.

Mike Zarembski, Senior Commodity Analyst



Quiet Coffee Market Needs a Caffeine Jolt

Monday, September 10, 2012

Arabica Coffee futures cannot shake the perception that slower economic growth prospects in Europe could greatly affect the demand for Coffee going into the end of 2012. A record Brazilian 2013 crop is helping the bearish argument, although high-quality Coffee beans may be scarce.

Fundamentals

The summer doldrums continue for the Coffee futures market, as prices remain range bound. Since the middle of August, December Coffee has traded within a relatively narrow 12-cent price range, quite quiet for a market known for its volatile trading activity. Some traders fear a slowing global economy, especially in Europe, will reduce demand for Coffee. However, there are concerns that next year's Arabica Coffee production totals could be lower, as leading Central American producers Honduras and Guatemala have seen an outbreak of Coffee rust. Many traders expect a large Brazilian harvest this season, with Brazilian crop forecaster Conab, estimating the 2013 Coffee crop at 50.48 million 60kg bags, though quality concerns are prevalent given the wet weather that has delayed the harvest. Large speculators are holding a large short position in Coffee, with the most recent Commitment of Traders report showing non-commercial traders net short 16,377 combined futures and futures options positions as of August 28th. This position may be a catalyst for higher prices in the near future, especially should bullish news reach the market and force short-covering buying by overextended Coffee bears.

Technical Notes

Looking at the daily chart for December Coffee, we notice prices trading at the lower end of the recent trading range between 157.00 and 170.00. Prices are now below the 20-day moving average, and momentum is weak, with the 14-day RSI currently at 33.47. Thursday's Conab's crop size announcement sent prices below support at 160.00 and set-up a potential test of the June lows near 154.00. Resistance for December Coffee is seen at the August 29th high of 169.10.

Mike Zarembski, Senior Commodity Analyst


September 11, 2012

Bean Demand in Focus

Tuesday, September 11, 2012

Some traders have been debating how large (or small) the Soybean crop will actually be this year. Regardless of where the Soybean crop falls in the spectrum of projections, it is unlikely to meet demand. As a result, some observers may give more weight to export sales numbers than usual. Technically, the failure of prices to break through $18 could be viewed as negative.

Fundamentals

Soybean futures continue to trade near contract highs, as demand for the oilseed remains robust. Although Chinese imports for the month of August were weaker than in July, that was not unexpected given the breakneck speed at which they were previously moving. Export demand is expected to remain strong, as South American growers are expected to stay on the sidelines until next year. This year, farmers are expected to reap 12-14% less Soybeans than last year, which may put tremendous stress on supplies. Some wonder if US export supplies will make it to the South American harvest. As a result, South American growers are expected to ramp-up their production by over a third from last year. That may put downward pressure on crops over the long haul. In the near-term, the debate will rage over the potential size of this year's crop size. The strong export demand could make the argument a moot point and tip the scales in favor of the bulls.

Technical Notes

Turning to the chart, we see the November Soybean contract making new highs at 1789 before backing off. Per the continuation chart, this is the second time prices flirted with the $18 mark before backing off. Prices are near the 20-day moving average, which can be seen as a pivotal level in the near-near-term. If prices fall to hold the average, it suggests that a near-term high may be in place. On the downside, the 1575 level can be seen as a significant support mark. The RSI has not been sitting below the 50 level after being overbought. Momentum is beginning to show some positive divergence from RSI, which can be seen as a positive.

Rob Kurzatkowski, Senior Commodity Analyst



September 20, 2012

Are Bean Oil Bulls Running for the Exits?

Wednesday, September 12, 2012

Soybean Oil futures look to be a follower, with price movements depending mostly on the direction of Soybeans and Soybean Meal. However, any weakness in price activity from the leaders in the Bean complex may be accelerated in Bean Oil prices given the generally mixed fundamentals for the vegetable oil market.

Fundamentals

Soybean Oil futures have been the laggard of the Soybean complex bull market, as global supplies of vegetable oil are not nearly as tight as those of Soybean Meal. In the U.S., Bean Oil inventories are tight, with the stocks/usage ratio at 9-year lows of 6.8%. However, Palm Oil supplies are ample, with the Malaysian Palm Oil Board reporting that Palm Oil stocks rose by 5.8% from July's totals to 2.12 million tons. This is the highest level of stocks since October 2011. Many traders are beginning to fear that U.S. Bean Oil exports will be hampered, as buyers turn to cheaper alternatives such as Palm, Rapeseed, and Sunflower Oils for their vegetable oil needs. Some speculative traders have been adding to their net-long positions in Soybean Oil, with the most recent Commitment of Traders report showing large non-commercial traders increasing their net-long positions by 14,289 contracts as of September 4th. This was prior to the recent price correction and could be the catalyst for a significant sell-off in prices should long liquidation selling begin to accelerate.

Technical Notes

Looking at the daily chart for December Soybean Oil, we notice what appears to be a double-top formation, with the September 4th highs taking out the previous highs made back in April, but the market failed to hold at these lofty price levels. Prices are attempting to hold above the 20-day moving average, and this indicator looks to be acting as a support point for the December futures. The 14-day RSI has bumped-up against the 70 level, but has now turned lower and is currently reading a more neutral 52.68. Support is seen at the August 29th low of 55.67, with resistance found at the recent high of 58.60.

Mike Zarembski, Senior Commodity Analyst


USDA Report Bullish, but Cotton Sags

Thursday, September 13, 2012

The market's reaction to yesterday's USDA data showed how focused the market was on Chinese inventory numbers. Like grains, China has been a major importer of Cotton and is in the midst of restocking. However, the bulk of the USDA data was bullish, as many had expected. The market was also weighed down by the negative impact of the USDA report on the grains. This suggests that Cotton activity may turn bullish, assuming outside markets cooperate.

Fundamentals

Cotton futures moved sharply lower yesterday after the USDA estimated China is holding onto larger inventories than was previously expected. The USDA estimated that Chinese inventories are 35.51 million bales, versus the prior forecast of 34.18 million bales. Some traders have been paying particular attention to Chinese demand, as the government there has been focused on restocking. The USDA estimated that world production will be 114.03 million bales, versus the prior figure of 124.16 million bales. The Department predicts consumption will be 107.55 million bales, which would be 104.28 million more bales than last year. The US harvest is only forecasted to yield 17.11 million bales, versus the August projection of 17.65 million bales. It is apparent that with the exception of the Chinese inventory numbers, the USDA data is heavily tilted toward the bull camp.

Technical Notes

Turning to the chart, we see the December Cotton contract breaking through the lower end of the consolidation channel it has been trading in for several months. The contract also closed below the 50-day moving average yesterday, although not in convincing fashion. On the downside, support may be found at 70.00, 67.50 and 65.00. The 65.00 level can be viewed as critical support, or the point of no return, if you will. The RSI is at oversold levels, which could be seen as supportive in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst



Higher Sugar Prices May Be Seen but Not Until 2013?

Friday, September 14, 2012

Sugar's price rebound from oversold levels, especially with a production surplus seen this year, is giving confidence to bulls who believe that a near-term low may be in place. However, a likely scenario is for price action to turn more range bound, as mixed fundamentals don't seem to be significantly favoring bulls or bears at the present time.

Fundamentals

Sugar futures are trying to find a bottom, as some bargain hunters are establishing long positions after the lead month October futures briefly fell below 19 cents per pound last week. Some bullish traders point to the potential for lower production out of India this coming season, as the monsoon season has been a disappointment. We are already seeing estimates of lower cane production, with the Indian Sugar Mills Association lowering their forecast for the 2012-13 season by 1 million metric tons to 24 million metric tons. This is 2 million tons below last season's production totals and may curtail Sugar exports from the world's second largest Sugar producer behind Brazil next year. However, any major rally in prices may not be seen until 2013, as we are still in the midst of a global Sugar surplus. Russian Sugar Beet production has increased sharply this year and is expected to reduce the country's Sugar import needs. Brazil is currently holding significant supplies of Sugar, and any significant rally attempts may be met with hedge selling form Brazilian Sugar producers. Drier weather in the world's largest Sugar producing nation is seen as beneficial for cane production, which may also weigh on prices in the near-term. Many bullish traders may need to wait until 2013 before we see any meaningful rally in Sugar prices, or until the current global surplus starts to recede.

Technical Notes

Looking at the daily chart for March Sugar, we notice prices attempting to rebound from lows not seen since January 2011. The 140-day RSI has rebounded from oversold levels, with a current reading of 39.32. Recent rally attempts have been stymied by the 20-day moving average, and some traders may wish to keep an eye on how prices react as we move closer to this widely watched technical indicator. Support for March Sugar is seen at the recent low of 19.48, with resistance seen at the 20-day moving average currently near the 20.42 price level.

Mike Zarembski, Senior Commodity Analyst

Banks Continue Pumping Liquidity, Silver Shines

Monday, September 17, 2012

The Fed and other banks have been feeding investors' insatiable appetites for liquidity, causing metal prices to skyrocket over the past month. The EU's sovereign debt problem creates a bullish situation for metal traders. The risk associated with the toxic debt makes precious metals attractive as a safe haven. Also, the European Central Bank ("ECB") will likely continue throwing money at the problem, which could create inflationary conditions. Technically, the December Silver chart is beginning to look a bit parabolic, which could be a sign that prices are set to correct or consolidate.

Fundamentals

Silver futures have been riding high on the expectations that central banks will remain fast and loose with their monetary policy. China, in particular, has been a focus of metal traders, as there is hope that some of the recent People's Bank of China activity may have stimulated manufacturing activity. Manufacturing data from China will be released this Thursday. The brisk pace at which Silver and Copper have moved higher indicates that some traders are not expecting a contraction in manufacturing activity. The blank check that the Fed has written has led to a freefall in the exchange rate of the US Dollar versus the major currencies, which has added fuel to the fire. There have been no major developments in the EU sovereign debt crisis, but the situation remains positive for holders of precious metals.

Technical Notes

Turning to the chart, we see the December Silver contract rising well over $6 in the span of a month. Prices have moved through resistance at 32.50 and 34.15 without as much as a hiccup. The next upside target may be the spike high near 37.50. The sharp rise in prices has resulted in the RSI becoming overbought. The RSI has been moving sideways with prices rising. This divergence between prices and the RSI indicator suggests prices could weaken.

Rob Kurzatkowski, Senior Commodity Analyst



Rejected at $100

Tuesday, September 18, 2012

It looks as though the Crude Oil market was not yet ready to tackle the $100 level. Fundamentally and technically, Crude Oil looked a bit overbought. Like many commodity markets, Crude Oil has been riding the coattails of the explosion in grain prices and cheap money. There has been no significant uptick in economic activity or demand increase. The wildcard is the situation in the Middle East. If the fallout from the "documentary" depicting the Prophet Mohammed in an unflattering light drags on, it can be seen as bullish for Crude Oil.

Fundamentals

Crude Oil dropped sharply yesterday, as there was simply not enough momentum to carry prices beyond the $100 level. Failure to break through this pivotal level created a profit-taking opportunity for longs. The Oil market has been steadily rising since late June without so much as a hiccup. The US Dollar falling due to the Fed firing-up the printing presses created ripe conditions for Oil bulls. There is some hope that all of the pumping from various Central Banks could aid the economy, but this was much more of a currency play. The energy markets have also benefited from the constant turmoil in the Middle East. With some of the heavy-handed leaders removed during the Arab Spring, extended protests may be the rule rather than the exception.

Technical Notes

Turning to the chart, we see the October Crude Oil contract briefly trading above the $100 mark on Friday, before falling back to close below the resistance level. This can at least be partially attributed to overbought technical conditions. The inability of the October contract to break through resistance also may have triggered profit-taking. The question now becomes whether prices are simply correcting in order to mount a new charge at $100, or if this is the beginning of a more substantial pullback.

Rob Kurzatkowski, Senior Commodity Analyst


Miners Back to Work, Platinum Tanks

Wednesday, September 19, 2012

Platinum futures rise sharply due to the 6-week work stoppage at Lonmin's mine and Helicopter Ben's printing of Dollars. The market sold off violently after the miners' strike ended. Now many investors are left wondering if QE3 will be enough to support Platinum prices or if a price collapse to the low 1400's is imminent. Technically, the chart reversal is a potentially ominous sign, but the scope of reversals can be difficult to gauge.

Fundamentals

Platinum futures tumbled for the second consecutive session, after workers at Lonmin's South African mine reached an agreement. The mine accounts for 10% of global Platinum production. QE3 and worker turmoil have been major reasons for the sharp rise in Platinum prices. South Africa, in particular, has been plagued with labor issues akin to South American Copper mines. Platinum holdings by investors have risen to record levels, suggesting the market may be a bit overbought, fundamentally speaking. Given its industrial nature, Platinum could be seen as more sensitive to economic data than other precious nature.

Technical Notes

Turning to the chart, we see the October Platinum contract appearing to form a key reversal between Friday's and Monday's candles. Yesterday could be seen as a follow-through day. This suggests that prices may correct further in the near -term. On the downside, support could be seen at 1550 and 1500. The sharp sell-off over the past two sessions has brought the SRI back to neutral territory from extremely overbought levels.

Rob Kurzatkowski, Senior Commodity Analyst


Crude Decline Weighs on the Loonie

Thursday, September 20, 2012

The Canadian Dollar has been on a roll, rallying for the past three and a half months. Rising Oil prices and QE3 were the main contributors to the rally. The decline in Oil prices could trigger additional profit-taking, but the downside of the Loonie could be limited by QE3. While Canada has taken steps to loosen policies, those policies remain much more conservative than those in the US.

Fundamentals

Canadian Dollar futures have pulled back over the past few sessions, following Crude Oil's lead. The US is the largest importer of Canadian Petroleum and the 8.53-million barrel build in Crude Oil inventories suggests that the US Oil market is very well supplied. There are also rumblings that Saudi Arabia is attempting to decrease the price of Oil, fearing that the current price levels could quash demand. The Middle East nation is pumping about 10 million barrels a day of Crude Oil, and is willing to pump more if prices keep rising. The turnaround in the Loonie could be attributed to the unwinding of long positions established in recent weeks versus the US Dollar.

Technical Notes

Turning to the chart, we see the December Canadian Dollar moving steadily higher from the beginning of June on. Friday's spinning top candlestick indicates that the market may be poised for a pullback. The RSI indicator has been drifting sideways to lower, even as prices were rising, also hinting that a reversal may be on the horizon.

Rob Kurzatkowski, Senior Commodity Analyst


September 21, 2012

Cocoa Traders Await the Return of El Nino

Friday, September 21, 2012

The recent sell-off in Cocoa may be attributed to weather forecasts calling for a weakening of the potential "El Nino" weather event. However, current inventories in the Ivory Coast are relatively tight, and any signs of a sustained drought could set the trend for prices moving over $3,000 per ton.

Fundamentals

Many cocoa futures traders are watching the weather forecasts, as the potential El Nino weather event may increase the chances for drought conditions in West Africa. Earlier forecasts were calling for a "moderate" El Nino event, where the waters in the Pacific Ocean begin to warm, especially near the equator, which has in the past brought drought conditions to Africa and Southeast Asia. Some traders have been pricing a "weather premium" into Cocoa futures, as the potential for a sharply reduced 2013 crop cannot be ruled out. However, there is some talk that the potential El Nino event may be much weaker than anticipated, which has helped to pressure prices lately. Current analysts' estimates for the size of the 2012-13 Ivory Coast Cocoa crop are running just over 1.3 million tons, but this figure can turn sharply higher or lower depending on the level of moisture received. In addition to potential weather issues, some Cocoa traders are also keeping a close eye on events out of Europe, as any major economic changes can affect demand. The Euro Zone accounted for about 1/3 of world Cocoa grindings this past year and is the leading consuming region for Cocoa. Some speculators have been adding to their net-long positions in Cocoa recently, with the most recent Commitment of Traders reports showing just over 4,000 contracts being added for the week ending September 11th, although some long liquidation selling appears to have taken place during last week's price correction.

Technical Notes

Looking at the daily chart for December Cocoa, we notice the recent rally that started at the June lows has been a series of fits and starts, with short-term $200 price corrections not uncommon. We are currently in the midst of a price correction, and some traders may wish to watch how the market reacts as prices near support at 2500. A price bounce at this level may signal that another run for the highs at 2700 is in the works, where as a collapse in prices below 2500 could see prices correct to the 2360 area. The 14-day RSI has turned neutral, with a current reading of 47.40. Near-term resistance is found at 2650.

Mike Zarembski, Senior Commodity Analyst


September 24, 2012

Choppy Trade Ahead for Wheat

Monday, September 24, 2012

Old-crop/new-crop Wheat spreads have narrowed by over $1 per bushel since late July, as high domestic prices are making U.S. exports currently uncompetitive. However, these spreads may begin to widen, as $8-plus new crop prices may trigger hedge selling by producers hoping to lock in attractive prices for next year's crop.

Fundamentals

Many bullish and bearish Wheat traders seem to have reached a stalemate, with price activity turning choppy and range bound. Since the middle of July, lead-month December Wheat has traded in a narrow $1.00 price band, as Wheat price movement mostly followed that of Corn as some traders looked for increased demand for wheat, as animal feed due to high Corn prices. However, now that Wheat prices are over $1 per bushel higher than Corn, some analysts are looking for less Wheat to be used as feed. U.S. Wheat exports have been disappointing as U.S. prices are currently uncompetitive, especially versus Russian Wheat, which has gained most of the recent export business. Many traders still believe that Russia will soon have to curb grain exports, as drought conditions have impacted this season's crop production, but so far there are no signs of this occurring. Going into the planting phase for the 2012-13 season, conditions are still too dry in the central and southern Plains for an ideal start to the new-crop. However, with new-crop, July 2013 futures currently trading well north of $8, some producers will most likely increase their Wheat planting acreage to take advantage of attractive new-crop prices.

Technical Notes

Looking at the daily chart for new-crop July Wheat, we notice prices trading between 850.00 and 950.00 for most of the past 2 months. Prices are at the lower-end of the recent price range and we may see some early hedge selling emerge should producers fear prices will fall below 800.00 in the coming weeks. The 14-day RSI is neutral with a current reading of 54.50. Support for July Wheat is seen at the August 14th lows of 838.25, with resistance found at the contract highs of 944.75

Mike Zarembski, Senior Commodity Analyst



September 25, 2012

Economic Woes Weigh on Gold

Tuesday, September 25, 2012

Gold has been losing some of its luster with some metal traders in recent sessions, as the reality of poor economic conditions has caused the rally to sputter. The Fed and other Central Banks still have the printing presses rolling at full capacity, which may act as a buffer for the Gold market if prices begin to slide. If the recent bounce in the USD versus the Euro continues, it could trigger profit-taking. The fact that recent trading sessions have had much smaller ranges indicates that there is plenty of indecision amongst traders.

Fundamentals

Gold futures have stabilized above the 1750 level, unable to garner enough momentum to attack the 1800 mark. While Gold has found strength in fears over the EU debt situation, the same crisis figures to slash demand for commodities. The slower growth projections could act as a barrier to higher Gold prices. The US Dollar has also firmed against the Euro in recent sessions. If the Dollar firms against the Euro, this could have a negative impact on the Gold market. The Commitment of Traders report shows net speculative long positions of over 280k contracts, which makes Gold vulnerable to long liquidation.

Technical Notes

Turning to the chart, we see the December Gold contract consolidating just above the 1750 level. The preceding move higher suggests that prices may have a slight upward bias. The next upside barrier may be found at the 1800 level. The RSI remains overbought, suggesting the market may continue to consolidate or, possibly, pull back.

Rob Kurzatkowski, Senior Commodity Analyst


September 27, 2012

Bulls in Hog Heaven!

Wednesday, September 26, 2012

The current downsizing of the U.S. hog herd due to huge losses by producers is keeping market-ready hog supplies ample for now. However, expectations of a smaller herd size in 2013 is setting the stage for a potentially sizable recovery in pork prices, as supplies are estimated to be the lowest per-capita since the mid 1970's.

Fundamentals

Lean Hog futures have started to recover from the steep sell-off during the past 3 months, as it appears that herd liquidation has run its course and cash market pork values have bottomed. Many hog producers had a rough summer due to the severe drought in the central portions of the U.S. which drove-up feed costs and made raising Hogs an unprofitable endeavor for most producers. Herd liquidation flooded the market with Hogs, forcing futures prices down by nearly 30% at its worst levels since mid-July. Recently, we have seen wholesale pork prices rebound, as the flow of Hogs to slaughter has stabilized and supplies of market ready Hogs have now begun to tighten. Front-month October futures have now rallied over $5 per hundredweight from recent lows and have moved solidly above the 20-day moving average triggering "bullish" signals for short-term momentum traders. However, we must remember that lead month futures are trading at a $6-plus premium to the CME 2-day Lean Hog index, and unless we see a continued increase in cash market prices, October futures may struggle to move higher, as futures prices will converge with the cash index at expiration of the October futures less than 3 weeks away.

Technical Notes

Looking at the daily chart for October Lean Hogs, we notice how swiftly prices have recovered from the low of 70.375 recorded on September 7th. Since that time, prices have closed higher 9 out of 11 days, as short-covering buying by many small speculators took control of the market. We have started to see some long liquidation selling by large speculators occurring, as the most recent Commitment of Traders report shows large non-commercial traders shedding just over 5,000 contracts for the week ending September 18th. Trading volume has started to wane recently, which may be a sign that the rally is not drawing in many new longs to the market. The 14-day RSI is strong, with a current reading of 59.13. The August 14th high of 77.775 looks to be the next major resistance level for October Lean Hogs, with support found at the 20-day moving average, currently near the 73.735 level.

Mike Zarembski, Senior Commodity Analyst


PBoC Obliges Traders with Massive Stimulus Injection

Thursday, September 27, 2012

Copper futures have felt a bit of selling pressure recently, brought on by outside market weakness and technically overbought conditions. Fundamentally, the market remains relatively tight. The LME saw a reduction in Copper inventories of 425 tons this morning, as well as a 1.1% increase in bookings to remove metals from warehouses. The People's Bank of China obliged traders and offered another massive wave of stimulus, which can be seen as having a positive impact on commodity prices.

Fundamentals

Copper futures have followed precious metals and energies lower in recent sessions, driven by economic fears. Some Copper traders are hoping that the decline in Chinese corporate earnings will prompt the government to take more aggressive action. In addition to further stimulus, the Copper market may find support from Chinese infrastructure spending. The economic chaos in Europe, which has led to violence over austerity measures, may limit the upside of the Copper market.

Technical Notes

Turning to the chart, we see the December Copper contract failing to break through the 3.85 level, and prices have subsequently pulled back. Yesterday's low is near the 20-day moving average. It is important that prices remain above the average or they risk losing momentum. Prior to pulling back, the RSI had reached the high 80's, which can be seen as overbought and likely contributed to the pullback. The RSI is now back in neutral territory, suggesting some buyers may once again step in. In addition to 3.85, the 3.925 area can be seen as resistance. On the downside, support may be found at 3.60.

Rob Kurzatkowski, Senior Commodity Analyst