« September 2012 | Main | November 2012 »

October 2012 Archives

October 1, 2012

Corn Prices Continue to Fall Ahead of USDA Report

Friday, September 28, 2012

Hedge selling pressure and weak U.S. exports have taken the steam out of the major bull market in Corn futures. However, with the market starting to look a bit oversold, a short-covering bounce would not be out of the question after the USDA report is released.

Fundamentals

Many traders' holding long positions in Corn futures continue to head to the exits, as this historic bull market is starting to show signs of stress. Since contract highs were made back in mid-August, lead month December Corn futures have tumbled over $1 per bushel, as U.S. export business has dried up due to high prices. On Thursday, the USDA announced that Weekly Corn exports for the week ending September 20th totaled only 400 metric tons. This was well below the forecast for around 200,000 metric tons and appears to be a sign that foreign buyers are finding other sources for their Corn purchases, such as Brazil, or that they have enough supplies on hand to wait for Corn prices to come down. Domestically, reduced herd sizes for Cattle and Hogs are expected to reduce U.S. feed demand, which is also a factor weighing on Corn prices. Some traders noted long liquidation selling by commodity funds the past few sessions, as traders begin to lighten-up on their positions ahead of the USDA quarterly grain stocks report scheduled to be released this morning. Many analysts are expecting the USDA to report U.S. Corn inventories as of September 1st total around 1.10 billion bushels, though the range of estimates has varied. The wild card is how much new-crop Corn will be included in old crop supply estimates, as an early start to the harvest has seen over 1 billion bushels of recently harvested corn already in the bins. The early start to the harvest has also caused increased hedge selling to occur, especially with some producers looking to lock-in still attractive prices. Going into 2013, we still see U.S. Corn supplies becoming tight, and many producers with on-farm storage are deciding to store newly harvested Corn in anticipation of higher cash prices in the first quarter of 2013 prior to the new-crop South American Corn harvest.

Technical Notes

Looking at the daily chart for December Corn, we notice prices closing just below the 38.2% Fibonacci retracement level drawn from the June 15th lows to the August 10 contract highs. This sets the stage for a test of the 50% retracement near the 678.00 price level. Chart technicians will note what appears to be a rounded-top formation that could signal a major high in the Corn market has been made. However, before calling a major top in the market, we would need to see prices close below the 200-day moving average, currently about 80 cents away. The 14-day RSI is approaching oversold levels, with a current reading of 30.80. With support seen at 678.00, we find chart resistance at the 20-day moving average, currently near the 768.00 price area.

Mike Zarembski, Senior Commodity Analyst


Many Surprises in USDA Quarterly Grain Stocks Report

Monday, October 1, 2012

Soybean prices recovered from early losses on what some traders described as a "bearish" USDA quarterly stocks report. However, prices ended up sharply higher on the session as a limit-up move in Corn and short-covering after a $2 plus down move the past two weeks may have set the stage for a near-tem bottom to be in place.

Fundamentals

There was something for both Bulls and Bears in this past Friday's USDA quarterly grain stocks report. For the Bulls, the USDA lowered its estimate of old-crop Corn in storage to 988 million bushels as of September 1st. This was a 12% decline from last year's levels and about 125 million bushels lower than the average pre-report estimate. Wheat futures also received some bullish news as the USDA estimated Wheat inventories at 2.104 billion bushels or nearly 175 million bushels below analysts' estimates. Some traders believe that more Wheat was used for animal feed than previously anticipated, which would account for the lower than expected inventory levels, especially with U.S. Wheat exports facing stiff competition from the Black Sea region. The report was not all bullish, as the USDA surprised many traders by estimating old-crop Soybean inventories at 169 million bushels, which was 37 million bushels above average analyst's estimates and above even the highest pre-report estimates by some traders. The increase in inventories was attributed to a revised upwards estimate to the size of the 2011 Soybean crop by 30 million bushels. Though the Soybean estimate was viewed as bearish by some traders, the fast pace of U.S. Soybean exports so far and the belief that Brazil will not have any Soybeans available for export until the new-crop harvest begins in late February, will keep demand for U.S. Soybeans high even at current price levels.

Technical Notes

Looking at the daily chart for March Soybeans, we notice prices attempting to put in a near-term bottom after prices fell over $2 per bushel in only 2-weeks time. There appears to be significant support between the 38.2% and 50% Fibonacci retracement levels which translates into a price range between 1480.00 and 1530.00 on the daily chart. The 14-day RSI has plunged from overbought readings over 70 to as low as 35.50 in the past 4 weeks, but never went to an oversold reading despite the $2 plus decline in prices. The lows made on Friday at 1508.50 look to be near-tem support for March Beans, with resistance found at the 20-day moving average, currently near the 1631.50 price level.

Mike Zarembski, Senior Commodity Analyst


October 2, 2012

Mixed Start to the Week for Crude

Tuesday, October 2, 2012

Crude Oil futures have halted their recent slide over the past several trading sessions. The pause has given some traders a bit of time to digest recent geopolitical news and economic data. Economic data has been mixed, with the US and Europe looking a bit more upbeat than last week, but China continuing to disappoint. The soft Chinese manufacturing data is likely a cause for concern for Oil bulls, as it could be a sign that the stimulus from the PBoC simply is not working. The tension between Iran and Israel is already heightened, suggesting any hard-line rhetoric could ignite panic buying of Crude.

Fundamentals

Crude Oil opened the week with a bit of mixed news. The Chinese Purchasing Managers' Index was 49.8 in the month of September, below the consensus estimate of 50.1. A figure below 50 could be seen as a sign of contraction. On the other hand, the results of the Spanish bank stress tests were seen as positive, as it showed the stress to the Spanish banking system was less than previously thought. Some have concluded that the EU debt crisis is nearing an end. That may be a very rosy outlook, but the stress tests do show banks being in better shape than previously expected. ISM manufacturing data was also stronger than forecast, signaling stronger than expected US manufacturing activity. The Oil market is well supplied, and there are rumblings that both Iran and Saudi Arabia have begun pumping more Oil.

Technical Notes

Turning to the chart, we see the November Crude Oil contract bouncing after trading down to the $90 level. The $90 mark also coincides with the 100-day moving average, which provided additional support. The past two trading sessions were very choppy, with plenty of intraday activity, but little change at the end of the day. If the market is ultimately unable to hold the 90.00 level, Crude could see additional selling pressure. Currently, the RSI is oversold, suggesting prices could continue to consolidate or, possibly, move higher.

Rob Kurzatkowski, Senior Commodity Analyst


October 3, 2012

Natural Gas Prices Breaking Out of a 4-Year Slump

Wednesday, October 3, 2012

Fundamentals are beginning to turn positive for Natural Gas prices, as a lower Gas rig count and signs of increased demand going into fall might be signaling the end to the 4-year old bear market. Some traders will now turn their focus towards Natural Gas demand, especially from power producers, as the rally in cash market prices may force utilities back to using cheaper coal to fuel their electrical generators.

Fundamentals

Natural Gas bulls appear to be in the driver's seat, as prices have rallied to highs not seen since January. Well below normal temperatures are anticipated in the 6 to 10-day forecast for the central portions of the U.S., which has many traders anticipating increased usage of Natural Gas for heating purposes. This expected cold spell has altered the usual seasonal tendencies for Natural Gas prices, which usually decline in the so-called "shoulder season" just prior to the start of the winter draw from storage around November 1st. Anticipation of a massive storage build this summer did not materialize, as larger than expected demand by electricity producers this summer due to high cooling demand offset increased Gas production from shale formations. Low cash market prices for Natural Gas have finally started to curtail production, with the Baker Hughes rig count falling to its lowest levels since 1999. Large speculators continue to hold a net-long position in Natural Gas, and the liquidation of this short position has been a major catalyst in the recent rally. Now that prices have broken out from the 10-month long consolidation phase, we may start to see fresh buying emerge from some trend-following traders, as it appears that the 4-year bear market may finally be at an end.

Technical Notes

Looking at the daily chart for November Natural Gas, we see that the 20-day moving average ("MA") has crossed above the 200-day MA, which is viewed as a bullish signal. However, after the November futures traded above 3.500 for the first time since January 10th, we saw selling pressure emerge, which was most likely hedge selling after prices made 10-month highs. The 14-day RSI is barely crossing above the 70 level, which many technicians consider to be a signal that a market is becoming overbought. Volume has been very heavy during the past few sessions, which may be a combination of short-covering buying and new speculative longs entering the market -- especially smaller speculators who are already net-long the market. The 2012 high of 3.583 looks to be the next resistance level for the November contract, with support found near the 3.200 price level.

Mike Zarembski, Senior Commodity Analyst


October 4, 2012

Bean Demand in Question

Thursday, October 4, 2012

Soybean futures have seen heavy selling pressure in recent sessions, largely due to demand concerns. Some funds and large individual traders are also lightening-up their positions ahead of next week's USDA report, fearing the possibility of a surprise jump in yield estimates. The week-long holiday in China means that demand should be light and that it could take a few days for purchases to return to normal. Technically, the November Bean contract appears to have found some support above the 1500 level, which coincides with the 100-day Simple Moving Average. The heavy selling has resulted in the RSI giving oversold readings, suggesting prices could find some support in the near-term.

Fundamentals

Soybeans have become a victim of their own success, dropping sharply after making highs in the upper $17 range. Prices have fallen back by over two and a half dollars since making those highs over concerns that elevated prices could hurt export demand. The anemic economic data from China, a major importer of US grain, coupled with some firmness in the US Dollar could negatively impact export demand. The holiday this week in China makes gauging demand difficult, as many businesses remain closed. The dry growing areas in parts of Brazil and Argentina have seen moisture, easing early concerns of possible drought conditions. Many bulls are hoping the sharp drop in prices might stimulate demand. The 14% decline in prices could be seen as excessive by a good contingent of traders who noted overbought market conditions and funds lightening-up positions ahead of next week's USDA report drove much of the recent selling pressure, not fundamentals.

Technical Notes

Turning to the chart, we see the November Soybean contract breaking through several support levels after pulling back sharply. The most notable of these support levels can be seen at 1600 and 1570. There is additional support at 1500, but the next significant support level can be found at 1400. Yesterday's price action formed a long legged doji, which hints that the market could reverse in the near-term. Prices closed on the 100-day moving average yesterday. This could be seen as significant, as failure to hold the moving average might suggest that prices could pull back even further. On the flipside, the 100-day moving average could provide support for Beans and slow the recent selling pressure.

Rob Kurzatkowski, Senior Commodity Analyst


October 5, 2012

Equity Indices Near Yearly Highs Ahead of Unemployment Report

Friday, October 5, 2012

The Non-Farm Payrolls ("NFP") report for September may be the next catalyst that determines whether equities will continue their move to yearly highs or if we will start to see cracks occur in this current bull market. Weekly jobless claims rose by 4,000 last week, which is slightly below some analysts' estimates and should not alter pre-report estimates for this morning's employment data.

Fundamentals

Though the front month E-mini S&P 500 futures are up nearly 200-points since the start of 2012, it might be difficult to find much bullish enthusiasm among traders, as the market seems to be climbing a so-called "wall of worry". Talk about the looming "fiscal cliff" in which the "Bush Era" tax cuts will expire and mandated government spending cuts would be implemented have sparked fears of the U.S. economy falling back into a recession. In addition, growth out of China and continued uncertainty over a solution to the European debt crisis linger in invertors' minds. Disappointing jobs data the past few months is also a concern, and traders will get a fresh assessment of both the private and public jobs sector this morning when the Labor Department releases its monthly NFP report for September. There is some optimism that the labor market improved last month, as the monthly private sector jobs report from ADP/Macroeconomic Advisers showed that 162,000 private sector jobs were created last month, which is, higher than economists' estimates. However, we must remember that the ADP figures have been running much higher than the Labor Department's data, with last month's nearly 100,000 jobs "miss" still fresh in some traders' minds. Current average estimates for NFP in September are for a gain of about 120,000 jobs. The private sector is expected to have created 130,000 jobs last month, while public sector employment continues to decline. The unemployment rate is expected to remain steady at 8.1%, though workers leaving the job market have accounted for much of the decline in the employment rate the past several months. Slow growth in the employment sector has been the catalyst for continued accommodative monetary policies out of the Federal Reserve, with expectations that interest rates will remain at historically low levels through 2014. This accommodative stance including monetizing U.S. government debt may be the real reason U.S. equity prices have rallied this year, as all this liquidity is looking for a return. With interest rates at low levels, funds are flowing into more "risky" assets, such as equities, and not yet into expanding businesses.

Technical Notes

Looking at the daily continuation chart for the E-mini S&P500 futures, we notice prices continuing to hover on both sides of the 20-day moving average the past several sessions, after a previous upside breakout met stiff resistance around the 1475.00 price level. Volume has been rather lackluster since August, as very few trading days saw volume over 2 million contracts. The 14-day RSI is turning positive, with a current reading of 60.43. The September 26th low of 1424.00 looks to be the next support point for the E-mini S&P 500, with resistance found at the September 14th high of 1474.75.

Mike Zarembski, Senior Commodity Analyst


October 8, 2012

Near-term Supply Tightness Supports RBOB Gasoline Prices

Monday, October 8, 2012

Front month RBOB Gasoline futures look poised to test the $3 per gallon level, as refinery issues and below average supplies are affecting the East and West Coast markets. Longer-term, the outlook is less bullish, as the switch to cheaper-to-produce winter blends of gasoline and continued lower consumer demand have the potential to cap further price rallies later this year.

Fundamentals

The RBOB futures are the strongest sector in the energy complex, as lower inventories and refining issues seem to be trumping lower demand. Futures prices are in a backwardation market going out to the February 2013 contract, as storage levels are running nearly 18 million barrels below last year's levels for this time of year. Refining output remains constrained, as closures of refineries on the East Coast and in St. Croix have sharply lowered supplies to the East Coast. Refinery maintenance in Europe and Canada has also curtailed supplies, though traders will likely see Gasoline imports rising in the coming weeks as the maintenance period ends. On the West Coast, refinery issues have sent spot gasoline prices to record levels. The West Coast gasoline market is virtually isolated from the rest of the country, as special fuel blends and a lack of pipeline infrastructure has the region nearly wholly dependent on local refineries for its fuel needs, so disruptions can produce volatile supply issues and wide price swings. Though current supplies remain tight, there is hope that prices will begin to decline going into winter. First, the large premium that Gasoline is trading over the price of West Texas Intermediate (WTI) Crude should encourage refineries to ramp-up production given the attractive profit margins currently available. In addition, the switch to cheaper to produce "winter blends" of Gasoline should add additional supplies to both East and West Coast areas, where special formulations are mandated during the summer months. Some traders may want to keep an eye on the term structure for RBOB Gasoline futures, as a widening or narrowing of the spread could be a signal for expectations for supplies in the coming months.

Technical Notes

Looking a the daily chart for November RBOB Gasoline, we notice increased volatility during the past 4 weeks, with prices swinging over 25 cents in only a few sessions. Refinery outages, events in the Middle East, and tight inventories have been behind the price swings. Currently, the market is holding just above the 20-day moving average (MA) and at the upper end of the recent price range. The 14-day RSI has also moved widely since June, with readings ranging from 14 to 78 in only a few week's time. Currently, the RSI is relatively neutral, with a current reading of 60.70. Support is found at the September 19th low of 2.7029, with resistance found at the contract high made on March 14th of 2.9884.

Mike Zarembski, Senior Commodity Analyst


October 9, 2012

Quiet Gold Market

Tuesday, October 9, 2012

Gold futures remain within earshot of the key psychological and technical level of 1800, but have failed to break through. Fundamentally, a stronger US Dollar and economic concerns have prevented prices from garnering enough momentum to finally break through the key level. Equity prices also have hit a brick wall, offering no outside market support. This is earnings season, which suggests that stock prices could be volatile in the weeks ahead. Technically, the 1800 mark is a barrier the market must pass through in order to keep upward momentum going. Otherwise, prices could fall back sharply.

Fundamentals

Gold futures have failed to make new contract highs, largely due to economic uncertainty and a firmer US Dollar. The rally in gasoline prices, while inflationary in the near-term, could be seen as a growth-killer for the state of California, the largest US state. The state has suffered the brunt of the collapse in home prices, and the state government is not exactly the model of solvency. This has left the economy there in an extremely fragile state, making the spike in prices at the pump all the more painful for consumers. In Europe, Spain has avoided having to be bailed out, somewhat lessening the appeal for Gold as a defensive play. While Spain has avoided the worst-case situation, some nervous bond traders have quietly been accumulating US Treasuries and lessening European debt exposure. This has stabilized the greenback.

Technical Notes

Turning to the chart, we see the December Gold contract trading near the 1800 level for the third time this year. Prices, however, have failed to break through the level each time. Failure to do so this time around could have a substantial negative impact on traders' psyche. In addition to trading up to 1800 and failing to break through, the negative divergence between prices and the RSI indicator can be seen as bearish. The indicator has drifted lower since mid-September.

Rob Kurzatkowski, Senior Commodity Analyst


October 10, 2012

Live Cattle Prices Recover after Long Liquidation Rout

Wednesday, October 10, 2012

Live Cattle futures prices are finding some support from the outlook that supplies might begin to tighten later this year and demand should pick-up going into the holidays. Some traders may want to watch slaughter totals to see if packer demand is increasing now that profit margins are beginning to improve.

Fundamentals

Live Cattle futures prices are continuing to rebound, after a steep sell-off at the end of September upended the recent bull trend. Optimism returned to the Cattle market on Friday, when the monthly employment report for September showed the US jobless rate fell below 8%. Any signs of an improving economic outlook are typically viewed as supportive to the beef market. Longer-term Cattle bulls will note that the most recent Cattle On Feed Report showed Cattle placed on feedlots totaled only 89.1% of last year's totals, which could lead to much tighter supplies of market-ready Cattle in the 1st quarter of 2013. For shorter-term traders, the price outlook is mixed, as lower slaughter numbers are being offset by much higher weights of market-ready Cattle, which should help to keep current supplies more than ample to meet current demand. Feeder Cattle prices have begun to stabilize as the price of Corn has fallen off records highs. Many large speculators have been liquidating their net-long positions in Live Cattle futures, with the most recent Commitment of Traders report showing a decline of 16,416 net-long potions for the week ending October 2nd. Should the recent price trend continue to be positive, we may see these liquidated positions being bought back, especially if prices trade above resistance at the 20-day moving average in the front-month December futures.

Technical Notes

Looking at the daily chart for December Live Cattle, we notice what may be a "bear flag" chart formation. This chart pattern is normally formed by a sharp decline in prices on heavy volume which is followed by several sessions of sideways-to-higher prices, but on weaker trading volume. This bearish pattern will be confirmed should prices make new lows for the move on higher than average volume. The recent price correction has taken the 14-day RSI from near oversold levels to a more neutral stance, with a current reading of 49.12. The 20-day moving average, currently near the 127.300 level, looks to be the next resistance level for December Cattle, with support found at the September 27th low of 123.950

Mike Zarembski, Senior Commodity Analyst


October 11, 2012

Lack of Brazilian Exports Bogs Down Coffee

Thursday, October 11, 2012

The Coffee market has suffered from weak demand and oversupplies, thanks to a record Brazilian harvest. The recent strength of the US Dollar squashed a potential rally. Also, many producers used the bump in prices to sell the market. Exports from Brazil are expected to pick-up steam in the coming weeks, which could alleviate some of the bearish pressure on the market. Technically, it looks as though Coffee prices could continue to trade sideways, with a slight near-term bullish bias coming from technically oversold conditions.

Fundamentals

Soft demand has plagued the Coffee market, resulting in prices trading at their lowest level in over a month. Export demand from Brazil has been very lackluster, despite the record harvest there. Storms in Brazil were expected to damage crops, however, the actual damage was far less than forecast. Vietnam is facing dryer, warmer weather than previously expected, which has bolstered cash market prices in the country. On a global scale, the worsening Vietnamese weather has taken a back seat to ideal growing conditions in Brazil. Brazilian flowering has been very good so far, which should be aided by moderate temperatures and moisture.

Technical Notes

Turning to the chart, we see the December Coffee contract approaching support at the 160.00 level. If Coffee is unable to hold 160.00, the next area of support can be found near 154.00, which can be seen as critical. The price action over the past several months has seen prices tightening, forming a wedge formation. The range is still relatively wide, suggesting prices could continue to trade sideways and tighten further before breaking out. The recent 20-cent drop has resulted in the RSI approaching oversold territory, which may be supportive of prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst



October 12, 2012

Euro Recovery May Be in Jeopardy

Friday, October 12, 2012

The Euro's rally in spite of a downgrade of Spain's debt rating was impressive, though many analysts were expecting such an action. Much better than anticipated, the U.S. weekly jobless claims figures supported the Euro vs. the U.S. Dollar even though the Labor Department reported some "technicalities" with this week's figure that make the data "suspect".

Fundamentals

The over 1,000-pip recovery in the value of the Euro vs. the U.S. Dollar since late July caught many traders off guard, as there has been little in the way of realistic measures being implemented to stave-off the continued deterioration of the Euro zone economy. The International Monetary Fund ("IMF") released some somber research regarding the global economic outlook, with the current Euro crisis front and center of global economic concerns. Little progress has been made in dealing with the debt situation in both Spain and Greece. With Spain reluctant to ask for aid from the European Stability Mechanism ("ESM"), at least until after regional elections in Spain on October 21st and Greece continually short of funds, there is little to reassure investors that the crisis will be abated soon. A record short position in Euro currency futures may have been a major catalyst in the recent recovery of the Euro, as short-covering buying has taken on a life of its own vs. overall negative Euro zone fundamentals. The past 4 weeks have seen some price consolidation as market sentiment moved from being overly bearish to overly bullish, and now some traders are beginning to reassess their positions as the December Euro futures hover near the 1.3000 area. Though the European Central Bank's program to buy unlimited amounts of government debt may have sparked the rally in the Euro, the terms that a struggling country would have to agree to in order to provoke the purchases of its debt may end up being too unpalatable to actually be implemented.

Technical Notes

Looking at the daily continuation chart for the Euro futures, we notice what appears to be a descending triangle pattern forming. This chart pattern is usually viewed as a bearish indicator, possibly signaling that long-holders are starting to exit their positions. Prices are trading above the 200-day moving average ("MA"), but are currently below the 20-day MA, giving a conflicting signal to both long and short-term traders. The 14-day RSI is neutral, with a current reading of 55.47. 1.2813 is seen as support for the December Euro, with resistance found at 1.3080.

Mike Zarembski, Senior Commodity Analyst



October 16, 2012

Too Much Coffee Causing Jitters for Bulls

Monday, October 15, 2012

Coffee prices are still trying to find a near-term bottom but the start of aggressive speculative and producer selling of late is keeping the market firmly in the bear camp. Many traders should watch for signs of commercial buying should prices move below 160.00 as an indication that the recent price sell-off has become overdone. Absence of buying below 160.00 sets up a potential test of the 2012 lows of 153.70.

Fundamentals

Arabica Coffee futures have turned cold lately, with prices falling nearly 20-cents per pound in just 3-trading sessions last week. Increased supplies from Columbia, high and rising exchange inventories, and a good start to next year's crop, were cited as some of the key factors behind the recent price slide. Production out of Columbia, the second largest Coffee producer in South America totaled 519,000 bags in September, is up 13% from last year's totals. ICE Exchange warehouse Coffee stocks continue to grow; now totaling just over 2.2-million 60-kg bags. A change to weather forecasts, which are now calling for rainfall in the Coffee producing regions of Brazil, could provide a good start to next-season crop ahead of the important flowering period for the Coffee trees. Some producer selling was evident last week and may have been the catalyst for the steep sell-off, as sell-stops were triggered as technical support points gave way. Large speculators are holding a small net-short position, according to the most recent Commitment of Traders report, and we may see fresh selling emerge if recent lows near 156.50 do not hold.

Technical Notes

Looking at the daily chart for December Coffee, we notice renewed selling occurring earlier this week after a feeble attempt to rally-off recent lows failed on Monday. Prices are now well below both the 20 and 200-day moving averages and momentum, as measured by the 14-day RSI, has turned weak with a current reading of 39.19. There appears to be some support seen around the 160.00 area but stronger support does not appear until the September 6th lows of 156.55. Resistance comes in at the 20-day moving average, currently near the 172.00 price level.

Mike Zarembski, Senior Commodity Analyst


Swimming in Sugar

Tuesday, October 16, 2012

The world is figuratively drowning in Sugar, as global supplies are set to outpace demand to the tune of 5.9 million metric tons. Plantings of both cane and beet Sugar are significantly higher than previously expected, potentially flooding the market with cheap supplies. Technically, Sugar has held 20.00 to this point, but failure to hold the level could spark selling pressure.

Fundamentals

The Sugar supply glut enters its third year, as world demand drops to 4-year lows. Brazil and Australia are also expected to have banner crop years, adding to already overwhelming supplies. Sugar has been unable to benefit from the high price of Corn due to anemic demand for the sweetener. Mexico indicated that it will not need to import Sugar, with the government stating that domestic supplies should be able to satisfy demand. India's food minister had indicated that the country will allow exports of Sugar due to a domestic excess. China, the second largest user of the sweetener behind India, is expected to allow no more than 1 million tons of Sugar to enter the country annually until 2015. Brazilian producers could shift gears and switch to ethanol production due to the low price of Sugar.

Technical Notes

Turning to the chart, we see that March Sugar prices pulled back sharply after late September/early October. The RSI is close to oversold levels due to the recent selling pressure, which may support prices in the near-term. Recent lows have hung around the 20.00 level, which is both technical and psychological support. Failure to hold 20.00 suggests that prices could come down to test the 17.00-18.00 area. On the upside, prices would need to cross above 25.00 to recapture upward momentum, which would be a monumental task at this point.

Rob Kurzatkowski, Senior Commodity Analyst


October 17, 2012

Corn Prices Slip Though Supplies Tighten

Wednesday, October 17, 2012

Corn futures trade may be entering a quiet period, as weak exports but tight domestic supplies have kept prices within a relatively narrow price range compared to earlier this year. Price weakness in both Wheat and Soybeans may see some spillover into Corn prices in the near-term.

Fundamentals

After a "bullish" USDA crop production and supply/demand report came out last week and sent December Corn futures up nearly the 40-cent limit, we now see prices beginning to recede, with front-month futures once again trading below 750.00. Some analysts cite continued weak export sales as the catalyst for the recent price decline, as U.S. exports are running well below the 395,900 ton average needed to reach USDA projections. Many traders believe prices will need to move lower to help stimulate foreign demand. Ethanol profit margins are negative, which is also slowing demand for Corn for use in fuel. There also have been reports that some livestock producers have started to look to South America for their Corn needs, with rumors of a large purchase from Argentina scheduled to be delivered by the end of the year. However, in the U.S., Corn basis levels remain strong, as producers are more than willing to store the newly harvested crop, with hopes of even higher prices later this year, than they are to move Corn to market. This is manifesting itself in futures prices, with the December 2012/March 2013 spread moving to a slight backwardation lately, which may be an additional sign that commercial buyers are attempting to lure Corn out of producers' hands. For the rest of the year, we may start to see Corn futures move towards more range-bound trading, as rallies near 800.00 may further reduce demand and cut-off more U.S. export business, while a move near 700.00 will likely find more willing buyers but few sellers given current tight global supplies.

Technical Notes

Looking at the daily chart for March Corn, we notice prices becoming more volatile the past two weeks, as position-squaring ahead of the release of the USDA figures and the market's reaction after the release of October crop report triggered active two-sided trade. Prices are trading on both sides of the 20-day moving average (MA), but remain well above the longer-term 200-day MA which is currently about $1 below current price levels. The 14-day RSI has turned weak, with a current reading of 42.28. The recent high of 775.75 made on October 11th looks to be the next resistance level for March Corn, with support found at the September 28th low of 708.75.

Mike Zarembski, Senior Commodity Analyst


October 18, 2012

Spain Avoids Downgrade, Boosts Euro

Thursday, October 18, 2012

The Euro has stalled over the past several weeks, with prices trading in a range between 1.2800 and 1.3150. Much of the indecision among some traders has revolved around the problems facing Spain. The news that the nation did not receive a ratings downgrade from Moody's and mounting pressure for the country to take international aid has helped restore some confidence in the Euro. There is no guarantee that Spain's problems are over, but these developments are a vast improvement.

Fundamentals

The Euro has been stronger over the past two sessions, as Spain has avoided a ratings downgrade. Many were expecting sovereign debt from the embattled nation to receive a downgrade from Moody's, so the news sparked heavy speculative buying/short covering in the currency. Spain is also expected to make a formal request for aid from the European Central Bank ("ECB") and International Monetary Fund ("IMF"), which many hope will help keep the country solvent. Support for the proposed European banking union, which would place banks under the oversight of the ECB, has picked up steam, which can be seen as positive for the Euro. However, European Union ("EU") nations are squabbling over the costs of the agency and how the financial burden of failed banks will be split-up, making the formation no slam-dunk. In addition to the costs, many skeptics are concerned that the ECB may not be given enough oversight, and even if the Central Bank was given enough authority, many question how effective such an organization would be in identifying risks.

Technical Notes

Turning to the chart, we see that the December Euro contract jumped and formed a gap between the October 16th and 17th trade dates. Prices failed to advance beyond the relative high close of 1.3143 thus far. Breaking through this relatively minor resistance level would suggest prices could approach the 1.3250 mark. The strong move over the past two sessions does show a breakout from a pennant on the daily chart, suggesting a continuation of the uptrend that began in July, but which stalled over the past several weeks. The RSI is currently overbought, which could cool some of the market momentum.

Rob Kurzatkowski, Senior Commodity Analyst

October 19, 2012

Cocoa Prices Recover Despite Lower Grindings out of Europe

Friday, October 19, 2012

Cocoa prices are trying to forge a near-term bottom, which is impressive from the double-digit decreases in European Cocoa grindings this past quarter. Some traders may want to turn their focus to North American grindings data and supply concerns out of the Ivory Coast to get a better picture of current supply and demand.

Fundamentals

After a nearly $350 decline in prices since recent highs were made back in September, Cocoa futures have rebounded sharply, as the highly anticipated 3rd quarter European Cocoa grindings report was not as bad as anticipated. The European Cocoa Association reported on Tuesday that European Cocoa grindings fell by just over 16% in the 3rd quarter from year ago levels to 316,676 metric tons. Though the figures on the surface do not appear bullish for Cocoa prices, many in the trade were anticipating even more dismal grinding figures. The steep sell-off in prices during the past few weeks has set the stage for what appears to be a short-covering rally. Though the European Union is the largest consumer of Cocoa and the sharp declines in demand cast a bearish tone to the Cocoa market, demand outside of Europe and the U.S. continues to grow. Longer-term, it is expected that Cocoa production may fall short of demand in the 2012-13 season, with estimates from the International Cocoa Organization calling for a 100,000 metric ton deficit. If true, we may see a longer-term bottom forming in prices, especially if production problems emerge due to weather or political events in the West African growing regions.

Technical Notes

Looking at the daily chart for March Cocoa, we notice that prices have held just above the 200-day moving average ("MA") after several attempts to move below this widely-watched technical indicator. The uptrend line drawn from the June 2012 lows is also being tested, and should recent lows actually hold, we could be in store for a sharp rally. The 14-day RSI has started to turn up, with a current reading of 46.20. Support is seen at the 200-day MA, currently at 2356, with resistance found at the 20-day MA near the 2439 area.

Mike Zarembski, Senior Commodity Analyst



October 22, 2012

Range bound Trade Continues in WTI Crude


Monday, October 22, 2012

WTI Crude Futures failed to hold on to support from news that the oil flows from Canada were temporarily halted on the Keystone pipeline. This may signal that Oil bears are trying to get the upper hand, as domestic Oil inventories remain ample. Many bearish traders should be cautious of unwinding of Brent/WTI spreads, as this could add some buying pressure for WTI prices.

Fundamentals

WTI Crude Oil futures prices have moved sideways, as domestic inventories remain ample and U.S. Oil production is at 7-year highs. The Energy Information Administration ("EIA") estimates U.S. Crude Oil production to average 6.3 million barrels per day in 2012, up 700,000 barrels from last year. In 2013, the EIA expects even further gains, with projected totals expected to rise to 6.9 million barrels per day, which if true, would be the highest production totals in 10 years. U.S. Crude inventories rose to 369.2 million barrels after the EIA reported a 2.86 million barrel increase last week. This is over 37 million barrels above the 5-year average and demonstrates the affects of increased oil production from shale formations. The big question is, with U.S. Oil supplies high and demand lackluster, why are prices still over $90 per barrel? One reason may be tight supplies of oil products, such as gasoline and diesel which looks to be adding some support to WTI prices. Also, tighter supplies of the European benchmark Brent Crude are supporting WTI prices with the spread between the two Crude products currently at a $20 plus Brent premium. We cannot forget the ongoing concerns of Middle East tensions which seem to put in a near permanent "risk premium" into Oil prices. These mixed fundamentals appear poised to keep the December futures within its recent price consolidation between 88.00 and 94.50, unless a major fundamental shift occurs that overwhelmingly favors oil bulls or bears.

Technical Notes

Looking at the daily chart for December WTI Crude futures, we notice prices trading at the upper end of the recent $6 plus trading range. However, prices are still nearly $5 below the 200-day moving average, which many technicians view as a signal as to whether a market is in a bullish or bearish trend. The 14-day RSI is neutral with a current reading of 48.76. Resistance is seen at the recent highs of 94.15 made on September 21st, with support found at the October 3rd lows of 88.09.

Mike Zarembski, Senior Commodity Analyst


October 23, 2012

Earnings Season Weighs Down Oil

Tuesday, October 23, 2012

Earnings season quickly sapped the life out of the equity and commodity markets, showing that the US economy has a long way to go to fully recover. In addition to slower economic growth, inventory levels could be on the rise. Traders may wish to monitor developments relating to Tropical Storm Sandy, as its progression to a hurricane could cause supply disruptions in the Gulf States.

Fundamentals

Crude Oil is down for the fourth consecutive session under the weight of earnings season. We have seen companies missing targets, suggesting the economy may be worse than Oil traders had previously priced-in. Some traders are pricing in another inventory build in tomorrow's EIA petroleum report on higher production. The analyst estimate of a 1.8 million barrel build in Crude Oil was calculated factoring in the highest works production in 17 years. If the economy is really as soft as earnings season is projecting, tomorrow's EIA number easily could be much larger than the 1.8 million barrel build currently being projected. The news that the Keystone pipeline is now back online adds a bit of bearish pressure on the Oil market. Many traders are closely watching Tropical Storm Sandy, which threatens to become a hurricane. If Sandy does, indeed, tick-up to hurricane speeds, it may be seen as a bullish force for the Oil market, depending on its trajectory.

Technical Notes

Turning to the chart, we see the December Crude Oil contract closing just above support at 88.50 yesterday. Prices have already moved down through this support level in overnight trading. If prices do indeed close below 88.50, prices could attack support at the 80.00 mark, which could be seen as major support. The RSI is already near oversold levels, so it will be interesting to see if the bears have enough momentum to keep seeking pressure on Oil prices.

Rob Kurzatkowski, Senior Commodity Analyst


October 24, 2012

Are Bearish Fundamentals Finally Unraveling the Recent Cotton Rally?

Wednesday, October 24, 2012

Though it appears Cotton bulls have regained the upper hand, at least until Tuesday's trade, the recent bullish price move may start to run into some difficulties if commercial selling begins to emerge, as producers attempt to lock-in favorable prices given the potentially huge global Cotton surplus expected in 2013.

Fundamentals

Many cotton bears were caught by surprise last week, as quality concerns with this season's U.S. crop and tight exchange warehouse stocks sparked a price rally to 5-month highs. A slow pace to this season's Cotton harvest sparked concerns that deliverable supplies against the December futures could be tight. In addition, much of the newly harvested Cotton has been of low quality, which would make it ineligible to be tendered against the futures contract. Chinese Cotton exports also have been better than anticipated, with 4.03 million tons of Cotton imported for the first nine months of 2012, which is more than double the amount imported last year. Short-covering by commodity funds sent prices soaring and moved the Dec./Mar. futures spread into a backwardation, as concerns of a possible "short squeeze" during the delivery period entered market many participants' thoughts. However, despite the recent bullish news, both U.S. and world Cotton stocks are expected to be burdensome, with the USDA anticipating record U.S. Cotton carryover going into next year. Some analysts expect the recent price rally will be short-lived, especially if hedge selling by commercial traders occurs, which appears likely as prices move towards 80 cents per pound in the front month futures. Current new-crop (2013) prices below 80 cents may discourage large Cotton plantings next year, as many producers look towards more attractive products, such as Soybeans, next season. However, even with lower Cotton acreage, the U.S. may still see huge inventories of Cotton in 2013, unless weather issues severely hamper production or world exports increase sharply due to this season's expected carryover totals.

Technical Notes

Looking at the daily chart for December Cotton, we notice the series of limit-price moves that were triggered by concerns of a "short squeeze" in the December futures due to low exchange certified stocks. The limit-move sent prices above the 20-day moving average, which triggered "buy signals" for many short-term trend-following trading systems. However, a selloff in equities on Tuesday spilled over into the commodity sector, which sent Cotton prices briefly down the 3-cent limit. The 14-day RSI has turned neutral, with a current reading of 51.44. Many speculators added to their net-long positions last week, with the most recent Commitment of Traders report showing a combined increase in non-commercial and non-reportable positions of a combined 12,004 contracts as of October 16th. The next resistance level appears near 80.00, where we see the 200-day moving average currently hovering. Support is found near 72.65.

Mike Zarembski, Senior Commodity Analyst


October 25, 2012

Can India Cool off Gold Bears?

Thursday, October 25, 2012

Gold bulls are hoping the beginning of the festival season in India can help stem the tide of selling pressure facing the market this month. Gold futures are down over $80 for the month, as earnings season has taken a toll on both equity and commodity prices. Technically, failure to break the $1800 mark is also pressuring the market.

Fundamentals

Gold futures have been stuck in a rut in recent weeks, as fears of slower growth have overtaken inflation concerns. The inability of prices to break through the 1800 level had a negative psychological impact on the market, triggering profit taking. There is some hope that the start of the festival season in India may spur physical buying of the metal. What effect Indian festivals have on prices remains to be seen, as this is a seasonal factor already priced into the market. Equity markets may have a major impact on the price of Gold. This earnings season has gotten off to a very weak start, which may continue to plague commodity markets.

Technical Notes

Turning to the chart, we see the December Gold chart trading near support at the 1700 mark. The recent sell-off began after the third failed attempt to break through the 1800 level, over the past year. Prices are now below the 50-day moving average, which can be seen as bearish. The recent selling has resulted in the RSI indicator being in oversold territory, which could trigger some short covering and value buying.

Rob Kurzatkowski, Senior Commodity Analyst


October 26, 2012

PGM's Prices Under Pressure

Friday, October 26, 2012

Both Platinum and Palladium prices remain under pressure, as many traders continue to liquidate long positions, as global economic growth prospects are expected to remain anemic going into 2013, which is leading more analysts to look for lower demand for industrial metals next year.

Fundamentals

Platinum Metals Group ("PMG") traders appear to have a dour assessment of the global economic climate as of late, as both Platinum and Palladium futures have fallen to multi-week lows. Downcast corporate guidance, so far this quarter, has sparked fears that the global economic climate cloud be slowing more than originally thought. If so, the demand for industrial commodities, such as Platinum and Palladium, may fall short of analysts' expectations. The most recent Commitment of Traders report is showing a small decline in the net-long position that was accumulated by non-commercial traders due to the ongoing labor dispute by mining workers in South Africa last week, but is still, especially in the case of Platinum, approaching record levels. This has raised a concern about the liquidity in both these markets, which could become especially problematic, if commercial buyers are reluctant to participate at current prices. This could spark a severe sell-off in prices, in both Platinum and Palladium, should we start to see wholesale long liquidation selling emerge as prices move lower.

Technical Notes

Looking at the daily chart for December Palladium, we notice what appears to be a head and shoulders technical formation. This is usually viewed by some chartists as a sign that a market top is in place. Prices accelerated to the downside once support at the 100-day moving average was breached on Tuesday. The 14-day RSI is weak but not yet in oversold territory with a current reading of 38.54. 558.75 is seen as the next support level for December Palladium, with resistance found at the 100-day moving average, currently near 619.20.

Mike Zarembski, Senior Commodity Analyst



October 29, 2012

Global Buyers Cannot Get Enough Soybeans

Monday, October 29, 2012

Recent lows in Soybean futures may hold, as harvest pressure subsides and producers hold inventories in storage. Sharp increases in Soybean demand have sent the cash basis higher and may encourage increased Soybean crushing, which would be supportive for Soybean prices.

Fundamentals

After recently trading at lows not seen since July, Soybean futures prices have begun to rebound as some analysts are starting to believe that prices will need to rise in order to ration demand. China remains the largest consumer of Soybeans and even current high prices have not curtailed its appetite. Chinese soybean imports were up 20% in September from last year, totaling nearly 5 million metric tons. U.S. Soybean exports are already running well above the pace expected by the USDA, with just over 70% of the 2012-13 forecasted export sales already on the books. With the South American Soybean Harvest nearly 6-months away, the U.S. remains the main provider for Soybeans to the export market. This is problematic as the U.S. crop was disappointing this past season due to the severe drought that swept across the central portions of the U.S. Tight global soybean supplies is encouraging U.S. producers to hold on to recently harvested Soybeans in hopes of higher prices, as supplies become even tighter just prior to the South American Harvest. This tightness of new-crop Soybeans -could be reflected in the basis, with buyers willing to pay a premium over the 5-year average to obtain supplies. Some traders believe that the market has not yet priced-in a weather premium for South American production, as there is little room for a disappointing crop out of Brazil and Argentina this coming season. Though some analysts are anticipating record production from South America, we must remember this was also the case for U.S. production this past season, and no one really knows what Mother Nature could have in store.

Technical Notes

Looking at the daily chart for January Soybeans, we notice prices once again moving above the 20-day moving average ("MA"), which is an important signal for short-term momentum traders. Even during the most recent $3 plus price slide, prices were not even close to testing the longer-term 200-day MA. The 14-day RSI has rebounded from nearly oversold levels to a more neutral reading, currently at 48.85. Recent lows of 1486.25 look to be support for January Soybeans, with resistance found at 1673.00.

Mike Zarembski, Senior Commodity Analyst



October 30, 2012

RBOB Rallies Behind Sandy

Tuesday, October 30, 2012

The RBOB contract has risen in anticipation of tighter supplies due to super storm Sandy ravaging the Northeastern seaboard. Tight supplies, however, may only be temporary, as the petroleum market is well supplied and the storm has not affected major refining areas. Technically, the recent jump in prices has not caused a shift in direction. Traders will likely want to continue to monitor the fallout from Sandy.

Fundamentals

RBOB futures for the month of November are sharply higher once again due to the fallout from super storm Sandy. Most refineries either lowered or completely shut down production before the storm made landfall, which may have a slight impact on gasoline supplies in the Northeast. However, unlike the Gulf Coast, the Northeast is not a major production area for petroleum, which could limit the upside of the RBOB. We have already seen December and other back months almost unaffected by the storm. The bounce from Sandy may only be temporary. The underlying bearish fundamentals are likely to be the story once a sense of normalcy returns to the Northeast. Due to the slowdown in refining activity, Crude Oil demand has been further weakened, which may trickle down to products.

Technical Notes

Turning to the chart, we see the RBOB contract bouncing after trading down to the 2.60 level. The bounce is much more pronounced in the November contract than the December contract, due to the short-term supply squeeze in the Northeast. The bounce may also be partially attributed to technically oversold conditions on the RSI indicator. Despite the recent firmness in price, the momentum indicator remains below the zero line and relatively flat, indicating the possibility of near-term weakness. If the RBOB contract is unable to hold 2.60 on the downside, the next support level can be found near 2.40.

Rob Kurzatkowski, Senior Commodity Analyst


October 31, 2012

Crude Products Fail to Hold Gains from Sandy

Wednesday, October 31, 2012

With distillate inventories at the lower end of their historic inventory range going into winter and expectations for more normal winter temperatures this season, the Energy Information Administration expects Heating Oil prices to rise this winter, though the extent of any rise in prices will most likely be determined by the price of Crude.

Fundamentals

Seasonal declines in Gasoline prices were postponed temporarily,as East Coast refineries shut down production due to Hurricane Sandy. Nearly 7% of U.S. refining capacity is located in the area that faced Sandy's wrath and where inventories of refined products are less than ample. Gasoline inventories on the East coast are currently 9% below year ago levels, and distillates are a whopping 32% below last year's totals. In addition, New York Harbor is the delivery point for NYMEX Crude Products, which adds to the bullish bias for front month futures should issues arise for deliveries. RBOB futures are now in a backwardation going out to January of 2013, and Heating Oil out to the April 2013 contract. However, Crude Oil prices are weak, as any loss of refining capacity will hurt Crude demand in the short-term. In addition, the loss of economic activity due to businesses closings because of the storm may lessen the demand for fuel -- especially diesel, which should help offset any temporary refinery outages. Large speculators have been shedding their net-long positions in both Gasoline and Heating Oil, with the most recent Commitment of Traders report showing a decrease of a combined 14,845 contracts for the week ending October 23rd. The next price move for the refined products might be determined by how quickly refinery production can be resumed on the East Coast and what effects the rebuilding effort has on fuel demand.

Technical Notes

Looking at the daily chart for December Heating Oil, we notice what appears to be a double-top formation, as recent highs made on October 11th failed to take-out the previous highs made back in September. Prices are holding just above the 200-day moving average ("MA"), but failed to move above the 20-day MA on Monday's rally. The 14-day RSI is neutral to weak, with a current reading of 44.34. Support remains at 3.000, and should prices fail to hold this key psychological level, the next support area is not seen until the 2.9250 to 2.8500 price range. Resistance remains at the 20-day MA, currently near the 3.1258 area.

Mike Zarembski, Senior Commodity Analyst