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January 2013 Archives

January 2, 2013

Will the "Fiscal Cliff" Trim Lumber Prices in 2013?

Wednesday, January 2, 2013

The Lumber bull market has begun to tire, as weak longs exited trades ahead of year end. Fears that the US may fall off the so called "fiscal cliff", which would raise taxes and force government spending cuts that could derail any economic recovery in 2013, may have been the catalyst for the profit-taking selling seen last week, as prices attempted to test the $400 price level. Large speculators were beginning to lighten-up on their net long positions prior to the Christmas holiday according to the Commitment of Traders report. Long liquidation selling during a period of light holiday liquidity may have accelerated the downside move, with prices moving down the $10 dollar limit.

Fundamentals

Lumber prices were a top performer in 2012, rising by 47% in 2012, as a revival in the US housing market helped spur demand for building materials. Front month January Lumber prices came within a hair of testing major psychological resistance of $400 per 1000 board feet, which have not been seen since the heart of the housing bull market in 2005. Though Analysts expect Lumber prices to remain robust in 2013, the steep rise in prices seen in December may not last, at least in the short-term. Canadian Lumber mills are beginning to increase production, as current price levels are attractive for producers after years of losses that forced several mills to close during the housing market crash. In addition, there are concerns that Lumber imports by China will be lackluster in 2013. China consumes nearly 10% of global lumber production, so any slowdown in demand can have a sharp effect on prices for wood products. However, should the US continue to see a revival in the housing market and building permits continue to climb at multi-year highs, the Lumber bull market may still have some stamina in 2013.

Technical Notes

Looking at the daily chart for January Lumber, we notice the sharp run-up in prices during the month of December, with a nearly $60 gain in prices at its peak last week. The 14-day RSI had moved into extremely overbought levels over 80 before a late week sell-off sent this momentum indicator to a reading in the low 60's. With prices now in a near-tem correction mode, we do not see significant support until the 20-day moving average (MA), which is currently near the 356.80 price level. Resistance is found at the contract high of 392.80 made back on December 27th.

Mike Zarembski, Senior Commodity Analyst



January 3, 2013

Drought Conditions Persist for Wheat

Thursday, January 3, 2013

Wheat futures have been in steady decline since November, largely due to soft export demand and lack of outside market support. More recently, the price declines decreased in ferocity due to the "Fiscal Cliff" talks, which took a toll on the risk markets of equities and commodities. Now that this has passed and a deal is in place, the markets should now trade on their own merit. Wheat conditions have deteriorated across much of the growing region. Argentina has had a bad crop year, as the growing region there has either experienced the worst drought conditions in 62 years or excessive rains closer to the coast. Wheat could potentially be the driver of grain prices in 2013.

Fundamentals

Wheat prices continue to move lower, despite growing conditions in the US being the worst they have been since the Dust Bowl. Currently, only one third of the Wheat crop can be rated as good or excellent, versus 52% at this time last year. Kansas, which accounts for a good portion of the Winter Wheat crop, has only seen 10% of normal precipitation over the past two months. Over 30% of the state's Winter Wheat crop has not emerged, meaning it likely can be written off. Globally, there are concerns that the US, Russia, Argentina and Europe could all see reduced output. Some relief may be in sight for farmers, as snowfall over approximately two-thirds of the state could prevent winter kill. Moisture over the next two to three months could vastly improve conditions, as Wheat is a grain that can handle adverse conditions better than other grains. It is imperative that the Grain Belt see moisture in the coming weeks.

Technical Notes

Turning to the daily May Wheat chart, we see that prices have collapsed in recent weeks. May Wheat fell a dollar in December alone. Prices are rapidly approaching support at the 700 level, which can be viewed as critical, as this was the support that held the market prior to prices exploding in June. Not surprisingly, the RSI indicator is giving extremely oversold readings.

Rob Kurzatkowski, Senior Commodity Analyst


January 4, 2013

Industrial Metals Surge as Budget Deal Announced

Friday, January 4, 2013

The price outlook for Silver is mixed for 2013, with bulls noting improvements in growth prospects out of Asia and a continuation of accommodative monetary policies from major Central Banks. However, increasing inventories of Silver in exchange warehouses and the start of long-liquidation selling by commodity funds may keep any rally attempts in check to start the New Year.

Fundamentals

Industrial metals were among the best performers as the New Year begun, with many traders taking comfort in the U.S., avoiding the so called "Fiscal Cliff". Strong data on the U.S. manufacturing sector also supported the metals complex, such as the ISM Manufacturing Index rising above 50, with a 50.7 reading in December, vs. 49.5 in November. However, any major price advances from current price levels may be more challenging. First, though income tax rates for most Americans will not increase, the temporary 2% cut in the employee portion of the payrolls tax was allowed to expire, which is the equivalent of a 2% tax hike on wage earners. This may pose a drag on the economy in the short-term, with some economists looking for much slower GDP growth in the first quarter of 2013 -- possibly as low as 1%, vs, the end of 2012. Industrial precious metals also posted sharp losses to end the year, with Silver prices down 13% in the 4th quarter of 2012 alone. So any price gains may just be a recovery from vastly oversold price levels. Large speculators were busy liquidating long positions in the industrial metals to end the year, with the most recent Commitment of Traders report showing a net-decline of over 19,000 contracts combined in Copper, Silver, Platinum, and Palladium. Copper and Palladium prices have held up the best of the four metals mentioned, with Silver and Platinum lagging sharply behind. So unless we continue to see improving economic data in the near-term, it may be difficult to draw back large speculators into the market, unless there are some technical signals that a bottom for prices is now in place.

Technical Notes

Looking at the daily chart for March Silver, we notice prices breaking out to the upside after a six-session long consolidation period following a steep sell-off in mid-to-late December. Prices have briefly moved above the 200-day moving average ("MA"), though Wednesday's sharp rally was stymied at the 20-day MA. The 14-day RSI has rebounded modestly off oversold levels, with a current reading of 41.92. The December 20th low of 29.635 looks to be strong support for March Silver, with resistance seen at the 20-day MA, currently near the 31.550 price level.

Mike Zarembski, Senior Commodity Analyst


January 7, 2013

No Surprises in Jobs Report Keeps Bond Prices on the Defensive

Monday, January 7, 2013

Bond futures prices are still reeling from Thursday's release of the minutes from the December FOMC meeting, where some members believed that the Fed bond purchase would slow or even stop later this year. If true, this could take away some of the built-in support for Bond prices, which has caused some traders to begin to lighten-up on long positions. However, one does have a sense that this may be the calm before the storm, with some investors becoming complacent, especially in the equity markets, where VIX levels are near 52-week lows. Though it may be a bit premature, it appears that the Bond market sell-off is becoming a bit oversold, and a rather significant short-covering rally would not be out of the question, though the catalyst for this event is still unknown.

Fundamentals

Some analysts were spot on in their estimates for U.S. payrolls last month, as the Labor Department reported 155,000 jobs were created in December. Pre-report estimates were calling for a gain of between 150,000 and 160,000 jobs. The unemployment rate ticked up 0.1% to 7.8%, as the labor pool increased modestly last month. The private sector once again accounted for all the net-gains in employment, with the Health Care sector creating 45,000 jobs and manufacturing payrolls increasing by 25,000. Public sector employment fell by 14,000. November's payrolls were revised upwards by 15,000 jobs, but the unemployment rate was also revised up to 7.8%. Treasury Bond futures, which have been mired in a sell-off the past several sessions, seem to be trying to find a near-tem bottom, despite less dovish comments from the minutes of the December FOMC meeting. However, the Fed is still determined to keep monetary policy accommodative until the employment rate falls below 6.5%, and we are still struggling to create enough jobs to significantly lower the unemployment rate to this target level. This ultimately may be the key supporting factor for Treasury prices, as the Fed still seems determined to keep interest rates low unless employment improves significantly and favored measures of inflation remain subdued.

Technical Notes

Looking at the daily continuation chart for Treasury Bond futures, we notice some missed signals. For Bond bears, the 20-day moving average ("MA") looks poised to cross below the 200-day MA, which some chart technicians generally view as a bearish indicator. In addition, the 14-day RIS is weak, with a current reading of 29.82. Bond bulls will note that the latest leg of the price sell-off occurred on smaller than average trading volume, and we may be in the process of forming a bullish "reversal" pattern on the daily candlestick chart. Friday's low of 143-17 appears to be near-tem support for March Treasury Bonds, with resistance found at the December 28th chart gap near the 146-23 price level.

Mike Zarembski, Senior Commodity Analyst


January 8, 2013

End of Pain in Sight for Gold?

Tuesday, January 8, 2013

Gold traders have been indecisive in the New Year, with many traders watching the activity on the sidelines. The prospect that the Fed will start weaning the economy off easing by phasing out Bond buybacks could raise the government's borrowing costs and hurt economic growth. Physical stocks held by ETFs remain extremely high, despite the correction in prices. The resilience in physical demand from speculators suggests that the market could bounce quickly if fundamentals improve. Technically, prices are at a fairly pivotal level near 1650. Failure to hold could mean further declines, while a rally above 1700 could bring with it upward momentum.

Fundamentals

Gold futures have been hammered in recent weeks, largely due to the Fiscal Cliff talks. Prices have not improved, despite a compromise being reached, as the new concern becomes the possible end of easing from the Fed. The most recent FOMC minutes suggest the Bond buyback program may become a thing of the past. This has kept potential Gold buyers waiting in the wings for the time being. Equity markets may very well dictate whether or not Gold stops its slide. Stock prices reached 5-year highs, suggesting the market could be a bit top-heavy at the present time. This, combined with the US Dollar firming, could be a barrier to a price recovery. It is not all doom and gloom for metal traders, however. The Bank of Japan indicated that it plans to double its holdings of the yellow metal. Chinese demand for Gold has also been on the rise.

Technical Notes

Turning to the chart, we see the February Gold contract trading near the 1650 level. So far, prices have halted their slide at this level. Failure to hold here suggests that prices may drift into the low 1600's or, possibly, the mid-1500's. If prices manage to make their way above the 1700 mark, it could squeeze out shorts and bring fresh speculative buying. The RSI is currently at oversold levels, which may support prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst


January 9, 2013

Will there be Clarity or "Cornfusion" after the January Crop Report is Released?

Wednesday, January 9, 2013

Large price moves have followed the release of the USDA January crop report, as many traders key in on this figure as the "final" estimate to the size of the current year's crop. With prices holding near multi-month lows and long liquidation selling starting to occur, a bullish "surprise" would not be out of the question.

Fundamentals

Corn futures continue their price slump, falling to lows not seen since July of last year, as weak exports and lackluster demand have kept rallies in check. Even with Corn prices over $1.50 per bushel below the summer highs, exports remain slow, currently running well below the weekly average pace needed to reach USDA estimates for the current marketing year. In addition, ethanol production is running below the previous year's totals, which is lessening the demand for Corn used in fuel production. Many large speculators continue to liquidate net-long positions in Corn futures, with the most recent Commitment of Traders report showing large non-commercial traders shedding just over 4,500 contracts during the period ending December 31st. This long liquidation selling may continue as many traders square-up positions ahead of the January crop production and quarterly grain stocks report to be released on Friday. The January crop report is usually widely anticipated by traders, as it is normally the final USDA total for the current crop year. Current estimates are for a final Corn crop of 10.626 billion bushels, down from 10.725 reported by the USDA in December's report. U.S. Corn inventories as of December 1st are estimated to be near 8.2 billion bushels, though the average range of estimates is +/- 200 million bushels. Corn carry-out is expected to increase to 667 million bushels, vs. 647 million bushels in last month's report.

Technical Notes

Looking at the daily chart for March Corn futures, we notice the market trying to form a near-term bottom, as prices test the widely watched 200-day moving average (MA). Monday's lows were nearly a perfect 50% Fibonacci retracement of the major lows made in May 2012 to the August 2012 contract highs! The 14-day RSI has just moved out of oversold territory, with a current reading of 37.70. Trading volume is starting to increase, with some traders positioning themselves for key Government data which has in the past led to limit price moves after the data is released. 675.00 is seen as the next support level for March Corn, with resistance found at the 20-day MA, currently near the 705.00 price level.

Mike Zarembski, Senior Commodity Analyst



January 10, 2013

Warm Weather Cools Off Natural Gas

Thursday, January 10, 2013

Warm weather in the Midwest and Northeast has put a damper on Natural Gas prices. Bulls were hoping that cooler weather in the Western portion of the US could, at the very least, offset the effect the warmer weather could have on prices. Natural Gas traders once again have to face the reality that the market is simply oversupplied and will likely remain so for the foreseeable future. The Department Of Energy ("DOE") could loosen restrictions on Liquefied Natural Gas ("LNG") sales, which would open up key export markets to traders, but at this point, there is no guarantee that the agency will do so.

Fundamentals

Warmer weather across much of the eastern half of the country has put pressure on Natural Gas futures in recent sessions. Natural Gas has been a victim of its own success, as the price recovery in October has resulted in ramped-up production. There were many forecasters predicting a colder than average winter , which likely contributed to the rise in prices. It now appears that these projections were far more optimistic than what has unfolded thus far. Production is expected to rise by half a percent in 2013, according to the DOE. Considering the virtual Gold Rush occurring on the Marcellus Shale, the DOE projection likely can be seen as conservative. There are around 1,000 untapped wells and a flood of investment in the region. The overseas LNG market is showing very strong demand, which may give prices some support. However, many US companies may fail to benefit from this strong demand if the DOE does not approve exports to countries that do not have a free trade agreement with the US, such as China, Japan, India and Germany.

Technical Notes

Turning to the chart, we see the February Natural Gas contract completing the measured move from the double-top formation confirmed last month. Prices have failed to hold the 3.25 support level, suggesting selling pressure may not yet subside. There is minor support near 3.10, which the market has held so far. Prices could possibly break the $3 mark, which could accelerate selling action. Currently, the RSI remains just above oversold levels, suggesting the market may find some support in the near future.

Rob Kurzatkowski, Senior Commodity Analyst


January 11, 2013

Chinese Demand Key for Soybean Prices in 2013

Friday, January 11, 2013

Expected increases in U.S. production and the start of the South American harvest are two factors weighing on Soybean Prices. Chinese buyers have been seen canceling previous agreed to purchases at higher prices, as these buyers await the South American harvest, although we are still seeing some smaller purchases of U.S. Beans at lower price levels. Once the January USDA report is announced, many grain traders will mark their calendars for March 28th when we get the first estimate of prospective plantings for the 2013 crop year.

Fundamentals

Soybean futures prices are well off record highs seen last summer, as the sizzling U.S. export demand from China is expected to abate. China imported record amounts of Soybeans in 2012, as strong demand for both Soymeal and Soyoil boosted profit margins for the country's domestic crushers. However, cash market participants have started to see some cancelations of Soybean purchases by Chinese importers, as buyers are now awaiting "cheaper" beans from South America to hit the market now that the southern hemisphere harvest has begun. This trend is expected to slow U.S. Soybean exports for the foreseeable future, which has produced a negative effect on prices. Traders also anticipate the USDA will raise 2012 U.S. Soybean production totals to nearly 3 billion bushels later today, which is nearly 30 million bushels higher than estimated in December. Lower potential export totals and higher production will more than offset higher crush demand, as traders expect the USDA to raise 2012-13 Soybean carry-out by 5 million bushels to 135 million bushels. So unless we start to see some significant harvest delays from South America, rallies in Soybean futures may struggle until China and other Soybean importers are forced back to the U.S. for their Soybean purchases.

Technical Notes

Looking at the daily chart for March Soybeans, we notice price action has turned choppy ahead of the January USDA crop reports. Prices are currently below both the 20 and 200-day moving averages ("MA"), and the 20-day MA has recently crossed below the 200-day MA, which is considered a bearish signal by some chart technicians. The 14-day RSI has bounced off oversold levels, with a current reading of 40.13. There is currently a double-bottom at 1356.00 that is acting as strong support for March Soybeans, though should this level be taken out, we do not see any chart support until the 1280.00 price level. Resistance is seen at the 200-day MA, currently near the 1445.00 price level.

Mike Zarembski, Senior Commodity Analyst



January 14, 2013

Oil Prices Decline Despite Saudi Production Cut

Monday, January 14, 2013

Many large speculators have been increasing their net-long positions in Crude Oil during the past several weeks, and that has manifested itself in a move to 3-month highs. However, with Oil prices moving lower after the Saudi production cut announcement, we could be in store for a price correction, as many weak longs pare positions, as prices failed to hold above 95.00.

Fundamentals

After trading to highs not seen since October of last year, Oil prices have started to weaken, despite what on the surface seemed like bullish news out of Saudi Arabia. OPEC's largest producer cut Oil production by nearly 5% in December, but some traders looked at this announcement as a sign that global demand continues to be weak and the market appears to be oversupplied, especially at current price levels. This weakness in Oil prices is especially pertinent in Brent vs. WTI Crude, which may be a signal that some traders look for global demand to continue to remain lackluster. Some analysts note that a higher inflation reading out of China may stymie government stimulus plans, which would also hurt demand. In addition, an increase in the flow of Oil from storage in Cushing, Oklahoma to the Gulf Coast is expected to elevate some of the storage issues at the delivery point for the NYMEX Oil contract. This may cause the Brent vs. WTI spread to contract from historic levels. Longer-term increased Oil production in the U.S. may change the Oil market landscape, as the U.S. becomes more self-sufficient in meeting its energy needs from Oil. OPEC producers may need to depend more heavily on the increased appetite for Oil from Asia and emerging countries to keep their cash flow from Oil exports flowing at levels needed to support their own economic needs.

Technical Notes

Looking at the daily chart for March WTI Crude, we notice prices retracing off 3-month highs, though an early session test of the 200-day moving average ("MA") did trigger some fresh buying. The 14-day RSI is starting to pull back from overbought levels, with a current reading of 63.99. Near-term support is seen at the 200-day MA, currently near the 93.14 price area. Should this level fail to hold, a move towards the 91.50 to 91.25 price level would not be out of the question. Resistance is seen at this past Thursday's high of 95.16.

Mike Zarembski, Senior Commodity Analyst


January 15, 2013

Platinum to Outshine Gold in '13?

Tuesday, January 15, 2013

Platinum prices have eclipsed Gold for the first time since April of last year. Last year, we saw the Platinum:Gold ratio fall to the lowest level since 1985 due to economic uncertainty. While Gold is expected by many to have a strong 2013, it may, in fact, be Platinum that has a banner year. Auto Sales are seen rising 2% globally to a new record. At the same time, Anglo American Platinum, or Amplats, has been mothballing older, less productive mines, which is going to stress already tight supplies. Technically, the 17305 level will be key going forward. If prices are able to break through 1730, there is very little resistance until well into the 1800's. Failure to break through 1730 could result in consolidation or a correction.

Fundamentals

Platinum prices have jumped to the highest level since October, after Anglo American Platinum announced it would cut production. By shutting the four mine shafts in question, the company is slashing output to the tune of 400,000 ounces a year. Platinum is used by the auto industry in emission control devices, such as catalytic converters. Demand for the metal has been fairly consistent, and many are predicting a strong year for automobile sales globally, which could really stress supplies. Platinum is the rarest of the precious metals, and while 400,000 ounces may not seem like very much, it accounts for almost 20% of the company's output. Amplats accounts for 80% of world output of Platinum. Precious metals have also gotten a boost due to the uncertainty over the debt ceiling, which needs to be resolved by late February by most estimates. That is the timeframe in which Executive Orders and other preventative measures would likely run out. Like the Fiscal Cliff talks, squabbling by both sides could derail equity and commodity prices.

Technical Notes

Turning to the chart, we see the April Platinum contract rising $200 in just a couple of week's time. Prices are rapidly approaching resistance at the 1730 level. This resistance can be seen as significant, as a breakout would suggest a possible test of 2011 highs near the 1875 level. In the near - term, prices could potentially stall or pause, as the market is in overbought territory. The RSI moved from oversold to overbought levels over the same two week span that saw the steep price increase.

Rob Kurzatkowski, Senior Commodity Analyst



January 16, 2013

Will Gold Prices be Dragged Higher by Platinum's Surge?

Wednesday, January 16, 2013

Since the global economic crisis began in 2008, Platinum seems to have been relegated to a role as an industrial metal, as opposed to a safe haven investment such as Gold seems to have become. Rightly or wrongly, Gold's significant liquidity and ample supply have allowed the yellow metal to trade at a premium to the rarer and, in my opinion, more useful Platinum. Given this shift in outlook, traders should be aware that though Platinum has begin to narrow its price gap to Gold, due to a tightening supply outlook, any signs of global economic stress could see many traders moving assets back into Gold over Platinum, despite the current fundamental outlook.

Fundamentals

Since the start of 2013, Gold futures prices have lagged versus the sharp gains seen in Platinum, as bullish supply fundamentals for the "white metal" and a move by many investors out of so called "safe haven" investments and back into equities have affected Gold's performance so far this year. However, it is still too early to dismiss a potential rally in Gold prices in the coming months. Signs that the Chinese economy may be on an upswing and "cheaper" Gold prices, as compared to much of 2012, may see increased physical buying out of Asia, and especially India, ahead of the festival season. In addition, signs that Federal Reserve Chairman Ben Bernanke is not satisfied with the current rate of economic improvement in the U.S. may signal that accommodative monetary policies will be in place longer than many analysts expect is also viewed as supportive for Gold and commodities in general. Large and small speculators have been shedding some of their long Gold positions of late, with the most recent Commitment of Traders report showing a combined decline of 14,624 contracts for the week ending January 8th. This may leave room for additional long positions to be established should Gold prices jump on the back of the resurgent Platinum bull market.

Technical Notes

Looking at the daily chart for April Gold, we notice the 20 and 200-day moving averages have converged, which is confirming what appears to be a consolidation pattern forming on the daily chart. The upside price move on Tuesday seems to have given Gold bulls a slight upperhand. The 14-day RSI is rising and is now in neutral territory, with a current reading of 51.20. The high made on January 2nd of 1697.20 looks to be the next resistance level for April Gold, with support found at the January 4th low of 1627.90.

Mike Zarembski, Senior Commodity Analyst


January 17, 2013

Bonds Boosted by Bernanke Statements, But Can it Last?

Thursday, January 17, 2013

Bond futures look like they may not lose the safety net of quantitative easing as soon as many expected. Fed Chairman Bernanke has indicted that more easing may be needed to keep the economy on the path to a sustained recovery, and is concerned that pulling the rug out too soon may do more harm than good. The economy may, in fact, be doing better than expected, with today's job and manufacturing activity reports expected to show improvement. Housing prices are at 4-5 year highs, but there is some concern that the market may be peaking or plateauing in the near-term. Technically, the market seems to have found a bottom at 144-16 - for now. The upside may be limited by congestion on the chart, creating resistance.

Fundamentals

Bond futures have gotten a boost from the debate on the debt ceiling and signs that Europe could be slowing. The Fed has recently backtracked a bit after the last FOMC minutes indicated that the treasury buyback program could cease sooner rather than later. The most recent rhetoric from the central bank states that more easing may be necessary to keep the economy pointed in the right direction. Overall, it does seem as though there is an air of caution among traders, which could act as support for the treasury market, even if the safety net of the buybacks is not there. Recent economic data shows the housing market at four-five year highs, and today's data is expected to show a drop in jobless claims, as well as a stronger Philly Fed number. These factors could put some pressure on the Bond market and eat into recent gains. Fed Chairman Bernanke had indicated that he was concerned at the number of people locking into riskier loans in the current low interest rate environment, and that there could be repercussions down the road when rates normalize. The initial reaction could suggest that the FOMC could be hinting at a gradual, incremental rate increase process. However, the Fed has been very accommodating to the government over the past decade, and traders and institutions could simply view this as a stern warning.

Technical Notes

Turning to the chart, we see the March Bond contract bouncing off of support near the 144-16 level. Prices traded below support here for several sessions; however there was no definitive breakout. The next area of resistance comes in near the 148-16 mark. Prices closed near the 20-day moving average. A close above the average would suggest that a near-term high may be in place. The 144-16 level may be seen as critical to the Bond market. Failure to hold above this market could trigger a tidal wave of selling.

Rob Kurzatkowski, Senior Commodity Analyst


January 18, 2013

Will Weak Gasoline Demand Weigh on Ethanol Prices in 2013?

Friday, January 18, 2013

The CME Group has offered trading in Denatured Fuel Ethanol Futures for the past several years, which is a complement to both its agricultural and energy futures complex. Below are some of the key contract specifications for this contract:

optionsXpress Root Symbol: AC

Contract Size: 29,000 gallons (this is the approximate size of 1 rail tanker car)

Tick Size: $0.001 per gallon = $29

Contract Months: All calendar months

Trading Hours: 5:00 PM to 2:00 PM Central Time

Settlement: Physically Deliverable


Fundamentals

The recent rally in Ethanol futures to start 2013 ran into resistance, despite steep declines in production of late. The Energy Information Administration reported on Wednesday that U.S. Ethanol production fell just over 5% last week to 784,000 barrels per day. This is the lowest reported weekly production total since these figures began being tracked in 2010 and demonstrates the struggles U.S. producers have faced since this summer's severe drought drove U.S. Corn prices to record highs. Despite sharply lower production the past several weeks, U.S. Ethanol inventories actually rose last week to 20.4 million barrels-up 2.6% for the week. With inventories currently at 6-month highs and U.S. Gasoline demand slack, it appears that the nearly 20-cent per gallon rally seen in the March futures since the beginning of the year may be nearing an end, especially with what appears to be good overhead resistance appearing above the 2.400 price level.

Technical Notes

Looking at the daily chart for March Ethanol, notice after a nice price rally to start the year, March Ethanol seems to be running into some resistance at the 100-day moving average, currently near the 2.366 price level. Wednesday's rally to 2.374 closed the chart gap from December 10th, but selling pressure emerged after the EIA energy stocks report was released showing an increase in Ethanol inventories and lower gasoline demand. The 14-day RSI is strong, but appears to be turning lower, with a current reading of 66.10. The October 11th "spike" high of 2.448 looks to be the next major resistance level for the March contract, with support found at 2.322.


January 22, 2013

Will the Yen Freefall Continue?

Tuesday, January 22, 2013

The Japanese Yen has fallen out of favor with many traders who have flocked to US Dollars as their defensive currency of choice. While the Fed has hinted at possibly weaning the US economy off stimulus, the Bank of Japan is expected to ramp-up stimulus. The US housing market has continued to show signs of improvement, and policymakers in Japan are fighting deflation and attempting to stimulate inflation, even if that means unintended consequences down the road. For this reason, some traders may continue to favor greenbacks over Yen as a defensive currency. However, the BOJ has had mixed results in the past when attempting to influence its currency, so traders may wish to proceed cautiously.

Fundamentals

The Japanese Yen has been in a freefall for the past two months, as the Bank of Japan has pulled out all the stops to stimulate growth. In today's meeting, the BOJ is expected to extend its current stimulus plan. The central bank is expected to make an open-ended commitment to buy assets until the target inflation rate of 2% is reached. Japan is hoping to reverse deflation in consumer prices, which has crippled economic growth. The BOJ hopes that inflation forces businesses and consumers to borrow once again, revitalizing the economy. This may be seen as adding to the already bearish sentiment for the currency, as stimulus will add to money supply. If the BOJ does what most market observers are expecting and makes the open-ended commitment to spur inflation, any sort of bounce in Yen futures after the meeting could simply be profit-taking and may give bears a fresh opportunity to short the market.

Technical Notes

Turning to the chart, we see the March Yen futures essentially dropping straight down for the past two months, with very few up days. Prices have most recently broken support near the 1.13 level, which was established back in April of 2010. The next downside level the market may target comes could be 1.10. The critical downside level could be found at 1.06. Failure to hold 1.06 could result in a test of the 1.00 level. The RSI is currently oversold, but has been on a slight upswing since earlier this month, which may be viewed as a slightly bullish signal and a sign that prices could consolidate or rebound. However, the timing of a possible reversal is difficult to gauge.

Rob Kurzatkowski, Senior Commodity Analyst


January 23, 2013

Cotton Trades at 7-month Highs, Despite Huge Chinese Inventories

Wednesday, January 23, 2013

Cotton futures are beginning to draw the attention of some trend-following traders, as prices rise to highs not seen since May of last year. Many large and small speculators added to their net-long positions last week, with the most recent Commitment of Traders report showing an increase of over 3,800 contracts the week ending January 15th. Though chart resistance levels are still nearly 500 ticks higher, momentum indicators are looking overbought, and commercial hedge selling may accelerate should there be any signs that Chinese buying is beginning to slow.

Fundamentals

After being one of the worst performing commodities of 2012, Cotton futures have started 2013 strong, as better than expected export sales and the possibility of lower Cotton acreage in the US have sent prices to 7-month highs. In 2012, China imported just over 5.1 million tons of Cotton, which was over 50% higher than 2011 totals. This sharp increase in imports occurred despite higher domestic Cotton production last year. China has now accumulated enough Cotton in its commodity reserves to meet 1-year's usage, which is keeping some traders from becoming too bullish on Cotton's price prospects, as it remains to be seen how long China will continue to buy now that prices have rallied. In addition, market talk continues to swirl that China may release some inventory to its domestic market, which if true, would put into question further significant Chinese purchases in the coming months. Current high prices for both Corn and Soybeans have put into question how many acres US producers will dedicate to Cotton production this coming season -- especially with Texas, Oklahoma and parts of Alabama and Georgia still feeling the effects of moderate to severe drought. New-crop December futures prices may need to rise further to "buy" acreage from the "food crops". Traders should keep an eye on the intra-commodity spreads in Cotton, as any signs a slowing pace of Chinese buying could see old-crop prices falling relative to new-crop months which still need to "fight" for acreage in 2013.

Technical Notes

Looking at the daily chart for March Cotton, we notice Tuesday's rally to 7-month highs nearly filled the chart gap left from the sell-off seen back on May 10th of last year. The 20-day moving average (MA) has recently crossed above the 200-day MA, which many technicians view as a bullish indicator. The 14-day RSI has moved into overbought territory, with a current reading of 75.41. Should the chart gap be filled at 80.56, we do not see any upside resistance until the 84.50 price level. Major support is seen at the recent low of 73.72 made back on January 4th.

Mike Zarembski, Senior Commodity Analyst


January 24, 2013

Crude Supplies Build, But Can that Derail the Oil Market?

Thursday, January 24, 2013

Crude Oil futures received a mixed bag of news yesterday. Inventories, as reported by the API, showed an increase in Crude Oil inventories and mixed products, which may be viewed as negative. The EIA, which normally releases its inventory figures on Wednesday, is releasing inventories today. It will be interesting to see if the two inventory reports have similar results. The results of the Israeli election can be seen as a negative for Crude Oil, as the incumbents were viewed as less likely to strike Iran. Meanwhile, in the US, the House of Representatives paved the way for an increase of debt.

Fundamentals

Crude Oil futures fell sharply yesterday, after API inventory levels jumped by 3.2 million barrels. This is the largest build of Oil in 6 weeks. The capacity of the Seaway pipeline was reduced, which could result in large supplies in Cushing, OK, which is the NYMEX (CME Group) delivery point for Crude Oil. The Seaway link carries Oil from Cushing to the Gulf Coast. Petroleum product inventories were a mixed bag. Gasoline stocks fell by 1.6 million barrels, versus estimates of a 1.3 million barrel increase. Distillates, which include Heating Oil and diesel fuel, rose 1.3 million barrels, versus estimates of unchanged inventories. Crude Oil continues to get outside market support from equities, which seemingly rise every day. The House passed a bill that would expand the debt ceiling, which can be seen positive for equities and commodities. The bill should face little, if any, resistance in the Senate.

Technical Notes

Turning to the chart, we see the March Crude Oil contact moving higher since early December with little resistance. Yesterday's candlestick looks like it could be a key reversal on the continuation chart, which some traders may wish to monitor. The meteoric rise in prices over the past month and the fact that the RSI indicator shows overbought readings could limit the near-term upside of the market. Prices are currently testing newly established near-term support at the 95.00 level and could reverse sharply if the market is not able to maintain this level.

Rob Kurzatkowski, Senior Commodity Analyst


January 29, 2013

Dovish Talk from BOC Brings Down the "Loonie"

Friday, January 25, 2013

The bullish flight of the Canadian Dollar, i.e the "Loonie", has been grounded, as slower than expected growth of the Canadian economy has extended the expected timeframe for interest rate increases from the Bank of Canada.

Fundamentals

Canadian Dollar futures fell sharply following a cut in the growth forecast from the Bank of Canada (BOC), which some market participants saw as a sign that interest rates may not be raised this year. On Wednesday, the BOC kept its overnight interest rate steady at 1.00%, but cut its growth forecast to 2% for 2013 and lowered the growth rate for 2012 to 1.9%, as weaker spending by businesses and lower exports slowed growth more than originally forecast. The BOC also noted that it expects inflation to remain below 2% for an extended period, which is expected to take some of the urgency away from raising interest rates to stem inflationary concerns. These headwinds for the Canadian economy seemed to have soured bulls on the value of the Loonie vs. their neighbor to the south, as many traders liquidated their long positions after the release of the BOC statement. The sell-off took the March futures below parity with the U.S. Dollar for the first time in 2-months, and has put in jeopardy the uptrend for the value of the Canadian Dollar that started back in June of last year.

Technical Notes

Looking at the daily continuation chart for the Canadian Dollar futures, we notice that the uptrend line drawn from the June 2012 lows have been taken-out, with prices now below this key support point, as well as below the 200-day moving average. The 14-day RSI is very weak, with a current reading of 31.13. With prices now below parity, the next support point is not seen until the November 16th low of 0.9936. Should this support point fail to hold back "Loonie" bears, we do not see any significant chart support until the 0.9750 area. Near-term resistance is found at 1.0011, but strong resistance is not found until the recent high of 1.0175.

Mike Zarembski, Senior Commodity Analyst



Sugar Struggling to Find Support off of 29-Month Lows

Monday, January 28, 2013

Sugar bulls have a tough road ahead, as prices continue to hover near 2 ½ year lows and production continues to outstrip demand. The International Sugar Organization (ISO) expects a Sugar surplus of 6.2 million metric tons for the 2012-13 season. It appears that current oversold conditions and some moderate support near the 18.00 level in the March futures may have spurred some short-covering buying by weak bears. However, unless we begin to see some significant demand start to cut into global inventories, prices may continue to drift lower, with a possible test of the 2010 lows below 14.00 not out of the question later this year.

Fundamentals

World Sugar bulls have apparently stood their ground, as front month March Sugar seems to have found some buying interest near 18 cents per pound. The Sugar market has been in a bear market for nearly 2-years, as a rising global surplus and increased production have cut prices in half from 2011 highs. Despite this large price decline, the fundamentals remain bearish. First, Brazil, the world's largest Sugar producer, is expected to see a large production increase for the 2013/14 season. Though a good portion of the crop will be used for Ethanol production, any increases in Sugar production cannot be viewed as supportive for prices given the current global surplus. Higher Sugar production out of India and China, the world's second and third largest producers respectively, should help curtail any major price gains. However, lower Sugar prices may find fresh buying from end users in the Middle East and North Africa, allowing consumers to restock inventories. Technical traders will also note that March futures prices have been gaining on more deferred contract month prices, and that they even briefly traded at a premium to the May contract. A move in the term structure to a "backwardation" is usually viewed as a bullish indicator, as it suggests that buyers are willing to pay a premium for near-term delivery of a commodity. It is still too soon to say if this price movement is signaling an end to the bear market for Sugar, or if it is only an aberration, possibly caused by the rolling of short positions out of the March contract and into more deferred delivery months.

Technical Notes

Looking at the daily chart for March Sugar, we notice prices rebounding off multi-month lows, as bears failed to send prices below the 18-cent price level. Though prices have rallied moderately off the lows, there appears to be some resistance in the 18.80 to 19.20 price area. The 14-day RSI has rebounded somewhat, and is now reading a more neutral 40.79. Support is found at the contract low of 18.06, with resistance found at the January 11th high of 19.19.

Mike Zarembski, Senior Commodity Analyst


BOC, Sluggish Metals Pressure the Loonie

Tuesday, January 29, 2013

The Canadian Dollar has been under fierce selling pressure in recent sessions. Anemic growth forecasts for Canada suggest the BOC may hold rates steady, or could potentially change course and decrease rates to stimulate the economy. Crude Oil prices continue to trade near their highest levels in four months; however, both base and precious metal prices have pulled back. Technically, the important downside level many traders may be looking at is the 0.9900 mark, which can be seen as support on the weekly chart. Failure to hold this level could trigger additional technical selling.

Fundamentals

Canadian Dollar futures tumbled, after the Bank of Canada trimmed its growth forecast and suggested it may increase rates at a slower pace than previously thought. The weaker growth forecast comes as somewhat of a surprise, given the fact that Crude Oil and other commodity prices have been on the rise. Canadian Government Bonds took a hit on the statement from the BOC, and currencies, in general, correlate strongly with their governments' treasury instruments. Canada is auctioning C$2.9 billion of 20-year bonds on Wednesday, which should make this an interesting week for the Loonie. If the auction is undersubscribed or softer than forecast, the Canadian Dollar could potentially continue its slide versus the greenback. In addition to the tamer growth forecast from the BOC, Canadian inflation hit a 3-year low of 0.8%. This may suggest that the BOC may be more aggressive with its monetary policy.

Technical Notes

Turning to the chart, we see the March Canadian Dollar future trading down through support near the 0.9940 level. The violent move lower confirmed a double-top on the daily chart and made the measured move of the pattern. Longer-term, the close last week confirmed a doubletop on the weekly chart. The measure of the weekly double-top suggests prices could test the 0.9650 level on the downside. Thus far, prices have held support at the 0.9900 mark. Failure to hold support here could bring about a fresh round of selling.

Rob Kurzatkowski, Senior Commodity Analyst


January 30, 2013

Bulls Getting Fired-up over Gasoline

Wednesday, January 30, 2013

Gasoline Futures are leading the rally in the Oil complex, as lower refining rates coupled with higher Oil prices have sent nearby futures prices near the $3 per gallon level. Both large and small speculators have been adding to net-long positions in RBOB futures, with the most recent Commitment of Traders report showing a combined increase of over 2700 contracts the past week. With psychological resistance at 3.000 looming, and relative strength starting to become overbought, we may be in store for a potential price correction prior to any continuation of the uptrend.

Fundamentals

U.S. motorists are starting to feel some "pain at the pump" again, as front-month Gasoline futures are trading at nearly 3-month high. The soon to expire February RBOB futures are nearing the $3.00 per gallon price level, with the most recent bullish catalyst being the announcement that Hess Corp would be closing its New Jersey refinery next month and is planning to eventually exit the refining business. East coast Gasoline inventories are already about 10% below last year's totals, which is adding to some traders' concerns of potentially tight supplies going into the summer peak driving season. In last week's Energy Information Administration (EIA) weekly energy stocks report, it was noted that U.S. gasoline stockpiles fell by 1.738 million barrels the previous week, which was the first reported decline since late November, as refinery utilization fell to the lowest levels since March of last year at 83.6%, as seasonal refinery maintenance schedules lowered production. Gasoline futures were not the only energy product favoring bulls, as March WTI futures also traded at multi-month highs, as concerns of unrest in the Middle East and North Africa and improving U.S. economic data have offset ample Crude supplies in the U.S. Going into this morning's EIA stocks report, many traders are looking for Oil inventories to have increased by about 2.7 million barrels, and Gasoline inventories are expected to have posted a modest gain of 200,000 barrels last week.

Technical Notes

Looking at the daily continuation chart for RBOB Gasoline, we notice prices are starting to accelerate to the upside, possibly fueled by traders caught in the "bear trap," as prices briefly broke below the lows of the recent consolidation pattern before rallying sharply in the following trading sessions. The 20-day moving average (MA) is approaching the 200-day MA, with a crossover of the shorter-term MA over a longer-term MA generally viewed as a bullish formation. The 14-day RSI has moved into overbought territory, with a current reading of 73.40. The next resistance level is seen near 3.000, with support found near the 200-day MA, currently near the 2.8200 price level.

Mike Zarembski, Senior Commodity Analyst


January 31, 2013

Silver as a Cheap Gold Proxy?

Thursday, January 31, 2013

Silver has become a cheap Gold proxy for some investors in recent weeks, as prices have lagged behind the yellow metal. The weaker GDP data could hurt Silver prices. However, weaker industrial demand for the metal could be offset by investment demand. It is troubling that the economy has not been able to grow with quantitative easing in place, so the Fed may be pressured to be more aggressive in this regard. The FOMC statement may suggest that QE is here for the foreseeable future, which could provide a major boost for Silver.

Fundamentals

Some investors have boosted their demand for Silver as an investment vehicle in the month of January. The US mint has sold a record number of American Eagle silver coins. This is not surprising; given the fact that Silver is relatively cheap when compared to Gold. On the macroeconomic front, the US economy showing a contraction for Q4 can be seen as possibly limiting the upside of Silver. The FOMC held rates steady, which is not a surprise. The central bank's policy statement emphasized its concern over economic growth grinding to a halt and the possibility of deflation. The statement has led many to believe quantitative easing may be here to stay. While more easing may likely be seen as a boost for precious metal prices, the anemic growth prospects may lead to weaker industrial demand for the metal. This brings about the question of whether or not investment demand can supplant the void left from industry.

Technical Notes

Turning to the chart, we see the March Silver chart holding at 31.00 in recent sessions. For the market to maintain its upside momentum, prices need to hold this level. In addition to 31.00, the 30.00 mark can be seen as critical support. Failure to hold the level could result in prices tumbling several dollars. On the upside, prices may need to take out the relative high close of 32.41 to maintain its upward momentum. Currently, the RSI is at overbought level , which may limit the near-term upside of the market.

Rob Kurzatkowski, Senior Commodity Analyst