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March 2013 Archives

March 1, 2013

10-year Note Yields Fall on Economic Growth Concerns

Friday, March 1, 2013

The upcoming round of forced government spending cuts seems to be drawing some moderate buying interest in 10-year Note futures, as some investors are showing concerns that prolonged cuts could slow U.S. economic growth. In addition, the revised estimate for Q4 GDP came in at 0.1%, which was well below average estimates of 0.5%. Slower growth rates may keep the Federal Reserve in an easing mode for an extended period of time, especially if government spending cuts remain in place.

Fundamentals

Treasury futures are struggling to hold on to recent price gains, despite weaker than expected durable goods orders in January and the looming across-the-board government spending cuts. Some traders seem to be shaking off any concerns about sequestration and moving back into "risk assets" such as equities on the belief that we may see stronger economic growth in the coming months. Federal Reserve Chairman Ben Bernanke, speaking to U.S. House members on Wednesday, stated that there appear to be signs of improvement in the housing sector, as well as both consumer and business purchases, despite January's 5.2% decline in durable goods orders. Some traders also took some solace in the results of Italy's bond auction, in which EUR 4 billion of 10-year bonds were sold, although at a higher rate than the previous auction. The fact that some investors were willing to purchase the maximum amount of the offering, despite uncertainly regarding which political faction will finally gain control of the Italian government after recent elections failed to provide a clear consensus, helped lessen fears of more instability for the Euro zone. The long end of the curve was showing the most weakness, as Chairman Bernanke told lawmakers that the Fed might start to review an exit strategy from current monetary policies soon, though he stressed that the Fed was not in any hurry to lter its current easing monetary stance.

Technical Notes

Looking at the daily continuation chart for 10-yr Note futures, we notice that a trendline drawn starting at the July 25th 2012 high and extending through the intermediate high made on November 16th shows key upside resistance lies less than a ½ point move from the current price level. The recent rally has also been constrained by the 200-day moving average, currently hovering near the 133-04 level. The 14-day RSI is strong, but has not yet reached overbought levels, with a current reading of 65.92. Specifically for the June contract, which is now the lead month for 10-yr Note futures, we see resistance at 132-03, with support found at 130-26.5

Mike Zarembski, Senior Commodity Analyst


March 4, 2013

Bears' Pork Feast Coming to an End?

Monday, March 4, 2013

Lean Hog futures may have finally reached oversold levels, after a relentless sell-off during the past few weeks. It appears that long liquidation selling is starting to wane and that commercial traders are beginning to lighten-up on their short hedges as cash prices hover near $80 per hundredweight. A rebound in Live Cattle prices also may be spilling over into the Hog market, especially if supermarkets use lower wholesale prices to feature specials on pork, which could spur increased demand from packers to help meet potential increased retail demand.

Fundamentals

Bears have been licking their chops over the performance of Lean Hog futures this year, with the current front month April futures down over $10 per hundredweight, as higher Hog weights and export concerns have weighed on prices. In December of last year, Russia announced it would ban the imports of U.S. beef, pork, and poultry due to enforcing a zero-tolerance policy on the use of Ractopamine in livestock. Ractopamine is a drug used as a feed additive to help promote leaner muscle mass in feed animals. Though it is approved for use in the U.S and in many other nations, it is restricted by the E.U, and now Russia is also enforcing its ban. Should other nations join Russia in banning pork produced with Ractopamine, it could be very detrimental to U.S. Hog exports, which account for nearly ¼ of U.S. production. Market-ready Hog weights have been running well above average lately, which is adding to pork supplies and allowing some meat packers to purchase fewer Hogs to meet demand. A recent up-tick in wholesale pork prices may be a sign of improving consumer demand. If true, we could see increased packer purchases of cash hogs in the coming weeks, as profit margins have become positive due to the sharply lower cash Hog prices.

Technical Notes

Looking at the daily chart for April Lean Hogs, we notice prices trading at lows not seen since May of 2012, as a "perfect storm" of weak exports and high Hog weights produced large supplies. The 14-day RSI is well into oversold territory, with a current reading of 26.93. The May 2012 low of 79.475 looks to be the next major support level for the April contract, with resistance not found until the 20-day moving average, currently near the 84.775 price area.

Mike Zarembski, Senior Commodity Analyst



March 5, 2013

Gold Drawing a Line in the Sand?

Tuesday, March 5, 2013

Gold futures could see near-term strength from inflationary statements from the Fed and BOJ. This could provide a short-term sugar high for the Gold market, which had been in a downtrend since October. Overall, Gold fundamentals remain bearish. There is plenty of economic uncertainty to go around, and central banks have been attempting to zap their respective economies to life using any means possible to no avail. Physical buying has been very soft, especially from ETFs. Technically, it seems that Gold could potentially get a near-term boost from oversold conditions.

Fundamentals

Gold futures are higher this morning, after both the Federal Reserve and Bank of Japan indicated that they are going to press-on with stimulus programs. Futures had fallen the previous four sessions. The Fed has stated that it should press-on with its bond buying programs, while across the Pacific, the BOJ indicated that it will take whatever means are necessary to slow down deflation. In addition to getting a boost from stimulus packages, Gold has seen some safe haven buying, likely due to the US sequester. This is, however, a minimal boost, as the sequester would likely have a negative long-term impact on the economy, which would probably mitigate inflation risk. The physical market for precious metals had been soft, since several large players either lightened their Gold ETF positions or eliminated them altogether. It appears that Gold traders are among a small segment of traders that can see what is directly in front of them: despite every effort from the Fed, ECB and BOJ, these central banks (among others) are having a difficult time stimulating any growth. What happens when the training wheels come off?

Technical Notes

Turning to the continuous chart, we see the April Gold contract coming down to test the 1550 level. After the initial test of the area, prices bounced short of testing the area again. The chart shows a possible W-bottom setting up, which would be confirmed by a move above 1615.50. If the pattern is confirmed, Gold may test the 1670-1680 area. On the downside, prices must hold the 1550 level, or the market could see heavy selling. The RSI indicator remains oversold, hinting at near-term strength.

Rob Kurzatkowski, Senior Commodity Analyst


March 6, 2013

Is the Bank of Canada Turning Dovish Towards its Interest Rate Outlook?

Wednesday, March 6, 2013

The most recent Commitment of Traders report shows that institutional traders and commodity funds have moved to a net-short position in Canadian Dollar futures as of the end of February. This corresponds with the timeframe where the value of the CAD futures fell by over 250 pips. Should the Bank of Canada not remove its tightening bias from its statement, we could see a potentially significant short-covering rally if the non-commercial short position starts to be liquidated due to loss of downward momentum.

Fundamentals

Many traders and analysts seem nearly unanimous in their belief that the Bank of Canada (BOC) will announce it will keep its benchmark rate steady at 1% after this morning's central bank meeting, as weak economic growth rates (+0.6 annualized growth rate in Q4) and less than stellar economic data may portend that monetary policy will remain "accommodative" throughout 2013. What is still in debate is whether the BOC will finally loosen the current "tightening bias" that was seen in prior policy statements. Some traders are beginning to price-in a more "accommodative" stance by the BOC, as the value of the Canadian Dollar (CAD) has fallen nearly 5 cents vs. the U.S. Dollar and is now trading at a discount to its neighbor to the south. Dovish comments from BOC Governor Mark Carney last month may be leading market participants to view a potential switch in thought process by the Central Bank, as it appears that policymakers see the need to raise interest rates soon as less urgent. Some traders of the "Loonie" may wish to follow the trend of economic data out of China, Canada's third largest export destination behind the U.S. and U.K., as any signs of a significant change in the economic growth rate of the world's most populous nation could alter the volume of commodity exports from Canada and trigger either stronger economic growth and potentially higher interest rates should exports increase, which would be generally supportive for the value of the CAD, or much slower growth and potentially lower interest rates, which would be generally a negative factor on the value of the "Loonie".

Technical Notes

Looking at the daily continuation chart for Canadian Dollar futures, we notice that once prices traded below the uptrend line drawn from the June 2012 low, it signaled the end of the recent up-move for the Canadian Dollar, with only minor upward corrections since that time being stymied by the 20-day moving average (MA). The 14-day RSI continues to linger at oversold levels, with a current reading of 28.21. The most recent downward price movement seems to have found some support below 0.9700, as many weak longs appear to have exited their positions ahead of the BOC interest rate announcement. Support is seen at the March 1st low of 0.9665, with resistance seen at the 20-day MA currently near the 1.0042 price level.

Mike Zarembski, Senior Commodity Analyst


March 7, 2013

Crude Oil Traders Await Outcomes of Venezuelan Election, Iran Talks

Thursday, March 7, 2013

Crude Oil traders have had plenty of news to digest is recent weeks, both fundamental and geopolitical. EIA data suggests Crude Oil inventories are rather robust and refinery activity could be slowing a bit. Reports from the government agency in coming weeks will give traders a better idea as to whether or not the US is stockpiling. Geopolitically, many traders will be paying attention to the progress of nuclear talks with Iran and the Venezuelan election. Technically, Crude Oil is vulnerable if prices break through the $90 mark on the downside.

Fundamentals

Crude Oil futures have chopped around the $90 mark in recent sessions, unable to rebound from recent losses in spite of stronger outside markets. It has been a tumultuous few weeks, even by Crude Oil's standards. It had seemed that progress was made in talks with Iran, with the Middle Eastern nation stating that the West gave them a plan they "could work with." Things turned sour yesterday, though, when the US envoy to the talks walked out after Iran accused Israel of genocide. This certainly does not end the talks, but does kill some of the goodwill established late last month. The death of Venezuelan President Hugo Chavez appears to have been viewed as negative for Oil prices. At least that was the knee-jerk reaction. Now many traders are awaiting the outcome of the special election to choose his successor. A victory for Nicolas Maduro, Chavez's hand-picked successor, could be seen as positive for Oil prices, whereas a victory by Henrique Capriles, a moderate, could put downward pressure on prices. Yesterday's EIA data showed Crude Oil inventories rising by 3.8 million barrels, versus analyst projections of a 788,000 barrel build. North America remains oversupplied with Crude Oil at the moment. Refinery runs were down 2.9%, which could be a sign that demand for Gasoline may slow from the pace earlier this year.

Technical Notes

Turning to the continuous chart, we see the April Crude Oil contract trading in a sideways pattern just north of the 90.00 mark. Given the preceding move lower, there is a slight bearish bias to the consolidation. This suggests that a move below the 90.00 mark could bring additional selling pressure. Prices have been trading below the 100-day moving average over the past several sessions. A solid downside breakout here could validate the move below the average. The RSI remains oversold, which could offer some price support. However, given that the market is oversold, a downside breakout could be particularly aggressive.

Rob Kurzatkowski, Senior Commodity Analyst


March 8, 2013

Brazilian Port Backlog Rallies Sugar Futures

Friday, March 8, 2013

Near oversold conditions for Sugar futures seem to have been alleviated, as near-term bullish news has rallied prices nearly 1-cent from recent lows. The price rebound may have some legs to it, as the term-structure has turned to a backwardation for the old-crop months due to possible shipping delays out of Brazil. Longer-term traders will likely turn their focus to this season's production totals, as well as the amount of Sugar that will be processed into ethanol to see if any dent can be made into the huge global surplus seen at the start of this year.

Fundamentals

Sugar futures prices have rebounded off recent lows, as shipping delays out of Brazil and a move towards higher ethanol production have triggered short-covering buying by weak longs. Front month May Sugar has moved to a premium vs. the July contract, as some traders appear to see a potential for tightening old-crop supplies if Brazilian Sugar exports are delayed. It is estimated that over 200 ships are currently waiting to load new-crop Corn and Soybeans at Brazil's main ports, which is making it much more difficult to export Sugar. In addition, increased profitability in the production of cane based ethanol, as well as Brazil's increase in the ethanol blending mix in gasoline to 25%, should see more Sugar being used for fuel than for food. Though current fundamentals are starting to look bullish, any significant rally attempt may fall victim to commercial hedge selling,as globally analysts still expect a sizable Sugar surplus this season, with some estimates looking for over an over 8-million-ton surplus for the 2012-13 marketing year. Both large and small speculators are holding net-short positions in Sugar futures according to the most recent Commitment of Traders report, though it shows speculators lightening this short position in the most recent reporting period.

Technical Notes

Looking at the daily chart for May sugar, we notice the downtrend line drawn from the July 20th high was taken out during Thursday's sharp price rally. The 14-day RSI has turned positive, with a current reading of 56.86. Looking at the price movement of the May/July spread, we note that since the middle of January, the May contract has rallied 0.50 points vs. July and may have signaled that the bear run is nearing an end. The next upside resistance is seen at 19.00, with major resistance found at the 200-day moving average, currently near the 20.13 price level. Support is found at the February 15th low of 17.67.

Mike Zarembski, Senior Commodity Analyst


March 11, 2013

Solid Payrolls Data Keeps Equities Rally Alive

Monday, March 11, 2013

Equity futures got a boost on Friday, as the February Non-Farm payrolls report showed signs of continued improvement in the U.S. employment picture. Many traders continue to shed positions in commodities, especially U.S. Treasuries, as assets return to the global equities markets.

Fundamentals

The U.S. Labor market continued to show signs of improvement in February, as the Labor Department reported 236,000 jobs were created last month. This was well above the market consensus of a gain of 160,000 jobs. The private sector was once again responsible for all the gains, adding 246,000 jobs, with the services sector creating 169,000 jobs and manufacturing adding 14,000 jobs. The public sector shed 10,000 jobs all at the state and local levels. Though federal government payrolls remained unchanged last month, it will be interesting to see what effects the "sequester" has on government payrolls in the March employment report. The household survey of employment was also a positive surprise, as the unemployment rate fell to 7.7%, which was the lowest level since the end of 2008. Though all the headline figures were positive, we must note that January's payrolls were revised downward to 119,000 jobs being created, vs. the 157,000 jobs reported last month. Equity index futures rallied on the positive jobs data, with the March E-mini S&P 500 futures trading at multi-year highs. Treasury yields rose after Friday's report,with the 10-year note once again yielding over 2% and Bond futures falling nearly 1 full point. Though the improvement in the labor market and signs of a strengtheny economy are present, we have not seen the economically sensitive commodity markets rally in tandem. Prices for Copper, Oil and Platinum that would normally show some signs of strength during periods of economic growth are all lagging behind the strength seen in the equity markets. This phenomenon is either a sign that many traders believe economic growth will slow in the coming months, or we are seeing a significant shift by investors out of commodities and into equities, as money flows start to chase what is currently the stronger performing market.

Technical Notes

Looking at the daily continuation chart for the E-mini S&P 500 futures, we notice the mostly slow and steady ascent in prices that started shortly after the U.S. elections in November. Removing this uncertainty seemed to have triggered a move back into equities that has gained momentum ever since. Prices are now well above both the 20 and 200-day moving averages, but we should note that there appears to be a bearish divergence forming in the 14-day RSI, as this momentum indicator has so far failed to make a new high reading as the E-mini futures make multi year highs. The next resistance level is seen at the October 2007 high of 1558.75, with support seen at the 20-day moving average, currently near the 1518.00 price level.

Mike Zarembski, Senior Commodity Analyst



March 12, 2013

Copper Prices Could Suffer if China Cuts Spending

Tuesday, March 12, 2013

Copper futures are seen by many traders as a harbinger of things to come, economically. This would make the wave of selling pressure since mid-February a negative sign for the economy. Specifically, traders are concerned about the Chinese economy after a string of lukewarm economic data over the past few weeks. There is concern that the performance of the manufacturing and construction sectors may continue to under-perform. Also, weaker economic growth could compel the Chinese government to spend less on public works projects. The 800 lb. gorilla that many seem to ignore is the fact that a meltdown of the Chinese real estate market could dwarf the one seen in the US and other Western nations several years ago.

Fundamentals

Copper futures are off recent lows near the $3.45 mark on speculation that recent price declines could spur physical buying from China. Demand has been better since the Chinese New Year celebrations have ended. Whether those purchases were simply making up for the lost week or a sign that demand is actually starting to tick up on its own remains to be seen. There have been mixed signs from China over the past several weeks, which has caused a bit of confusion among base metal traders. There is a leadership transition at the annual National People's Congress, which concludes on March 17. The Congress usually results in an expansion of public works projects, which could be favorable for Copper demand. However, the state of the Chinese economy is uncertain. Recent economic data has been mixed and can be seen as neutral. There has been increased speculation that the NPC's spending may actually be reigned in, which could be viewed as negative for demand. LME stocks have been on the rise, which may be signaling that demand from construction and manufacturing may be weaker than previously thought, resulting in stockpiling of the metal.

Technical Notes

Turning to the continuous chart, we see the May Copper futures contract rebounding from technical support at the 3.4500 mark. Prices are now approaching minor resistance at that 3.5350 level. A move above this resistance level could result in sideways trading for the foreseeable future. On the downside, if prices are unable to hold minor support near 3.45, prices could test the 3.30 level on the downside, which can be viewed as significant support. Failure to hold 3.30 could not only bring heavy selling pressure, but also signal the beginning of a long-term downtrend. The downward crossover of the 20-day moving average through the 50 and 100-day averages could be seen as negative, longer-term. Currently, the RSI remains oversold, which could be supportive of prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst



March 13, 2013

Bears Slumber While Lumber Runs Higher

Wednesday, March 13, 2013

Lumber may be the strongest performing commodity market, as prices are hovering near multi-year highs. A look at the most recent Commitment of Traders report shows speculative accounts adding gradually to their net-long positions, with 176 new net-long contracts being added for the week ending March 5th. Commercial traders seem to be on the other side of the trend, with hedge selling increasing as prices hold near $400.00 per 1000 board feet.

Fundamentals

Some traders have not abandoned all physical futures markets, as Lumber prices have bucked the recent negative disposition towards commodities. Front-month Lumber is now trading at highs not seen since the height of the U.S. boom back in 2005. Good cash market activity and increasing confidence returning to the housing market are factors in Lumber's price rise. Some Lumber mills have been reported to be sold out of lumber for March delivery, which is supportive to nearby futures prices. Though prices are near multi-year highs, some analysts expect Lumber demand to increase in the coming months as the end of wither approaches and the spring construction season resumes throughout the U.S. With consumer sentiment towards housing starting to improve, we may start to see a renewed interest in new home construction, which has been off sharply since the start of the housing collapse back in 2008. For Lumber to potentially test all-time highs, we would need to see continued demand out of Asia, especially China, which has been a buyer of U.S. and Canadian Lumber lately. However, signs of a housing bubble in the world's most populous nation may force the Chinese government to take measures to "draw air" out of the rising housing market and to clamp down on construction lending, which wouldlikely put a significant dent in the demand for building materials such as Lumber and Copper.

Technical Notes

Looking at the daily chart for May Lumber, we notice the market having difficulty trading above the 400.00 level on a closing basis, as it appears that there may be some hedge selling as prices approach this price area. Volume has also started to wane on the recent rally, which may signal that speculators and, more precisely, trend-following traders are not yet aggressive buyers, and may not be unless we see a strong close above 400.00. The 14-day RSI is showing a bearish divergence to prices and is currently holding at a moderately strong reading of 59.84. Resistance for May Lumber is seen at 404.80, with support found at the February 26th low of 368.80.

Mike Zarembski, Senior Commodity Analyst


March 14, 2013

How Much Lower Can the Yen Go?

Thursday, March 14, 2013

The appointment process of a new BOJ governor and two new deputy governors has temporarily halted the declines in the Japanese Yen, as traders await the outcome of the process. It now looks like the frontrunner, Haruhiko Kuroda, will get the nod. The appointment likely will been seen in a negative light for the Yen, suggesting the exchange rate of the currency could continue to plummet. At this point, it appears that a financial panic of some sort could be needed to rally the Yen, as the Japanese currency is often seen as a safe haven instrument.

Fundamentals

The Bank of Japan has been much more successful in manipulating the value of the Yen than in previous attempts. The free-fall in the currency began last September, accelerated at the tail end of last year, and has not looked back. This has been welcome news for Japanese policymakers, who are desperately trying to stave off deflation. The lower house of parliament endorsed Haruhiko Kuroda as the next governor of the BOJ, which can likely be seen as a negative force for the Yen. Kuroda is a strong advocate of increasing monetary stimulus. The Yen did stabilize over the past few sessions ahead of the approval process for the new BOJ leadership. The Yen does have the potential to get a bit of a boost in coming weeks, as Japanese exporters tend to repatriate foreign currencies before the fiscal year ending this month. Typically, this is a short-lived event, which can be seen as only modestly bullish.

Technical Notes

Turning to the chart, we see the June Japanese Yen contract falling to its lowest level since June 25, 2009. Prices broke through support at the 1.0515 level without flinching, making the next significant technical and psychological support level at 1.0000. Failure to hold 1.000 could result in the Yen testing the 0.9000 mark, which last occurred in August 2008. The RSI is once again showing oversold levels, which could offer some support in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst


March 15, 2013

Natural Gas Rallies Despite Winters End

Friday, March 15, 2013

Many large speculators have been net-short Natural Gas futures for the past few years, but we are starting to see this short-position begin to shrink somewhat, as it appears that a major bottom for prices may be in place. Last week non-commercial traders shed 4,400 net-long contracts according to the Commitment of Traders report, dropping the net-short position to 128,361 contracts as of March 5th. Commercial hedgers are selling to these large speculators on the rally, with the commercial net-long position dropping by 8,765 contracts during the same time period. It is apparently only the non-reportable (small speculators) who are adding to new long positions (+4,366 contract) during this rally.

Fundamentals

You would not know that winter is coming to a close by the reaction of the Natural Gas market, with lead month prices at highs not seen since November. A larger than expected draw from storage last week was the main catalyst for the price surge. The Energy Information Administration (EIA) reported a gas storage draw of 145 billion cubic feet (bcf) last week, which was above the pre-report estimate of a draw of 137 bcf. Gas storage levels now total 1.938 trillion cubic feet (tcf), which is over 18% below last year's totals. However, we should mention that temperatures were running well above normal last winter, so higher gas usage for heating this season should be expected. When compared to the 5-year average for this time of year, we are still seeing gas storage levels over 11% higher. Weather forecasts are calling for below normal temperatures through the end of March for the major gas heating regions of the Midwest, which is also adding to the market's bullish tone. Natural Gas prices have been range-bound for most of the winter, which has seemed to encourage traders to utilize short option strategies that would benefit from prices remaining in a narrow trading range. Thursday's move to multi-week highs seems to have sparked some short-covering buying in the April Natural Gas calls, with good to heavy volume seen -- especially in strike prices ranging from 3.600 up to 4.000, as these options strategists exit the market and await new opportunities come spring.

Technical Notes

Looking at the daily chart for April Natural Gas, we notice prices have been in an upward trend ever since a chart "gap" formed on February 25th. Since that time, we have seen a steady rise in prices that has sent the 14-day RSI surging, with a current reading of 71.09. The market is extending its move above both the 20 and 200-day moving averages (MA), and we may see further technical buying emerge should the 20-day MA cross above the 200-day MA, which many technicians view as a bullish signal. There does appear to be some overhead resistance in the 3.825 to 3.900 price areas, with major resistance found at the November 23rd high of 3.997. Strong support is seen at the 200-day MA, currently near the 3.515 price area.

Mike Zarembski, Senior Commodity Analyst


March 18, 2013

Cotton Soars on Increased Export Demand

Monday, March 18, 2013

Large long positions being held by speculators and declining trading volume the past few trading sessions may be signs that the market is becoming overextended on the upside. Recent price rallies in new-crop December Cotton futures may win back some acreage that was feared lost to Corn and Soybeans this coming season, though the current estimate is for U.S. Cotton plantings to be down over 25% to around 9 million acres. We will get the latest government estimate on March 28th when the USDA prospective plantings report is released.

Fundamentals

The nearly 2-year-old bear market in Cotton prices appears to be over, as old crop Cotton trades above 90-cents per pound. Strong U.S. exports are behind the price rally, with the USDA reporting U.S. Cotton export sales of 187,600 bales the current marketing year. Among the leading buyers of U.S. Cotton was once again China, which continues to add to domestic stocks despite already ample supplies. Some traders were expecting China to be done with Cotton purchases, and several analysts expect China to start to move strategic supplies on to the domestic market, which would likely turn the world's largest consumer of Cotton into a net-seller later this year. New-crop Cotton contracts are also moving higher in price, as the market tries to buy back some acreage from Corn and Soybeans this coming season. With prices beginning to move in a parabolic state, we will need to see continued good export demand to keep the price momentum going, with any signs of Chinese buying starting to wane, sending weak longs to the exits.

Technical Notes

Looking at the daily chart for May Cotton, we notice prices moving straight up after spending about 3 weeks in a consolidation period that became the base for the recent explosive up-move. The 14-day RSI is now well into overbought territory, with a current reading of 81.33. Prices have started to move parabolic, and we are seeing a bit of a drop-off in trading volume, which may be a sign that the current up-leg is short-covering in nature and not as much fresh buying as bulls would like to see. 95.00 looks to be the next resistance level for May Cotton, with support found at the 85.24 high recorded during the recent consolidation period.

Mike Zarembski, Senior Commodity Analyst


March 19, 2013

Cyprus Debacle Shakes Investor Faith in Euro(zone)

Tuesday, March 19, 2013

The EU appears to have a trust problem, as in investors are having a difficult time trusting the leadership and ECB to handle crises effectively. Bailouts are always contentious events, but the EU "brain trust" seems to have simply fanned the flames of discontent instead of easing fears. The EU has imposed rather unfavorable terms on previous bailouts. The bailout terms for Cyprus are not different, essentially forcing the government there to "tax" bank deposits by 10% to secure emergency loans. This seems to be a no-win situation for Europe. On one hand, if the government fails to ratify the proposal, Cyprus will likely default. On the other hand, if the government approves the measures, fears that the EU can grab citizens' money at any point without voter say-so could spread, possibly resulting in bank runs.

Fundamentals

The Euro currency suffered losses yesterday, after the EU unveiled a plan to bail out the economy of Cyprus. The plan is highly controversial, as it requires the government of the island nation to raise 5.8 billion Euros from bank deposits in order to secure the loans. This requirement did not sit well with Cypriots and spurred fears of bank runs. To avoid bank runs, the government strong-armed its citizens by freezing bank transfers. This, however, did little to soften the impact the move had on the Euro. This also has citizens of nations like Greece, Spain, Italy, Portugal and Ireland, which have their own issues, concerned that their government could come in an essentially "steal" some of their life savings and call it a "tax." The Cyprus debacle could continue to weigh on the Euro, as some investors may be concerned that the pan-European union is ill-equipped to deal with a crisis. That the EU is forcing the Cypriot government to impose a "tax" like this is eerily similar to the Greek debacle, where the EU forced the government into default by making bond write-downs part of the concessions. Many have argued that this move set off the chain reaction that resulted in investors pushing Ireland and Portugal into bailouts that those governments and peoples may not have necessarily wanted at the time. The seemingly poor leadership and strong-arm tactics from the EU could shake investor confidence in the Euro.

Technical Notes

Turning to the chart, we see the June Euro Currency contract trading near the 1.30 level. The currency has been consolidating near this level since the beginning of March. Given the preceding downtrend, the bias seems to be to toward the downside in the event of a breakout. In the event of a downside breakout, the Euro could head toward minor support near 1.27. More significant support comes in near the 1.20 level. The downward crossover of the 20-day moving average with both the 50- and 100-day averages could be seen as a negative sign, medium term. The RSI has recovered from oversold levels, even as the market has moved sideways to lower in recent sessions. This divergence between price and RSI can likely be seen as slightly positive for the Euro.

Rob Kurzatkowski, Senior Commodity Analyst


March 20, 2013

Are Commodity Bulls Getting "Juiced Up" in 2013

Wednesday, March 20, 2013

Speculators, both large and small,have been adding to their net long positions recently, with the most recent Commitment of Traders report showing a combined net long position by non-commercial and non-reportable traders of 5,964 contracts as of March 12th. Some commercial traders have been using the recent rally as an opportunity to increase short hedges, which will need to be overcome in order for prices to breakout beyond the highs of the recent consolidation range.

Fundamentals

Traders of the "softs" have been mired in a bear market the past several months, after a general bullish tone for commodities has come to an end. Recently, we have seen some signs of life in a few of these markets, with Cotton trading at 11-month highs, and now the Frozen Concentrated Orange Juice market (FCOJ) is beginning to draw some bullish interest. The story here is the effects of citrus greening disease on the Florida citrus crop. This disease, also known by its Chinese name Huanglongbing, is thought to have originated in Asia and is primarily spread by insects. Once a tree is infected, the disease causes leaves to turn yellow and causes fruit to not develop properly and fall off the tree prematurely. The disease has cut the size of the Florida orange crop, with USDA estimates calling for a harvest of about 139 million 90-lb boxes. Though this total is similar to last year's harvest, this is well below the 154 million box estimate by the USDA at the start of the season. In addition, juice yield estimates were also lowered to 1.61 gallons, vs.1.63 gallons last season. With no current cure for greening disease available, the effects on the Florida citrus crop will likely continue to worsen, with the average affected tree-life shortened considerably and producers being forced to remove affected trees to help prevent the disease from spreading further. Until scientists are able to successfully create a disease resistant rootstock for citrus trees, we may continue to see citrus and juice volumes decline.

Technical Notes

Looking at the daily continuation chart for O.J. futures, we notice prices trading near the highs of the 45-cent consolidation range the market has been in since May of last year. Prices have moved above both the 20- and 200-day moving averages (MA), and the RSI looks strong, with a current reading of 69.12. A close above resistance seen at the December 20th high of 144.00 sets the stage for a test of the 150.00 price level. Support is seen at the 20-day MA, currently near the 130.50 area.

Mike Zarembski, Senior Commodity Analyst


March 21, 2013

Russia, FOMC Lift Crude

Thursday, March 21, 2013

Crude Oil traders got some welcome relief from Russia's seeming willingness to help Cyprus with a bailout. The Fed also gave commodity traders reason to feel better by suggesting that the pumping will not stop until unemployment goes below 6.5%. Inventories have been very erratic in recent weeks, which makes the near-term direction for Oil unpredictable.

Fundamentals

Crude Oil futures have been on the rise over the past few weeks, as some traders viewed the late February sell-off as excessive. Tuesday's API data showed a surprise drop in Oil inventories, making yesterday's decline of 286,000 barrels of Crude no surprise to traders. Initially, many traders were looking for a roughly 2-million barrel build in inventories. Oil also received a boost from signs that Russia would be willing to bail out Cyprus, with or without ECB support. The small island nation makes up an inconsequential half of a percent of the Eurozone economy. However, it is the psychological impact of a potential default that has some traders worried. It is a reminder that the Eurozone and global banking system is far from healthy. Russian intervention lets traders breathe a collective sigh of relief. Nuclear talks with Iran seem to be at an impasse, which can likely be seen as bullish for Oil prices. There has been some talk of easing.

Technical Notes

Turning to the continuous chart, we see Crude Oil confirming a double-top formation in mid-February. Since confirming the pattern, prices have come down to make the measured move, and have now bounced back due to oversold conditions. The recent move higher has resulted in prices bumping up against the 50-day moving average. If prices can break out above the average, Oil may gain some additional momentum. The momentum indicator has not moved higher as sharply as prices and RSI, hinting at possible near-term weakness.

Rob Kurzatkowski, Senior Commodity Analyst


March 22, 2013

Old-crop Soybeans Range-bound on Uncertain Chinese Demand Outlook

Friday, March 22, 2013

In addition to tight old-crop Soybean supplies, grain traders have to weigh what might be a record U.S. Soybean harvest this season. Current estimates are for about 78 million acres to be planted this coming season. With average yields, we could see the U.S. harvest nearly 3.4 billion bushels! This would more than double the Stocks/Use ratio and provide for a more comfortable carryover into the following season.

Fundamentals

Old-crop May Soybean prices seem content to bide their time in a consolidation range bounded by 1400.00 on the downside and 1500.00 on the upside. However, this quite period may not last long once the fundamental picture becomes clearer. Here in the U.S. old-crop Soybean stocks remain tight with the USDA expecting ending stock of only 125 million bushels for the 2012-13 season. Though it would appear that higher prices would be needed to help ration supplies, a huge crop out of South America should allow importers, such as China, to switch purchases from the U.S. to Brazil and Argentina to meet current needs. However, current grain shipments out of Brazil are delayed, as weather and labor issues have a backlog of ships waiting at ports for cargo's to be loaded. This may shift additional business back to the U.S. despite prices that are nearly $1 per bushel higher than that of South American Soybeans. China has been reported to be releasing Soybean supplies from state reserves onto the domestic market, which may be a sign that supplies are becoming tight. This release by the Chinese government may be buying time for South American Soybeans to become more readably available to help replenish reserves at a lower cost than available from the U.S.. Though this scenario would seem to be bearish for Soybean prices, there are some thoughts that the unreliability of supplies from Brazil may shift demand back to the U.S. if demand continues to remain strong and if this occurs, we may see old-crop prices rebound to help assure the U.S. does not run short of Soybeans prior to the new-crop harvest this fall.

Technical Notes

Looking at the daily chart for May Soybeans, we notice prices moving into an even tighter price consolidation range the past several weeks as mixed fundamentals have triggered uncertainly into the current price outlook. Prices are trading near the convergence of both the 20 and 200-day moving averages (MA), which is cementing uncertain price outlook by both long and short-term traders. The 14-day RSI is neutral, with a current reading of 50.26. Near-term support is seen at the March 19th lows of 1403.00, with resistance found at the March 8th highs of 1484.75.

Mike Zarembski, Senior Commodity Analyst


March 26, 2013

Corn Rally Stymied on Lackluster Exports

Monday, March 25, 2013

The coming week will likely see grain traders busily squaring positions ahead of the highly anticipated prospective plantings and grain stocks report due out Thursday morning. This report has had a history of producing volatile price reactions in the grain complex, as any deviation from pre-report estimates can produce large price moves as traders adjust their outlook to the new information.

Fundamentals

The recovery in Corn prices the past several sessions stalled on Friday, as a subdued outlook for U.S. Corn exports and expectations for a record Corn crop this season weighed on prices to end the week. Old crop Corn sales totaled just over 92,000 tones last week, which is well below the weekly average needed to meet USDA forecasts. Current sales are running about 5% below the 5-year average for this time of year. New crop Corn is seeing some weakness tied to what is anticipated to be a record crop this coming season. The International Grains Council just announced that they expect U.S. Corn production to increase by 30% this coming season. Some analysts are looking for U.S. Corn plantings to come in between 96 and 99 million acres, and almost every forecaster is looking for a 14-billion-plus Corn crop this coming season, assuming Mother Nature cooperates. Government weather forecasts for the next few months favor normal to above normal temperatures and precipitation for the Corn Belt which, if accurate, should provide for an excellent start for the Corn crop heading into summer.

Technical Notes

Looking at the daily chart for May Corn, we notice that the market briefly traded above the downtrend line drawn from the Contract high made back in August of last year. However, the rally in old crop Corn could not hold, as continued weak export sales and the prospects of a record Corn crop spooked some weak longs into liquidation positions. Prices are holding right at the 200-day moving average and are currently just above the 20-day MA. We note that trading volume was declining on the recent rally attempt, which may indicate a lack of aggressive new buying on the recent up-move. Near-term resistance for May Corn is seen at the recent high of 734.50, with longer-term resistance seen at 750.00. Support is found at the 20-day moving average, currently near the 709.50 price area.

Mike Zarembski, Senior Commodity Analyst



Farmers' Winter Wheat Woes

Tuesday, March 26, 2013

Wheat traders are awaiting this Thursday's USDA data, which is expected to show tighter supplies and only a modest increase in plantings in the next crop year. The Great Plains region of the country has been ravaged by the winter drought and slow start to the Winter Wheat growing season. KC Wheat is currently trading at a 30 cent premium over Chicago Wheat. If reports of abandonment of Winter Wheat crops are true, this premium could swell.

Fundamentals

Wheat futures have been quietly climbing ahead of this week's USDA report, which is expected to show a modest rise in planted acreage for the 2013-2014 crop year. Traders are expecting the report, which comes out this Thursday, to estimate 2013-2014 plantings around 56.3 million acres. This would be an increase over the 2012-2013 estimate of 55.7 million acres. Traders are also expecting March 1st stocks to be 1.17 billion bushels, down from 1.2 billion in the February report. The recent snowfall that has hit the Midwest has been weighing slightly on prices, as it should help crop conditions. In Oklahoma, 26 percent of the Winter Wheat crop is rated in good or excellent condition, up from 24 percent last week. However, it looks as though farmers will abandon almost a quarter of Winter Wheat acreage because of the slow start and drought conditions. Nebraska seems to have suffered the brunt of the poor growing conditions. Around 61 percent of the Winter Wheat crop there is in poor or very poor condition and only 6 percent is rated good or excellent.

Technical Notes

Turning to the chart, we see the May Wheat chart bottoming out just below the 700 level earlier this month before rebounding. Support near the 700 mark is very stout. The upside challenge is now the 750 level. For Wheat to capitalize on the short term momentum created by this recent rally, prices need to cross above 750 or risk falling back. The recent closes above the 20-day moving average suggest that a near-term low may be in place. The RSI has gone from oversold to overbought very quickly, which may impede further advances in the near term. The momentum indicator has failed to keep pace with prices and RSI, hinting at possible near-term weakness.

Rob Kurzatkowski, Senior Commodity Analyst


March 27, 2013

Short-Covering Seen for Lean Hogs Ahead of USDA Report

Wednesday, March 27, 2013

The following are expectations for the USDA Quarterly Hogs and Pigs report to be released on Thursday at 2 pm Central time.

All Hogs and Pigs on March 1st: 100.5 to 101 percent of last year's totals

Breeding Herd: 99.5 to 10.5 percent of last year's totals

Marketing: 100 to 101 percent of last year's totals


Fundamentals

Lean Hog traders have been in a bearish mode for months, as large inventories of pork in cold storage combined with weak seasonal demand have pressured prices. However, we have seen some signs that the bear market is beginning to tire. Though the start of spring has so far failed to bring warmer temperatures for most of the U.S., longer -ange forecasts are starting to call for warmer temperatures in the Midwest and the East Coast, which should spur increased demand for both pork and beef as the start of the grilling season commences. In addition, many analysts note increased short-covering buying as traders square positions ahead of two major USDA reports to be released on Thursday. First up is the highly anticipated planting intentions report. Here expectations are for U.S. producers to dedicate large acreage to both Corn and Soybeans this season, increasing the potential for a record harvest in both crops should Mother Nature cooperate. The potential for record production this season should provide some relief for livestock producers, as the potential for lower feed costs due to larger supplies, may encourage a rebuilding of the livestock herds that were reduced due to high feed costs. This outlook should be near-term supportive to Hog prices as more animals are being kept for breeding and not sent to market. Also on Thursday, traders will be awaiting the release of the USDA Quarterly Hogs and Pigs report, which will give a glimpse to the current and potential size of the U.S. Hog herd in the coming months.

Technical Notes

Looking at the daily chart for June Lean Hog futures, we notice what appears to be a "V" bottom technical formation. Also note that volume "spiked" as recent lows were made, and prices later reversed to close higher on the session. Since that time, we have seen a nearly $4 per hundredweight upside rally, as weak bears have covered short positions. Though prices are now trading above the 20-day moving average (MA), we are still nearly $5 below the 200-day MA, which is hovering near the 96.500 price level. The 14-day RSI has moved out of oversold territory, and is now reading a rather neutral 51.20. The "spike" low of 87.100 looks to be strong support for June Hogs, with resistance found at the February 21st high of 92.625.

Mike Zarembski, Senior Commodity Analyst



March 28, 2013

Bond Traders Flock To Safety as Cyprus Banks Open

Thursday, March 28, 2013

Cyprus and Italy have created a sense of uneasiness among many Bond traders, who have chosen to shift their funds into US treasuries. Italy could restart the cycle of higher borrowing costs triggering solvency fears, resulting in lower EU bond prices, resulting in higher borrowing costs across the region. The renewed EU fears and softer economic data in the US could drive Bond prices higher. Home sales have been a bright spot, even when other economic data has been poor and lackluster. If the Fed sees this trend reversing, there is a very strong likelihood the central bank will step in to throw the real estate market a life preserver.

Fundamentals

Bond futures are higher for the fourth consecutive session, as Cyprus' banks reopened for the first time in nearly two weeks. The embattled island nation has put safeguards in place to prevent bank runs, including a €300 daily withdrawal limit and not allowing any funds to leave the nation. Despite its small size, the Cyprus situation has reminded traders that the banking situation in the EU, despite improving, is far from being well. Italy's cost of funding has risen, sparking fears that Italy may be the next Eurozone nation to ride the carousel of panic. A result of the turmoil has been a flight to quality for fixed income traders, which has benefited US treasuries. Yesterday's soft pending home sales data also makes it difficult to argue that the Fed will remove its stimulus programs anytime soon. Economic growth continues to be a major concern for the US, EU and Japan. There has been some talk that traders may include China in the mix of nations more concerned about growth than inflation, which is rare.

Technical Notes

Turning to the chart, we see the June Bond contract rallying in recent sessions, making a run at resistance at the 145-00 level. A move above the 100-day moving average could also offer confirmation of an upside breakout should the futures move above 145-00. The average currently sits at 146-05. A breakout above this level suggests that Bonds could fall into the wide trading range between the mid 140's and low 150's, where the futures spent much of 2012. A result of the recent price action has been the overbought condition of the RSI. The momentum indicator has remained relatively flat, hinting at near-term weakness.

Rob Kurzatkowski, Senior Commodity Analyst