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May 2013 Archives

May 1, 2013

Corn Price Volatile as Late Plantings Trigger Rally

Wednesday, May 1, 2013

Commodity funds and small speculators appear to have turned bearish on Corn futures, as the outlook for a potential record harvest seemed to portend lower prices this fall. However, experienced grain traders will note that weather related rallies are not uncommon every season, and this year's slow start to Corn plantings is amplified from tighter old-crop inventories after last season's drought. Monday's limit move in old-crop months may have been tied to short-covering by speculators, especially after near-term chart resistance levels failed to hold.

Fundamentals

The Corn futures market received a jolt to end the month of April, as a cold and wet spring in the eastern and central parts of the Corn Belt has sparked fears of late plantings and possible acreage losses, which triggered a limit-up move in nearby futures prices. As of April 28th, the USDA reported that only 5% of the U.S. Corn crop had been planted, compared to nearly 50% last year. The key Corn producing states of Iowa and Illinois were 2% and 1% planted respectively, versus 36% average for the past 5 years. Weather forecasts are calling for more rainfall in the coming days, with the potential for an additional 3 to 5 inches seen in Iowa, Eastern Nebraska and Western Illinois, which will further delay planting in these important Corn producing states. However, this increased moisture should help to elevate some of the lingering dry conditions in the western areas of the Corn Belt, which has been mired in a moderate to severe drought. Though Corn plantings are at their lowest levels in nearly 30 years for this time of year, what really seems to "make or break" Corn production is weather conditions during July and early August. So if Mother Nature does not send a repeat of last year's severe drought, there is still room for above average yields, despite a late start to the Corn crop.

Technical Notes

Looking at the daily chart for December Corn, we note the two-day rally in prices which added nearly 50-cents to new-crop prices before a late session sell-off on Tuesday capped the up-move. Some of this late selling may have occurred once it appeared that prices would not reach recent highs near 575.00. Corn momentum has moved from near oversold levels earlier in April to a more neutral reading of 56.39 on the 14-day RSI. The high made on March 27th of 573.75 looks to be the next resistance level for December Corn, with support found at the 20-day moving average, currently near the 539.50 price level.

Mike Zarembski, Senior Commodity Analyst



May 2, 2013

Late Corn Plantings Could Boost Bean Crop Size

Thursday, May 2, 2013

Soybean futures have been under pressure in recent weeks, despite the prospect of late plantings. The delay in plantings could actually result in higher Soybean plantings from farmers that missed the window in Corn. Some traders are also concerned about slowing growth in China, which may result in decade low demand, as well as record South American exports. Central bank activity should be supportive for commodities as a whole. The Fed indicated that it would continue easing, and even opened up the door for an expansion of QE. The ECB lowered interest rates to a record low 0.50%, as it attempts to get the Eurozone economy back on track.

Fundamentals

Soybean futures have largely taken a back seat to Corn, as weather conditions have pushed back Corn plantings. Soybeans typically are not planted until the very end of April into May, lessening the concern about the late start. As we saw last year, early and large plantings do not always equal a large crop. Likewise, some Soybean traders have not been overly concerned about the planting conditions to this point. With the most recent cold snap hitting the Corn Belt, some acreage may get diverted to Beans from Corn. Some traders have already been concerned that South American Bean exports could reach record levels this month, which could cause a glut of old-crop inventories due to shipping vessels. Some traders are expecting the next plantings report to show an increase of between half and one million acres. The 10-day weather forecast shows dryer and warmer conditions for much of the growing region, which would be conducive to planting.

Technical Notes

Turning to the chart, we see the November Soybean contract continuing to trend lower. Prices did get a brief boost from technically oversold conditions and support just below the 1200 level. The boost, however, failed to garner any sort of momentum. Prices failed to cross the major moving averages. The market did trade slightly above the 20-day average for several sessions, but was not able to convincingly breach the average. November Soybeans could gain some traction if prices are able to cross above the 1250 resistance level. Beyond the 1200 mark, additional support can be found at 1150 and 1134.50. The oscillators are showing neutral to bearish readings.

Rob Kurzatkowski, Senior Commodity Analyst



May 3, 2013

Will Natural Gas Price Rally Hurt Demand?

Friday, May 3, 2013

The front-month Natural Gas futures contract has run into some headwinds in its move to test chart resistance at the 4.500 price level. In addition to data suggesting that higher Gas prices may be causing power producers to switch to cheaper coal for running power generators, the weekly Energy Information Administration's (EIA) Gas storage report released on Thursday showed that U.S. Gas Storage rose by a larger than expected 43 billion cubic feet (bcf), versus the 30 bcf injection expected by traders. This bearish news caused the lead-month June futures to fall by over 7% after the figures were released. Speculators have finally started to move from a net-short position in Natural Gas to a net-long position after nearly 5-years of a vicious bear market for prices. However, we may need to see a continued stream of bullish data to convince these newly found Gas bulls that the rise in prices will hold.

Fundamentals

Although it appears that commodity prices are in the midst of a bear market cycle, Natural Gas prices are bucking this negative price trend, with prices for the lead-month futures contract trading near its highest level since July of 2011. Colder weather this winter saw increased Gas usage for heating, which helped to alleviate the huge surplus of Natural Gas in storage. Gas in storage is running nearly 7% below the 5-year average for this time of yea, and over 30% below last year's totals. Electric producers have been switching away from coal and moving increasingly towards Natural Gas as the fuel of choice for power production the past few years, as environmental constraints and cheaper prices favored Natural Gas as a fuel source. However, the sharp price gains seen in Gas prices this year are starting to make coal appear to be a more attractive fuel source for some power suppliers. April's coal usage by power plants rose 13%, while Natural Gas usage fell by 11%. It may be too early to confirm that is the start of a trend towards lower Gas usage, but we are certainly seeing signs that end users may reduce Gas usage if prices rise sharply compared to alternative fuel sources.

Technical Notes

Looking at the daily continuation chart for Natural Gas futures, we notice that prices have moved upward in fits and starts since major lows were made back in April of 2012. Prices have recently slipped from 21-month highs, but remain well above long-term support levels seen near the 3.450 price area. There is a bearish divergence forming on the 14-day RSI, which might be signaling that, at a minimum, a short-term price correction may be forthcoming. After reaching overbought levels above 70.00, the 14-day RSI has turned neutral to weak, with a current reading of 47.67. Near-term support is seen at the psychological 4.000 price level, with chart support not seen until the April 4th low of 3.861. Near-term resistance is seen at the recent high of 4.444, with longer-term resistance found near the 5.000 level.

Mike Zarembski, Senior Commodity Analyst



May 6, 2013

S&P 500 Futures at Record Levels!

Monday, May 6, 2013

Equity market bulls rejoiced after better than expected employment data gave traders the confidence to send the S&P 500 index to record levels on Friday. However, not all the economic data released on Friday was bullish. The Institute for Supply Managers Non-Manufacturing Index for April came in at 53.1, vs. expectations for a reading of 54.0. Though readings over 50 are considered expansionary, the pace of expansion slowed last month. Other ISM sub-indices also showed signs of slower expansion, including the employment index (52.0 in April vs. 53.3 in March) and the business activity index (55.0 in April vs. 56.5 in March).

Fundamentals

Finally some good news on the employment front, as the Labor Department announced that April non-farm payrolls rose by a better than expected 165,000 jobs. However the real positive news was in the monthly revisions. Here March's figures were revised higher by 50,000, and February's jobs totals were raised by 64,000. The unemployment rate fell to 7.5% in April. This was the lowest unemployment reading since December of 2008. All of April's gains were in the private sector, which posted a rise of 176,000 jobs last month. Government payrolls continue to decline, shedding 8,000 jobs, with losses seen at the postal service and at the state and local levels. The reaction in the markets to the favorable jobs report was robust, with equity futures soaring to new highs, and the S&P 500 trading above 1600.00. Treasury futures were among the biggest decliners on Friday, as some traders moved out of safe haven assets like bonds and into equities. The U.S. Dollar was also weak against most major currencies, with the exception of the Japanese Yen, which was down over 1% vs. the "greenback".

Technical Notes

Looking at the daily continuation chart for the E-mini S&P 500 futures, we notice prices "spiking" higher after the better than expected data on U.S. employment. Although the rally appears to be gaining momentum, we must note that trading volume has been light the past several sessions, and the 14-day RSI is displaying a bearish divergence, as this momentum indicator has failed to make a new high reading despite a move to all-time highs on Friday. 1650.00 is seen as the next resistance level, with support found at the April 18th low of 1530.75

Mike Zarembski, Senior Commodity Analyst


May 7, 2013

Hot, Dry Weather Spurs Cocoa Prices

Tuesday, May 7, 2013

Cocoa has been one of the top performing commodity markets in recent weeks due to the adverse growing conditions in West Africa. After very weak Q1 European grindings and Asian demand, confectioners have indicated that European activity has picked up. The combination of smaller output and better demand has bucked the trend of weak fundamentals in the softs market lately. Thus far, the Euro has only been able to post modest gains versus the greenback. If the currency can perform more strongly versus the Dollar, Cocoa prices could heat-up once again. The bearish divergence between price and RSI hints at a possible reversal. However, it is difficult to gauge when the market will reverse, if it does, and the scope of the move, so traders may look to the chart to give a more concise reversal pattern.

Fundamentals

West African mid-crop production is expected to fall short of earlier forecasts, which has supported prices over recent weeks. It is not only the size of the mid-crop that has been a cause for concern, but also the quality of Cocoa beans after the hot, dry weather. The mid-crop harvest has begun, and some traders are reporting undersized beans and lower output. Pockets of the growing region are expected to see scattered rainfall over the next week, but the rain is too little, too late for most farmers. The demand portion of the equation has been somewhat surprising for many market observers. After a disappointing first quarter, it appears that demand has ramped-up. Several European confectionary firms have reported better revenue streams from the Eurozone, suggesting that European demand could compensate for softer Asian figures. The British Pound has been stronger versus the Dollar in recent weeks, and the Euro has been in a slow grind higher versus the greenback, which is likely supportive for prices.

Technical Notes

Turning to the chart, we see the July Cocoa contract trading above resistance at the 2500 level. After breaking through the level, prices have consolidated over the past several sessions. Prices have also moved above the 50% retracement of the sell-off from September highs to early March lows. The next resistance levels can be found at the 61.8 % retracement at 2462.5 and 2525. The 14-day RSI remains overbought, but the oscillator has been falling, even as prices have climbed, creating bearish divergence. The divergence can be seen as a hint that the uptrend may be set to reverse.

Rob Kurzatkowski, Senior Commodity Analyst


May 8, 2013

Aussie Dollar Tumbles on Surprise Rate Cut

Wednesday, May 8, 2013

With the Reserve Bank of Australia ("RBA") lowering its benchmark interest rate to a record low 2.75%, we may see more volatility in the value of the "Aussie" Dollar vs. other major currencies, as trading activity has been rather quiet lately because prices have become range-bound. Traders will not have much down time following the RBA rate cut as they await the release of some key economic data to be released later this week that may significantly affect the currency's value. Among the key economic reports are Chinese balance of trade figures to be released on Wednesday, as well as Australian employment figures which will be announced on Thursday.

Fundamentals

The Reserve Bank of Australia ("RBA") surprised many currency traders by cutting the policy rate by 25 basis points to a record low 2.75%. In addition to the rate cut, the RBA also gave guidance that it would not be opposed to lowering rates further if conditions warrant. A strong Dollar has hurt the country's competitiveness in the export market, which has also suffered headwinds from slower growth prospects out of China, who is Australia's leading trade partner. Large speculators have used the Australian Dollar as the" long" currency in so called "carry trades", where traders hope to profit by buying a currency of a country with a higher short-term interest rate and at the same time selling a currency of a country with a lower short-term interest rate, such as the Japanese Yen. By lowering interest rates, and especially by stating an easing bias, the RBA has made this trade less attractive. This move out of the "Aussie" carry trade is evident in the AUD/JPY currency cross, which weakened by over 100 pips in the hours following the RBA announcement. Currency traders may wish to keep an eye on upcoming Australian economic data, as further weakness in these reports could signal a more aggressive move toward lower rates than the market anticipates.

Technical Notes

Looking at the daily continuation chart for Australian Dollar futures, we notice prices have been holding in a narrowing consolidation pattern going all the way back to the second half of 2011. The RBA's interest rate cut could spur further long liquidation selling, and a test of the lower trendline of this chart pattern should not be discounted. Prices are now trading below both the 20 and 200-day moving averages ("MA"), and momentum as measured by the 14-day RSI has turned lowe, with a current reading of 42.37. The March 4th "spike" low of 1.0104 is seen as near-term support, with longer-term support currently found near the 0.9900 price level. Near-term resistance is found at the 20-day MA, currently near the 1.0301 price level. Longer-term resistance is seen at the 200-day MA, currently near the 1.0357 area.

Mike Zarembski, Senior Commodity Analyst



May 9, 2013

RBOB Heating-Up Ahead of Driving Season

Thursday, May 9, 2013

Gasoline futures have halted the slide that began in mid-February, as some traders' have become emboldened by the immanent start to the driving season. Inventory levels of Crude Oil remain at multi-decade highs, but there is far more optimism in the US economy than a few weeks ago. The upbeat assessment of the economy and potential fuel demand could be premature, so longs could be cautious and easily rattled. Technically, the chart shows confirmation of a double-bottom reversal pattern, but prices have stalled since confirmation. Ideally, some traders would like to see more follow-through here as further confirmation.

Fundamentals

RBOB Gasoline futures seemed to have found stability above the 2.700 level ahead of Memorial Day, which is considered the start of driving season. Some traders have become more optimistic that the US is separating from the pack and on track to have moderate economic growth this year. Yesterday's EIA report showed Cushing, OK stocks falling 652,000 barrels, but rising 230,000 barrels,overall in the US. The drawdown in Gasoline inventories was 900,000 barrels, which is more than the analyst estimate of 500,000 barrels. The inventory data gave RBOB bulls a shot in the arm and caused the WTI/Brent Crude Oil spread to momentarily trade down to 7.77. The enthusiasm could be short -lived, though, after traders dive deeper into the numbers. Crude Oil production is rising once again, and Gasoline inventories averaged 8.5 million barrels a day over the past month. While the Gasoline inventory stocks are down 2.4% versus last year, there are more than adequate supplies, barring an unforeseen spike in demand. Refinery runs were 87% of capacity, up over the prior week. Refining capacity should continue to increase, as seasonal maintenance work is basically completed.

Technical Notes

Turning to the chart, we see the June RBOB contract confirming a double-bottom formation. The measure of the pattern suggests prices could test the mid to high-2.90's. There is scattered congestion on the chart around the 2.9000-2.9250 area, which could act as resistance. The recent closes above the 20-day moving average suggest that a near-term low may be in place. The momentum indicator is just below the zero line. Crossing into the positive could be seen as bullish. The RSI indicator is currently in neutral territory, but threatening to push into oversold levels, which can be seen as neutral to bearish.

Rob Kurzatkowski, Senior Commodity Analyst



May 10, 2013

Oil Prices Rally Despite U.S. Inventories at 30-Year Highs

Friday, May 10, 2013

Front month Brent Crude continues to trade above $100 per barrel, although its premium to WTI Crude has fallen sharply the past few months. This "global" benchmark grade is seeing weaker energy demand from Europe, as well as increased supplies coming from North Africa producers, especially Libya, which is a major oil exporter to Europe. The opening of additional pipelines to move Oil out of storage in Cushing, Oklahoma, the delivery point for the NYMEX WTI futures, is also helping to tighten Brent's premium to WTI. The EIA reported a decline of 652,000 barrels of Crude from Cushing last week, which kept storage levels below the 50 million barrel level for the second consecutive week.

Fundamentals

The WTI Oil price rally is like a cat with 9 lives, with continued talk of its demise due to huge domestic supplies and lower demand having failed once again to kill-off the bull market. The front month June futures are trading at 1-month highs, with prices holding near $96 per barrel despite the latest report from the Energy Information Administration (EIA) showing U.S. Oil inventories at over 30-year highs. The EIA reported that U.S. Crude inventories rose by 230,000 barrels last week, which put Oil in storage at 395.5 million barrels. The last time the U.S. had this much Oil inventory was back in April of 1981. Though analysts were looking for an even higher inventory build, a nearly 7% drop in Crude imports accounted for the lower than expected increase. WTI prices have also seen support from the continued unwinding of long Brent Crude and short WTI spreads, as Brent's premium has narrowed to under $8 per barrel from over $20 per barrel earlier in the year. Though we are seeing mixed data out of China regarding the strength of its economy, Oil imports rose in April to 5.64 million barrels per day, up 0.2 million barrels per day from April 2012. The gains in Oil prices are not yet translating to the Oil products, as weaker demand for both Gasoline and Heating Oil are keeping prices well below the highs seen back in February of this year.

Technical Notes

Looking at the daily continuation chart for WTI Crude Oil, we notice that since the February 2013 highs, the market has started to make a series of lower highs and lower lows. In order to break this negative pattern, we would need to see the front month futures trade above the April 1st high of 97.80. The 20-day moving average (MA) appears to be ready to cross above the longer-term 200-day MA again, after a brief correction in the latest up-move that turned into a "bear trap". The 14-day RSI has turned up, with a current reading of 59.52. The first line of resistance is seen at the recent high of 97.17, with strong resistance seen at the aforementioned 97.80 price level. Near-term support is seen at the 200-day MA, currently near the 92.08 price area, with significant chart support found at the May 1st low of 90.11.

Mike Zarembski, Senior Commodity Analyst


May 13, 2013

Grain Prices Fall on Higher USDA Stocks Estimates

Monday, May 13, 2013

Strong demand for Soybean Meal has kept U.S. Soybean crushers busy, spurring demand for old-crop Soybeans, which is keeping old-crop supplies tight. Demand is strong enough that some processors are willing to pay a significant premium to pry old-crop supplies from storage. With current estimates still looking for a bumper Soybean crop this season, bullish old-crop/new-crop spreads have rallied sharply, with the widely watched July/November Soybean spread once again approaching a $2 per bushel, July premium to the November futures. This is the highest this spread has traded since October of last year, and we may see the July premium continue to widen in order to help ration tight old-crop supplies ahead of the harvest this fall.

Fundamentals

The USDA May crop report reaffirmed the belief that a rebound in U.S. crop production this summer may help replenish tight inventories this fall. For Soybeans, the USDA estimates 2013-14 carryout at 265 million bushels; this was 26 million bushels above the pre-report estimate and more than double the 125 million bushel carryout for the 2012-13 marketing year. The potential for a record 14 billion bushel plus Corn crop this season allowed the USDA to forecast 2013-14 Corn carryout at 2.004 billion bushels, which is well above the 1.973 billion bushels some traders were expecting. 2012-13 Corn carryout was raised by 2 million bushels to 759 million bushels from the April report. Other items of note from the USDA included higher winter wheat estimates for this season's crop, with U.S. producers expected to produce 1.486 billion bushels, vs. 1.477 bushels expected.

Technical Notes

Looking at the daily chart for November Soybeans, we notice prices holding below the recent consolidation range, although any attempts to move below psychological support at 1200.00 have been met with buying interest. Prices are hovering near the 20-day Moving Average ("MA"), but are nearly $1 per bushel below the longer-term 200-day MA. The 14-day RSI is neutral to slightly weak, with a current reading of 43.26. The lows made back on April 24th at 1186.50 looks to be the next chart support level, with resistance found at the high made on April 30th at 1240.25.

Mike Zarembski, Senior Commodity Analyst


May 14, 2013

Retail Sales, Weak EU GDP Forecast Boost Dollar

Tuesday, May 14, 2013

The Dollar Index has a number of positive factors going for it this week, including better than expected retail sales, a negative EU GDP forecast, and turbulence in the JGB market. The better than expected retail sales data could result in the FOMC curbing it's bond buyback program. If that happens, rates could rise, as could demand for greenbacks. On the flip side, the Japanese Yen could attract more interest due to extremely technically oversold conditions. Net shorts by hedge funds have risen to levels that could be interpreted as oversold. Some traders may also tread lightly ahead of Eurozone and German GDP data, which will be released tomorrow.

Fundamentals

The Dollar Index has retreated slightly, after testing late March highs after April retail sales figures showed slight growth. Retail sales, which account for 30% of consumer spending, decreased by 0.5% in March, and the consensus estimate was another decrease of 0.3% in April. The 0.1% increase, while not earth shattering, did beat the street and show signs of growth. The Euro, which has a 57.6% weight in the Dollar Index calculation, comes into the week on a bearish note, as GDP is forecast to show economic contraction across the Eurozone for the sixth consecutive quarter. Currency traders are looking at markets heading in opposite directions. The Japanese Yen, which has the second highest weight in the Dollar Index at 13.6%, remains in a free-fall. Japanese Government Bonds narrowly avoided their third consecutive trading halt in as many sessions, as some traders continue to dump them in favor of stocks.

Technical Notes

Turning to the chart, we see the June Dollar index closing just below the late March high close of 83.411. In order for the market to regain its upward momentum, prices need to cross through this level or risk getting stuck in range-bound trading. On the downside, prices must maintain the recent low close of 81.522 or risk falling into the high 79's. The RSI is currently giving neutral readings, suggesting the market could potentially move higher without much technical selling pressure. Momentum is moving higher at a more rapid pace than RSI, creating slight bullish divergence.

Rob Kurzatkowski, Senior Commodity Analyst


May 15, 2013

Will Palladium Outshine Gold in 2013

Wednesday, May 15, 2013

From 2011 to 2012, investment demand for Palladium rose by over 1 million ounces, with strong investor interest in physical Palladium exchange traded funds (ETF's) a key component in this rise. The steep sell-off in Gold prices this year in addition to rising equity prices has taken some investor interest away from precious metals, but potentially supportive fundamentals may peak traders' interests once again, should prices regain levels seen earlier this year.

Fundamentals

The precious metals sector has been shunned by many investors this year, with the historic fall in Gold prices capturing all the headlines. However, supportive fundamentals in the Platinum metals group (PMG) may start to peak traders' interests. Palladium has been the best performer of late, with a forecast by metals processor Johnson Matthey calling for supplies of this precious and industrial metal to remain tight this year, after falling into a 1.07 million ounce deficit in 2012. Palladium supplies have fallen to 6.55 million ounces, which is the lowest supply level in 11 years. Demand rose by 16% last year, as its use in catalytic converters for gasoline powered automobiles increased due to higher production in Asia. Russian sales of Palladium from state-held reserves continue to fall, with only 250,000 ounces brought to market. The wild card this year may come from South Africa, where potential labor issues may shut mines possibly affecting the production of Palladium, Platinum, and Gold. Should labor issues curtail Palladium production for any length of time, we could see potential upward price pressure in the coming months, especially if demand continues to hold at expected levels.

Technical Notes

Looking at the daily chart for June Palladium, we notice prices rebounding to the 61.8% Fibonacci retracement level from the March highs to the April lows. Prices are now well above both the 20 and 200-day moving averages (MA), and momentum as measured by the 14-day RSI has tuned stronger, with a current reading of 58.83. The next resistance level is seen at 750.00, with support seen at the 20-day MA, currently near the 690.50 price level.

Mike Zarembski, Senior Commodity Analyst



May 16, 2013

Gold ETF Holders Run to the Hills

Thursday, May 16, 2013

What a difference a few months make for the Gold market! The metal has gone from a safe haven asset and inflation hedge to an underperforming asset, and some traders are trying to lessen their exposure. Weaker European growth and Japanese deflation concerns could continue to prop-up the US Dollar versus the other majors. The technical breakout in the Dollar Index suggests the average could run another 400 points, which could make any new Gold longs skittish.

Fundamentals

Gold futures have taken another hit this morning, as some traders continue to shed ETF holdings of the metal. Since the beginning of the year, ETF holdings have fallen 16%. The notable names that have reduced their holdings include Soros, Northern Trust, and Blackrock Holdings. Some traders had stockpiled Gold during the financial crisis, and continued to add to their positions as the metal rallied. However, current economic conditions have failed to induce further panic. At the same time, lackluster growth has failed to inspire demand for the metal as an inflation hedge, despite central banks' best efforts to stimulate growth. The Dollar Index appears to have made an upside breakout, which could continue to drive the currency higher. A stronger greenback could dissuade some potential value buyers from testing the market.

Technical Notes

Turning to the chart, we see the June Gold contract failing to confirm a reversal pattern. June Gold showed signs of a possible reversal in late April, only to have prices flatten out and,now reverse back. Prices did not even manage to test the 1500 mark before retreating once again. Fresh lows below 1350 could bring selling pressure. Currently, the RSI is at oversold levels, which could be supportive in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst


May 17, 2013

Sugar Prices Slump to 34-Month Lows

Friday, May 17, 2013

A look at the Commitment of Traders report shows a minor divergence between large and small speculative traders. As of May 7th, non-commercial traders (large speculators) were holding a net-long position including futures and options of 2,452 contracts. Non-reportable traders (small speculators) were net-short 17,755 contracts. What may be more interesting is the position of commercial traders. Here, commercials are net-long 15,303 contracts; however, this long position was lowered by over 11,000 contracts this week. This corresponded to a minor rally during this time period, and it will be interesting to see how these market participants adjusted their positions once the downward price move resumed this past week.

Fundamentals

Taking some poetic liberties from a popular Frank Sinatra song lyric, "They've got an awful lot of Sugar in Brazil" pretty accurately describes one of the major reasons why world raw Sugar futures prices are trading at 34-month lows as of this writing. Reports from Unica, Brazil's Sugar Cane Industry Association, show Brazil's Sugarcane harvest totals tripled in April from year ago levels, as ideal weather quickened the pace of harvest. A record Brazilian Sugarcane harvest comes at a time when analysts are forecasting a large global Sugar surplus of around 8.5 million metric tons this marketing year. However, a report from the International Sugar Organization earlier this week looks to raise the potential surplus to nearly 10 million metric tons! Although a large portion of the Brazilian cane crop will go towards ethanol production, it is expected that just over 40% of this year's record crop will still be used for food usage, which will not be enough of a reduction to make a significant dent in global Sugar inventories.

Technical Notes

Looking at the daily chart for July Sugar, we notice prices continuing to grind lower, as psychological support at 17.00 failed to halt the downward pressure on prices. Despite a move to 34-month lows, the 14-day RSI has remained above oversold levels, with a current reading of 32.88. Traders looking for a bottom in price will note that trading volume has fallen the past 10 days or so while prices were making new lows. This could be a sign that new bears are not entering the market at current price levels, and a short-covering rally may not be out of the question in the coming sessions. 16.00 is seen as the next chart support level for July Sugar, with resistance found at the 20-day moving average, currently near the 17.45 price area.

Mike Zarembski, Senior Commodity Analyst


May 20, 2013

Treasuries Weaken on Improving Consumer Sentiment

Monday, May 20, 2013

Federal Reserve officials are mixed as to the speed of and timing of scaling back its bond buying program. Inflation "hawks" among the Fed Presidents fear that the continued stimulus in the midst of improving economic growth could lead to rising inflation and potential asset "bubbles" as this liquidity flows into speculative assets. "Dovish" Fed members cite slow employment growth, as well as few signs that inflation is becoming problematic, and they wish to continue current accommodative monetary policies until employment levels show greater signs of improvement. Many traders will eagerly await the release of the minutes from the May 1st Federal Open Market Committee (FOMC) meeting on Wednesday to get a greater sense of the mood and opinions of the voting members of the FOMC.

Fundamentals

After a brief 2-day price rebound, U.S. Treasury futures prices resumed their downtrend, as consumer sentiment nears 6-year highs. The Thomson-Reuters/University of Michigan consumer sentiment index for May came in at 83.7, vs. expectations for a reading of 78.0. This increase has been attributed to a rising stock market and signs of improvement in the U.S. housing market. Improving consumer outlook may spur additional spending, which would go a long way toward improving the economic growth outlook. If economic growth improves, it would give further validation to the views of the more hawkish members of the Federal Reserve to begin unwinding some of the aggressive bond buying by the Fed that has kept interest rates near historically low levels. This belief has sparked a move by traders out of bonds and into better performing assets such as equities. Though the talk among many traders is for the Fed to possibility scale back their bond buying possibility as early as late summer, some analysts remain cautious that the Fed will act so quickly, as not all the recent economic data was positive. It was just this past Thursday when U.S. Jobless claims jumped to 360,000 and reports on the state of U.S. manufacturing were below expectations. However, is seems many market participants are willing to be "early" in a move out of treasuries rather than await further confirmation from the Fed on the timing of any "exit strategy" of its Bond purchases that, in reality, may take months or even years to fully accomplish.

Technical Notes

Looking at the daily continuation chart for 10-yr Note futures, we notice the recent price correction failed to reach the 200-day moving average (MA), which kept price momentum in the bear camp. A longer-term view has prices trading in a 5-point range for the past 12 months, and recent price action is holding the market in the lower half of this range. The 14-day RSI is turning weak, with a current reading of 40.25. Near-term support is seen at recent lows of 131-16, with long-term support at the March 8th lows of 130-00. Resistance is found at the 200-day MA, currently near the 132-25 price area.

Mike Zarembski, Senior Commodity Analyst


May 21, 2013

Gold ETF Holders Run to the Hills

Tuesday, May 21, 2013

Gold futures had a rough several sessions, as the metal has felt outside pressure from the Silver meltdown. Falling ETF holdings and speculation that the Fed will curb its asset purchases have had Gold bulls on the rebound. The next two days will be important for Gold traders, as statements from FOMC members may give more clues as to what the central bank plans to do next. Technically, it appears that the June Gold contract may be in the midst of forming a double-bottom pattern, which could mark a turning point for the falling Gold market.

Fundamentals

Gold futures rebounded yesterday, after falling sharply in the early part of the session. Value buyers stepped in, and the market was also aided by a weaker US Dollar and higher Oil prices. Today and tomorrow will be an interesting session, as St. Louis Fed President James Bullard is set to speak today, and Fed Chairman Ben Bernanke is set to testify in front of Congress tomorrow. If both Bullard and Bernanke focus heavily on the economic progress already made, it could be seen as bearish. This would strongly hint that the Federal Reserve is set to put the brakes on further asset purchases. On the flip side, if the focus is on inflation falling below the central bank's target, Gold may benefit, as this would suggest further easing is on the way.

Technical Notes

Turning to the chart, we see the June Gold contract rebounding after testing recent lows near the 1350 level. If prices can get above the relative highs at 1475, the chart could be seen as confirming a double-bottom pattern. A confirmed double-bottom could potentially fuel advances to the 1600 level. The oversold technical conditions may have helped prices stop their recent slide.

Rob Kurzatkowski, Senior Commodity Analyst



May 22, 2013

Silver's Wild Ride!

Wednesday, May 22, 2013

A look at the most recent Commitment of Traders report shows the combined (non-commercial and non-reportable) speculative long position for Silver has fallen to 11,436 contracts as of May 14th. This is a historically low net-long position being held in Silver and does not account for any additional long liquidations that appear to have occurred during Sunday's steep price decline. With the 14-day RSI moving into oversold levels and a fairly impressive price recovery from recent lows, a near-term bounce in prices would not be out of the question.

Fundamentals

Long-time Silver traders are keenly aware of the potential wild price swings that this precious and industrial metal can make, but even the most hardened metals traders may have become unnerved as Silver prices plunged just over $2 per ounce in about 5 minutes at the beginning of the Asian session on Sunday evening -- only to rebound sharply as the U.S. session came to a close. This decline sent prices to lows not seen since late 2010, and analysts have several theories on what may have triggered this extreme price move. The price of Silver is traditionally more volatile than its sister metal Gold, as the depth and liquidity of the Silver market is dwarfed by that of the "yellow metal". A large amount of speculative sell stops may have been triggered once the lead month July futures fell below chart support around the $22 price level, and the liquidity on a Sunday evening in the U.S. simply was not there to stem the volume of stops triggered, which likely could have contributed to the sharp price break. Some analysts even attribute the decline to a rally in the value of the Japanese Yen vs. the U.S. Dollar at the start of Asian trade, as some large speculative accounts were involved in a "carry" trade of long precious metals and short the Yen. The rise in the value of the Yen may have caused these large traders to unwind this trade, which could have added further selling pressure to Silver during an already illiquid time period. Silver prices have rebounded since the Sunday lows were made, and some metal bulls are beginning to ponder whether the "spike" downward may have been a signal of a potential near-term bottom as weak longs finally threw in the towel on their positions, only to watch prices close higher on the session. However, given the still negative sentiment for precious metals and a stock market making record highs, it may be premature to call a definitive end to the recent price declines in both Silver and Gold.

Technical Notes

Looking at the daily continuation chart for Silver futures, we notice prices tumbling to the top of the next major long-term support level between 15 and 20 dollars per ounce. Needless to say, the market is trading well below both the 20 and 200-day moving averages (MA), with the lead month contract currently $8 below the 200-day MA, which many technicians regard as the marker for whether a market is in a bullish or bearish long-term trend. The 14-day RSI has moved back towards oversold territory, with a current reading of 31.40. The low made this past Sunday evening at 20.250 looks to be the next support level for July Silver, with resistance found at the April 26th high of 24.795.

Mike Zarembski, Senior Commodity Analyst


May 23, 2013

Mild Weather, Gentle Ben Cool Nat Gas Market

Thursday, May 23, 2013

Milder weather conditions have cooled off the Natural Gas market after prices had risen more than 0.25 in recent sessions. Yesterday's testimony from Fed Chairman Ben Bernanke put pressure on the commodity markets as a whole. He suggested that the pace of asset purchases by the central bank may cool in the coming months if the economy continues to make progress. This was not unexpected by any means, but commodity prices took a hit, nonetheless. Natural Gas traders may want to keep a watchful eye on today's EIA storage data, which is expected to show a build of between 87 and 100 billion cubic feet. If storage increases in the upper range of expectations, prices could come under pressure.

Fundamentals

Natural Gas futures are slightly lower in overnight trading, as weather models have suggested temperatures will moderate. The central and eastern portions of the country are now expected to have slightly below average temperatures. Prior forecasts hinted at warmer weather, which could have fueled Natural Gas demand from air conditioning use by consumers and businesses. Natural Gas storage stood at 1.865 trillion cubic feet last week, after rising 99 billion cubic feet according to the EIA. This is about 5% below the five year average for this time of year. Today's EIA report is expected to show an inventory increase of between 87 and 100 billion cubic feet, according to analysts' estimates. This is in line with the five-year average build for the week of 90 billion cubic feet.

Technical Notes

Turning to the chart, we see the July Natural Gas contract pausing, after testing the 4.25 level. Prices have risen after testing the 4.00 mark, which can be seen as near-term support for the contract. Yesterday's candlestick was a spinning top, which strongly hints at a near-term price reversal. After confirming a double-top in late April, Natural Gas prices have not been cooperative with technicians. This far, prices have avoided the "stop line", which would make the pattern invalid. If prices are able to convincingly break the 4.00 and 3.75 support levels, selling pressure could ramp up.

Rob Kurzatkowski, Senior Commodity Analyst



May 24, 2013

Markets Anything but Quiet going into the Memorial Day Holiday Weekend

Friday, May 24, 2013

One of the strongest performing equity markets in 2013 has been the Japanese Nikkei 225 Index, which has rallied over 45% since the start of the year. Prices have gone up with only minor corrections until Thursday's 7% decline, which brought the June futures from a high of just over 16,000 to 14,665, as the market locked limit down after a fall of 1000 points. If we measure the move from the major lows just above the 8000 level made back in late November 2011 to the recent high of 16,000, we can still see a price correction all the way to the 12,000 price area and still not conclude that the bull market has run its course.

Fundamentals

Traders hoping to take a long weekend ahead of the Memorial Day holiday in the U.S. may wish to delay their plans for another day, as global equity markets posted sharp declines on Thursday, led by a 7% plus decline in the Japanese benchmark Nikkei 225 Index. The lower trend in the global equity markets began on Wednesday, after comments by the Federal Reserve Chairman Ben Bernanke hinted that the Fed may be ready to scale back its bond buying should economic conditions warrant. Although Chairman Bernanke was very clear that the Fed would proceed slowly in reducing its stimulus, and only if there was clear evidence of sustained economic improvement, some traders did not wait to book profits in long equity positions, especially after the steady rally in the S&P 500 that sent this U.S. benchmark index to all-time highs. Asian markets saw volatile trading, as the Nikkei fell by its largest amount in 2 years aided by a "spike" in Japanese Government Bond yields reaching the 1% level for the first time in over a year. The volatility in Japanese financial markets prompted the Bank of Japan (BOJ) to inject 2 trillion Yen into the country's financial system in hopes of calming financial markets. Some traders have once again moved to "safe haven" trades, such as long Yen, Gold and U.S. Treasuries -- all markets that have become out of favor with traders who have embraced rising equities markets the past several months. Although it is still too early to tell whether this current equity market sell-off is merely a long overdue correction to shake weak hands out of the market, or if recent highs are signaling a significant top in the market, we are fairly certain that some traders will be spending more time focusing on their computer screens than enjoying their BBQ's at the unofficial start of summer.

Technical Notes

Looking at the daily continuation chart for the Nikkei 225 futures, we notice a market that has moved in a near parabolic fashion since a breakout from the April 2012 high occurred in late December of last year. If we draw a Fibonacci retracement starting at the December 2011 lows to the highs made this week, we notice that a significant price correction is possible, with a test of the 50% retracement near 12050 is not out of the question. The 14-day RSI has gone from overbought readings above 80 to a more neutral 54.00 on Thursday's limit-down price move. The next support level is seen near the 23.6% retracement of the current price move near the 14135 area. Resistance is seen at this past Wednesday's high of 16020.

Mike Zarembski, Senior Commodity Analyst


May 28, 2013

Short Covering in Sugar Upcoming?

Tuesday, May 28, 2013

The Sugar market is set to have a third consecutive global surplus, according to most estimates. In the near-term, the conditions may be set for a possible short-covering rally. The market is oversold on both the RSI and COT report, the greenback has given back recent gains, and there is a growing sense that the massive supply glut has already been priced out of the market. Any rally that does occur from the short-covering may not have legs, as new longs have little incentive to enter the market due to the poor supply and demand outlook.

Fundamentals

Sugar prices are set to move higher for the third consecutive session due to technically oversold conditions and a softer US Dollar. The extremely large fund short position could make the Sugar market ripe for an explosive short-covering rally if funds decide to take their ball and go home. Fundamentally, there is nothing to entice fresh long positions. The International Sugar Organization predicts that the 2013-14 crop year will produce a surplus of no less than 3.5 million tons. The ISO also raised their 2012-13 crop year surplus by more than 1.4 million tons to 9.982 million tons from 8.526 million tons. At this point, Sugar has failed to inspire any positive headlines. The rising price of ethanol in Brazil could help work down the glut, but whether or not this will slow exports remains to be seen.

Technical Notes

Turning to the chart, we see the July Sugar contract coming up to test the 17.00 level after coming down to the mid 16.00's. The bounce can likely largely be attributed to the extremely oversold conditions on the RSI, which triggered short-covering. The RSI got as low as 19.11 and remains oversold, suggesting short-covering may continue. The July contract may still have room before it hits the downtrend line.

Rob Kurzatkowski, Senior Commodity Analyst


May 29, 2013

Platinum Prices Mooted Despite Potentially Bullish Fundamentals

Wednesday, May 29, 2013

Speculators, both large and small, continue to shed their net-long positions in Platinum, with the most recent Commitment of Traders Report showing a drawdown of 5,113 contracts for the week ending May 21st. This brings the total net speculative long position to 28,502 contracts. It may take one more "washout" of weak longs, possibly triggered by renewed selling in Gold, to remove any overhanging resistance selling in order for Platinum prices to potentially move higher later this year.

Fundamentals

Like Rodney Dangerfield's famous line "I get no respect!", the Platinum market is receiving little attention from traders, with prices becoming range bound the past several months, as this industrial and precious metal cannot seem to shake the negative bias against this commodity sector caused by the steep sell-off in Gold prices. Like its sister metal Palladium, the supply fundamentals seem to favor the bullish camp, with the Platinum market showing a 375,000 ounce deficit in 2012. Supplies of the metal outside of recycling fell to 5.64 million ounces in 2012, down 13% and at the lowest levels in over 10 years. One of the reasons bearish analysts cite for Platinum's lackluster price performance is weak growth prospects out of Europe. Platinum's usage as an autocatalyst, primary in diesel vehicles, rose by a moderate 1.7% in 2012, and since diesel vehicles make up a large share of the automotive sector in Europe, any further cuts in auto demand in Europe will likely hurt the demand for Platinum. The real wild card for Platinum supplies in 2013 will be the extent of any labor issues for the mining sector in South Africa, the world's largest producer of Platinum. Last week, Anglo American Platinum announced that it would begin the process of cutting 6,000 jobs, as lower prices for the metal and higher wage demands by mine worker unions have made it difficult to remain profitable. Any labor strikes or further mine closings have the potential to severely tighten supplies, especially if we do see further signs of a global economic rebound.

Technical Notes

Looking at the daily chart for July Platinum, we notice the market moving into a symmetrical triangle formation. This is normally viewed by market technicians as a consolidation pattern. Historically, it appears that these patterns resolve themselves in the direction of the major trend prior to this formation, but most analysts look for the direction of any breakout from the pattern on higher than average trading volume as a confirmation of the potential direction of the next price move. Prices are currently under both the 20 and 200-day moving averages, and the 14-day RSI is neutral to weak, with a current reading of 43.50. Support for July Platinum is seen at the April 16th low of 1374.60, with resistance found at April 9th high of 1560.00.

Mike Zarembski, Senior Commodity Analyst


May 30, 2013

Cold Chocolate

Thursday, May 30, 2013

Cocoa has quickly gone from one of the best performing commodity markets to virtual freefall very quickly. The Ivory Coast has been a surprise to traders, with high quality beans reaching port ahead of last year's pace. Cameroon is also reported to have excellent Cocoa bean quality, which leaves Ghana as the lone West African question mark. Cocoa prices may find a reprieve from the recent selling pressure from the US Dollar, which is currently consolidating. If the greenback falters, it could be a positive diversion for the market. The large non-commercial and non-reportable spec net long of over 58,000 contracts may be something traders may wish to closely monitor. A violation of the 2195 support level may sway longs to liquidate.

Fundamentals

Cocoa futures are modestly higher in early trading, after the market held a key support level yesterday. While the fact that Cocoa was able to keep its head above water for the time being on technicals can be seen as positive, the fundamental outlook for the market has shifted toward a bearish bias. The Ivory Coast has been unusually stable politically, lately, which has resulted in port arrivals being well ahead of last year's rate. Despite dryness, the Ivory Coast may have actually exceeded the ICCO's production forecast in both size and health of beans. In addition to supplies loosening up, there is the demand portion of the equation. There have been positive reports indicating European chocolate demand has been much stronger in the second quarter after a very disappointing first quarter. This may be overshadowed by negative economic data from the Eurozone.

Technical Notes

Turning to the chart, we see the July Cocoa contact holding above the key 2195 support level. Failure to hold this support level could trigger a liquidation of speculative longs. Yesterday's price action resulted in a spinning top candlestick, which hints at a possible near-term reversal. This happens to coincide with the 23.6% Fibonacci retracement level. Prices had actually almost reached the 61.8 retracement level in recent weeks, but failed to break through. Failed support on the chart and Fibonacci levels could be especially negative for Cocoa prices. Recent selling has resulted in the RSI falling to near oversold levels.

Rob Kurzatkowski, Senior Commodity Analyst



May 31, 2013

Quite Summer for Gasoline Prices?

Friday, May 31, 2013

Gasoline demand last week was at its highest levels since August of 2012, averaging just over 8.95 million barrels per day. However, U.S. gasoline inventories remain ample at 219.2 million barrels. The most recent Commitment of Traders report shows large speculators adding to existing long positions, with non-commercial traders adding 1,684 net-long contracts for the week ending May 21st. Commercial traders are taking the other side of the speculative trade adding 2,668 net-short positions last week.

Fundamentals

Now that Memorial Day has passed, the "official" start to the summer driving season in the U.S. has arrived, but some RBOB futures traders have greeted this normally volatile period for prices with a yawn, as the market remains range bound. The Energy Information Administration (EIA) in its most recent Short-Term Energy Outlook expects average regular grade gasoline retail prices to average $3.53 per gallon during the peak April to September driving season. This figure is 16 cents per gallon lower than in 2012 and 10 cents lower than earlier forecasts. Improved consumer sentiment should see U.S. motorists increase driven miles this summer. However, any gains in demand will likely be more than offset by increased fuel economy, as more fuel efficient and hybrid vehicles hit the roadways. This week's EIA energy stocks report provided Gasoline bulls a bit of a lift as U.S. Gasoline stockpiles fell by a larger than expected 1.5 million barrels, vs. the 300,000 barrel decline expected. A sharp increase in gasoline demand last week accounted for the surprising decline in inventories, although a larger than expected build in Crude Oil inventories muted some of the earlier price gains seen in RBOB futures by the close of trading.

Technical Notes

Looking at the daily continuation chart for RBOB futures, we notice what appears to be an upward channel forming the past several weeks, although prices are holding near the lower end of this range. Prices remain below both the 20 and 200-day moving averages, although both the long and short-term averages seem to be trying to converge. The 14-day RSI is neutral, with a current reading of 44.24. Support is seen at the May 1st low of 2.6879, with resistance found at the May 17th high of 2.9276.

Mike Zarembski, Senior Commodity Analyst