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July 2013 Archives

July 1, 2013

No Silver Lining for Precious Metals Bulls

Monday, July 1, 2013

The Gold/Silver ratio has been used by many traders and analysts as a way to gauge whether Gold prices are historically "cheap" or "expensive" relative to Silver. As of this writing, the Gold/Silver ratio was running just under 63 to 1, which means it takes about 63 ounces of Silver to purchase 1 ounce of gold. Looking at data for the past 30 plus years on this ratio, we have seen extreme readings of 14 to 1 back in 1980 during the infamous " Hunt brothers Silver squeeze," and a reading of just over 100 to one back in the early 1990's. Readings between 40 and 70 to 1 have been within the average range since the mid-seventies, which implies that the current 63 to 1 ratio is showing Silver prices becoming oversold vs. Gold prices, but not yet at price levels that can be viewed as extreme.

Fundamentals

The media is abuzz regarding the sharp sell-off in Gold prices, but much less is being reported about its precious metal brethren Silver, which has experienced a much sharper price decline. Since recent highs were made back in late August of 2011, lead month Silver prices have declined by just over 60%, and are now trading just above $19 per ounce after falling to nearly $18 on Friday -- which is a price level not seen since the fall of 2010. Similar to Gold, the Silver market is experiencing a bout of long liquidation selling pressure tied to concerns that the Federal Reserve may begin to reign in its aggressive stimulus measures -- possibly as early as this fall -- as well as signs that inflation expectations remain subdued. Silver has historically been viewed as a much more speculative alternative to Gold, as its relatively lower price has attracted more small speculators to this market. The smaller size of the physical Silver market also has led to historically higher price volatility, which seems to be playing out in the recent performance for Silver prices during this historic precious metals bear market.

Technical Notes

Looking at the daily continuation chart for Silver futures, we notice prices failed to hold at the 20.00 price level, and have since moved sharply below this key psychological support area. If we go back in time to 2009, we note that Silver prices spent nearly 12 months trading in a relatively narrow $5 range between 15.00 and 20.00 per ounce. This consolidation pattern occurred prior to the most recent price run-up that took lead-month Silver prices to nearly $45 per ounce. Momentum is currently very weak, with the 14-day RSI well into oversold territory, with a current reading of 19.97. This oversold reading on the RSI may set the stage for a bout of short-covering buying, especially with Friday's higher close after prices fell to multi-year lows. Friday's low of 18.170 is now viewed as support for September Silver, with resistance found at 20.175.

Mike Zarembski, Senior Commodity Analyst


July 2, 2013

Metal Sell-off Triggers Value Buying

Tuesday, July 2, 2013

The sell-off in Gold prices has brought some buying interest from value-minded investors, and has triggered some short-covering. Gold's failure to break through the 1200 mark on the downside has given some life to Gold bulls, but the question is now whether or not Gold can build from this short-term momentum. The price of the metal has not fallen below the break-even level for some mines, and there are potential labor problems in South Africa on the horizon, which could tighten supplies. If this supply tightness is paired with strong Asian and central bank demand, the ceiling for Gold prices could be high. The Fed, however, could rain on the bulls' parade if the central bank remains unwavering in their interest rate policy. Labor data, capped off with non-farm payrolls on Friday, could make this a volatile week for metals.

Fundamentals

Gold futures are higher for the third consecutive session, as some strategic investors view the price of the sell-off of the metal as excessive. While more speculative traders, such as funds, take a breather on the sidelines, central banks and some longer-sighted investors in the Middle East and Asia may view the 23% sell-off in the metal as a buying opportunity. Short-covering can be viewed as another reason for the rebound over the past few sessions. This was not surprising given the fact that the metal had tested the 1200 level and has failed to break through with any conviction. Also, some shorts may have chosen to exit the market in lieu of holding their positions through the Fourth of July holiday and job data later this week. Gold prices have fallen below levels that would make some mines unprofitable, suggesting that some mines may either curb production or go off-line until the price of the metal increases. The break-even points for South African mines may increase later this month, as labor talks between unions and mines kick off. The unions have a number of demands, including sharp wage increases. South African mines could fight the wage increase, which could lead to labor turmoil and strikes, or cave in to mine workers. Either scenario could potentially be bullish for Gold prices.

Technical Notes

Turning to the continuous chart, we see the August Gold futures contract reversing, after testing the 1200 level last week. While the reversal is encouraging for bulls in the short-term, the ferocity of price action has failed to match the selling pressure leading into the reversal thus far. The 1200 level is technically significant in the near-term, as there is very little support between it and the 1000 support mark. Failure to hold 1200 could kick-off a fresh wave of selling pressure. If Gold futures manage to take-out the 1300 level on the upside, the market may see additional short-covering, potentially accelerating the rally. Despite the bounce in prices, the RSI remains oversold, which could be supportive of prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst



July 3, 2013

Will it be a "Cruel Cruel Summer" for Natural Gas Bulls?

Wednesday, July 3, 2013

Natural Gas in storage as of June 21st totaled 2,533 bcf, which was 31 bcf below the 5-year average for this time of year, as increased industrial usage helped to offset production increases from shale formations. The Energy Information Administration (EIA) will be releasing the weekly gas storage report one day earlier this week due to the upcoming 4th of July holiday. The report will be released today at 12 pm ET, with analysts expecting a storage build of 71 bcf last week.

Fundamentals

Not just the lyrics to the 80's hit single by the English group Bananarama, but a potential reality for Natural Gas bulls, as prospects for a mild start to the summer cooling season have sent Natural Gas futures prices to nearly 4-month lows. Last Thursday, the EIA reported that Natural Gas injections into storage last week rose by 95 billion cubic feet (bcf), which was well above the pre-report estimate of a build of 89 bcf, and the 8th consecutive week of above average injections. The start of summer usually portends increased Natural Gas usage as power producers increase production to meet the increased needs for air conditioning. However, the eastern portions of the U.S. have seen moderate temperatures the past few weeks, and weather forecasts are calling for cooler than normal temperatures for central portions of the U.S. to start the month of July, with only the coastal regions of the country looking for above normal temperatures through the 4th of July weekend. Longer-term forecasts seem to be calling for potentially warmer weather to spread throughout the U.S. towards the middle of July, which could spur some short-covering buying after the long holiday weekend. Despite front month Gas prices trading below $4/mm btu, U.S. Gas production in the lower 48 states rose by 0.8% in April to 73.24 bcf per day. Increases in Gas production may help to alleviate the moderate Gas storage deficit as compared to the 5-year average for this time of year. With increased U.S. Gas production occurring away from the Gulf of Mexico, the seasonal hurricane "risk premium" normally seen in the late summer and early fall contract months has been muted on the belief that any significant reduction in production due to storm damage in the Gulf may be more than offset with Gas production from inland shale formations which are located well outside of the "risk zones" for tropical storms.

Technical Notes

Looking at the daily chart for August Natural Gas, we notice prices trying to hold above psychological support at 3.500, although the momentum continues to favor Natural Gas bears. The 20-day moving average (MA) has recently crossed below the 200-day MA, which is typically viewed as a bearish indicator by many technical traders. The 14-day RSI is holding just above oversold levels, with a current reading of 34.73. Chart support is seen at the February 19th low of 3.404, with resistance found at the June 12th low of 3.729.

Mike Zarembski, Senior Commodity Analyst


July 5, 2013

Fields of Corn as Far as the Eye Can See

Friday, July 5, 2013

The speculative net long position for Corn is dwindling rapidly, as a moderate long position by large speculators has been nearly offset by a growing short position being held by smaller traders. The most recent Commitment of Traders report shows a combined non-commercial and non-reportable net-long position of only 4,949 contracts as of June 25th. These totals were calculated just prior to this past Friday's bearish Corn acreage report that sent new-crop December Corn down over 30 cents per bushel. With prices testing the 500.00 level as we write, we may see speculators becoming increasingly net short Corn futures if the growing season progresses without incident.

Fundamentals

There is no "Cornfusion" among analysts regarding whether U.S. grain producers planted a lot of Corn this season, but the USDA confirmed this belief in the June planted acreage report released last Friday, with an estimated 97.4 million acres dedicated for Corn production this season. The USDA figures were over 2 million acres more than pre-report estimates, and if accurate, will be the largest Corn acreage total since 1936. A bumper Corn crop is vital to help replenish tight domestic inventories, currently projected at 2.76 billion bushels as of June 1st. This is the tightest old-crop inventory in 16 years, as the severe drought last summer led to a disappointing harvest. There is some talk among traders that the USDA may be overstating the Corn acreage estimate, as wet field conditions in parts of the Corn Belt may have prevented late Corn from being planted, causing producers to shift to alternative crops, such as Soybeans, which have a shorter growing season. The potential for a record harvest and current tight Corn inventories sent the old-crop/new-crop Corn spreads soaring, with the old-crop July 2013 contract gaining over 20 cents on the new-crop December contract just this past Friday. However, concerns that cash prices may be topping and a potential bin-busting supply of Corn this fall, has finally convinced some producers to sell some old-crop Corn out of storage, which may help to cap the rise of the July/December Corn spread -- at least in the near-term.

Technical Notes

Looking at the daily chart for December Corn, we notice prices briefly traded below the 500.00 price level, but new buyers emerged as prices dipped below this psychological support level. The 14-day RSI is weak, but remains above oversold levels, with a current reading of 33.46. We have to go back to late 2010 to find the next major chart support level, which appears at the November 2012 low of 460.00. Resistance is seen at the minor chart 'gap" at 510.00.

Mike Zarembski, Senior Commodity Analyst


July 8, 2013

Crude Oil Risk Premiums Rise on Egyptian Conflict Concerns

Monday, July 8, 2013

The Brent/WTI Crude Oil spread has recently fallen below $4 per barrel Brent premium for the first time in nearly 2 ½ years, as the bottleneck of Crude in storage at the NYMEX delivery point in Cushing, Oklahoma is being relieved. Pipelines are allowing Crude held in Cushing to be moved to the Gulf Coast, where refiners are able to use this "cheaper" Crude instead of imported oil. Less expensive refining feedstock should help to increase refining profit margins and, in turn, should lead to increases in refinery utilization, as refineries are able to sell "product" at attractive levels. This is ultimately supportive for WTI prices, as we should see increased demand from physical buyers as long as the refining margins remain supportive.

Fundamentals

The bullish bias in the price of Crude Oil continues, with civil unrest in Egypt and Libya and improving economic data in the U.S. supporting Oil prices. Lead month August Crude is trading above $101 per barrel for the first time in over a year, as the Oil market has finally broken out of a year-long consolidation pattern. On the global front, tensions are running high in Egypt, as protestors are demanding the country's President, Mohamed Mursi, resign, and fears of a potential coup attempt by the Egyptian Army are sparking concerns that further unrest may spread throughout the region. In Libya, a labor dispute at the Zueitina Oil Company has curtailed about 1/3 of the country's Oil production. Improving sentiment on the strength of the U.S. economy got a boost when the U.S. Commerce Department reported that factory orders rose in May by $9.9 billion vs. April, to a seasonally adjusted $485 billion. This 2.1% gain was better than analysts' estimates and the third time orders have risen in the past 4 months. Crude Oil prices seemed to have bucked the trend towards lower commodity prices, triggered by a slowdown in China's economic growth and Europe's continued economic malaise, as well as fears that the Federal Reserve may begin to taper its bond purchases sooner than expected. The fact that Oil prices are not following the overall bearish commodity price trend that has been in place the past several months appears to add credence to the recent bullish strength, as Oil market traders seem to be ignoring bearish macro-economic concerns and have kept their focus on market specific fundamentals, which seem to be shifting quickly into the bullish camp.

Technical Notes

Looking at the daily chart for August Crude Oil, we notice prices briefly trading above 102.00 after the Energy Information Administration (EIA) reported that Crude Oil inventories fell by a larger than expected 10.347 million barrels last week. However, the rally stalled soon after, as traders long Crude Oil moved to the sidelines ahead of the Independence Day holiday. The 14-day RSI is strong, but has not yet reached overbought levels, with a current reading of 67.88. Wednesday's high of 102.18 looks to be the next resistance level for August Crude Oil, with support found at the 20-day moving average, currently near the 95.20 price level.

Mike Zarembski, Senior Commodity Analyst


July 9, 2013

BOE Expected to Continue Easing

Tuesday, July 9, 2013


The British Pound has been under extreme selling pressure since the middle of June, as some traders expect more easing from the Bank of England. The Pound has suffered the brunt of the Dollar's resurgence in recent weeks, despite improving economic conditions. The economic growth in the UK has largely been driven by the services sector instead of manufacturing, signaling the BOE will likely continue to be aggressive with monetary policy.

Fundamentals

British Pound futures have been in an extremely tight trading range, after plummeting at the tail end of last week. British economic growth has improved over the past quarter, which has been encouraging. However, forecasts show economic growth tapering off in the second half this year, which may spurn the Monetary Policy Committee to continue with expansionary policy to encourage a stronger recovery. The services sector has been a main driver behind the British economy, but the industrial sector has lagged, which is a cause for concern. There is a minority in the BOE that believes no further easing should take place and that the current environment could produce a slow, but sustainable recovery.

Technical Notes

Turning to the chart, we see the September British Pound contract trading down to test support at the 1.4830 support level. Thus far, prices have held this support level. Failure to hold 1.4830 could result in the Pound testing support near the 1.4250 level, the May 2010 lows. Currently, the RSI is showing oversold levels, which could be supportive of prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

July 10, 2013

Slowing Employment Growth in Canada Keeps the "Loonie" Grounded

Wednesday, July 10, 2013

Since the start of 2013, the Canadian Dollar has lost nearly 6% vs. its U.S. counterpart, as curtailed demand for commodities due to slowing growth in both China and Europe have hurt the so called "commodity currencies" such as the Canadian and Australian Dollars, the Brazilian Real, and the South African Rand. Currency traders will likely be focusing on whether new Bank of Canada Governor Stephen Poloz will drop the Bank's overall hawkish bias towards interest rates, especially given the current outlook for economic growth and inflation in the second half of 2013.

Fundamentals

The Canadian Dollar continues to weaken against the U.S. Dollar, as slower growth on the employment front in Canada is expected to keep the Bank of Canada (BOC) from becoming overly "hawkish " regarding its interest rate policy. Last week, Statistics Canada released the data for the June employment report, with the unemployment rate holding steady at 7.1%. An average of 14,000 jobs were created each month during the first half of 2013, which was nearly half the growth rate seen during the last half of 2012. Employment rose by 27,000 jobs in the professional, scientific, and technical services sectors last month, which more than offset the loss of 20,000 jobs in the accommodation and food services sectors. The slowing growth rate for employment in Canada contrasts with an improving jobs picture here in the U.S., with the U.S. Department of Labor reporting a better than expected 195,000 jobs created in June and upward revisions for jobs created in both April and May. Canadian businesses appear uncertain about the country's economic outlook in the coming months, according to the recently released BOC Business Outlook Survey. The report shows businesses looking for inflation rates to remain subdued in the coming months, and slower sales growth translating to more firms delaying capital spending until the business climate improves. On the housing front, Canadian housing starts fell 2.5% in June to an annual rate of 199.586 units, and although housing starts declined, the results were better than some analysts expected. The homebuilding sector was expected to be a key contributor to the country's economic growth prospects this year, and recent figures still appear robust enough to contribute modestly towards growth in the 3rd quarter of the year.

Technical Notes

Looking at the daily continuation chart for the Canadian Dollar futures, we notice front month futures are trading near lows not seen since October of 2011. Monday's trade saw some short-covering buying emerge, after multi-month lows were posted on Friday after both the U.S. and Canadian employment reports were released. The 14-day RSI is hovering just above oversold levels, with a current reading of 36.14. Friday's low of 0.9409 looks to be initial support for the September contract, with resistance found at the June 27th high of 0.9574.

Mike Zarembski, Senior Commodity Analyst


July 11, 2013

Bernanke's Comments Drive Gold

Thursday, July 11, 2013

Gold has been one of the poorest performing commodity markets in 2013, tumbling as much as 27.6%. Many traders believed that the Federal Reserve was going to phase out quantitative easing and cut into stimulus significantly. While traders were right with regard to QE3 being phased out, Fed Chairman Bernanke has stated that the FOMC will continue to be accommodating until the economy fully recovers. This offered precious metal traders hope that the Fed will help US economic growth and, in turn, inflation. The 1200 level seemed to bring short-covering with it. If the market fails to hold this level, it could entice shorts to re-enter the market and bring another wave of heavy selling.

Fundamentals

After the release of the FOMC minutes, Fed Chairman Ben Bernanke indicated that the US will need a highly accommodative monetary policy for the foreseeable future. Gold bulls went into action after the statement, driving up the price of Gold as much as 4%. One of the key gauges the Fed is watching is the unemployment rate, which is down from its peak, but has been stuck in neutral. The FOMC will likely keep pumping in money until the rate falls to 6.0%. Currently, the unemployment rate sits at 7.6%. There also has been talk that the People's Bank of China may need to ease some of its policies for China to avoid a hard landing. Some traders are hoping that tame inflation will help influence the PBOC to take a softer stance on some of the money controls. A hard Chinese landing could hurt economic growth in other regions, as well as curb overall commodity demand.

Technical Notes

Turning to the chart, we see the August Gold contract forming a small W-bottom, suggesting a near-term reversal. Prices may encounter heavy resistance near the mid-1300's, as there is heavy chart congestion beginning in this area. Fresh lows below the 1200 mark could bring fresh selling pressure. The recent bounce in prices can also be attributed, in part, to the RSI showing technically oversold conditions.

Rob Kurzatkowski, Senior Commodity Analyst


July 12, 2013

Bond Prices Recover as "Taper" Timing Delayed

Friday, July 12, 2013

The U.S. Treasury complex received a boost from a solidly received auction of $13 billion 30-year Bonds. The bonds were sold at a yield of 3.660%, which was better than the 3.668% yield of existing bonds at the time of the auction. Higher yields attracted investor interest to the auction, as opposed to primary dealers, with 56.5% of the supply taken by this group.

Fundamentals

It appears that the Federal Reserve is not quite as ready to put the brakes on the $85 billion per month bond purchases program as the market anticipated, with the release of minutes from the most recent Fed meeting showing divided opinions on the timing of any stimulus pullback. In addition, dovish comments by Federal Reserve Chairman Ben Bernanke regarding employment and inflation are causing traders to buy back short positions in U.S. Treasury futures. Lead month September 10-year Notes are trading at 1-week highs as of this writing, with the yield on the cash 10-year Note falling below 2.60%. Bond prices received an additional boost on Thursday as weekly initial jobless claims rose to 360,000 vs. the 335,000 analysts were expecting. In addition to rising bond prices, equity index prices rose sharply, with the S&P 500 index trading above its all-time high closing price as continued stimulus from the Fed is helping to improve the sentiment for equity prices. The speed in which Treasury yields jumped the past few weeks was breathtaking as traders and investors seemed to all jumped at once to adjust positions and portfolio allocations to account for a rising interest rate environment. However, even if it appears that the Fed will prolong its highly accommodative monetary policies, it may be very difficult for Bond yields to fall to levels seen earlier this year unless we start to see a slew of dour economic data that would force the Fed prolong its Bond purchase program for the foreseeable future.

Technical Notes

Looking at the daily continuation chart for 10-year Note futures, we notice that moderate recovery in prices from nearly 2-year lows, after yields failed to rise much higher after a rather positive non-farm payrolls report for June was released last week. The 14-day RSI has recovered from oversold levels with a current reading of 41.12. We should note that trading volume has been rather light of late and the recent rally attempt is most likely to short-covering buying rather than new long positions being established. The next resistance level is seen at 127-02.5, with support found at the recent low of 124-11.5

Mike Zarembski, Senior Commodity Analyst


July 15, 2013

Cotton Rally Halted by Bearish USDA Report

Monday, July 15, 2013

The wild card for Cotton prices this upcoming season looks to be what China plans to do with its strategic Cotton reserves. Currently, China has been importing Cotton for its reserves, while the country's domestic prices remain well above the global rates. However, should Chinese government officials allow strategic stockpiles to be released into the market, we may see Chinese Cotton imports plunge, as the Chinese mills use domestic Cotton stocks to meet their near-term needs.

Fundamentals

Cotton bulls got some bad news from the USDA last week, as the June crop production and supply/demand report was deemed bearish for Cotton prices by analysts. The USDA raised its estimate for U.S. planted acreage for the 2013-14 season to 10.25 million acres, which is up from 10.03 million acres in the May report. Although the domestic acreage figure was considered only moderately bearish, especially considering that the estimated acreage abandonment figures were revised upward, the global supply and demand picture painted a darker picture for prices. The USDA reduced its forecast for 2012-13 U.S. Cotton exports by over 2% to 13.3 million bales, as U.S. Cotton sales have been disappointing the past several weeks. This puts into question whether exports will meet projected totals for 2012-13, with only 3 weeks left in the marketing year. World carry-out totals for 2013-14 were raised to 94.34 million bales, which if accurate would be a record high. So with the prospects for a huge global carry-out in 2014 and potentially lower U.S. exports, it may be difficult for Cotton prices to stage any meaningfully price rally without producer hedge selling emerging to take advantage of any up-ticks in prices.

Technical Notes

Looking at the daily chart for December Cotton, we notice the recent price rally that was stymied by the bearish USDA report occurred on lower than average trading volume. Prices are now trading below the short-term 20-day moving average (MA) but remain well above the longer-term 200-day MA. The 14-day RSI is neutral to weak, with a current reading of 46.73. The low made back on June 3rd at 81.72 continues to act as support for December Cotton, with resistance seen at the recent high of 89.56 that occurred on June 14th.

Mike Zarembski, Senior Commodity Analyst



July 16, 2013

Real Rally Gives Coffee a Temporary Reprieve

Tuesday, July 16, 2013

Coffee futures seem to have stabilized around the 120.00 area, after gaining some support from a stronger Brazilian Real. But, is a stronger Real enough to overcome bearish market forces? In addition to currency market action, the strong move higher yesterday can likely be attributed to short-covering. Prices failed to reach or break support at 1200 after several attempts, which may have prompted shorts to take their profits and reassess the market.

Fundamentals

Coffee futures posted their best daily gain in 10 weeks, after the Brazilian Real posted strong gains. The recent strength in the US Dollar has prompted many market observers to predict a higher rate of export from producers. The global Coffee market is already more than well supplied, prompting fears that higher exports could send prices tumbling even further. Rising equity prices, tumbling Bond prices, and erratic movements in currency exchange rates have created demand for commodities. This has provided outside market support for Coffee. These outside factors, however, may only offer a temporary reprieve for bulls. The Brazilian harvest is currently underway, and the weather has cooperated with farmers, which may add to the global Coffee surplus.

Technical Notes

Turning to the chart, we see the December Coffee contract trading above key support at the 120.00 level. Recent price action has strongly hinted at bottoming on the chart, but attempting to predict bottoms can be seen as haphazard in the volatile Coffee market. The RSI reached its relative low in late May, well before the recent lows in prices. This can be seen as a potential sign that the Coffee market may be bottoming.

Rob Kurzatkowski, Senior Commodity Analyst


July 17, 2013

Soybeans Rally on Supply and Weather Concerns

Wednesday, July 17, 2013

Some traders are expecting the U.S. to produce a record or near record Soybean crop this season, in order to alleviate tight domestic supplies. So far in the growing season, the U.S. Soybean crop is rated 65% good to excellent, vs. 67% last week. Although conditions declined somewhat last week, current ratings are well above the 34% good to excellent rating seen this time last year. The western areas of the Midwest, including Iowa and Minnesota, are seeing crop ratings trailing behind the 10-year average for this time of year, but this is being more than offset by well above average good to excellent ratings in the key Soybean producing states of Illinois (74%) and Indiana (73%).

Fundamentals

Soybean futures prices have received a boost lately, with tight current supplies buoying old crop months and hot and dry weather forecasts adding support for new crop futures. Old-crop August Soybeans are trading at their highest levels since September of last year, as U.S. Soybean Crush totals continue to run above estimates. This is especially supportive to prices given the nearly $2 premium old-crop Soybeans are commanding vs. new-crop prices. Strong demand for Soybean Meal is behind the bullish crush figures, and processors are willing to pay a premium for Soybeans currently to meet this demand. 6- to10-day weather forecasts are calling for dry conditions to continue, particularly in the south and western portions of the Midwest. The weekly drought monitor shows dry conditions spreading to the eastern parts of Kansas and Nebraska, as well as portions of Arkansas. The recent warm and dry spell sent the average Soybean crop rating down 2% to 65% good to excellent last week. Although the current crop ratings are running above average for this time of year, some traders are showing concern that any lingering weather problems could potentially lower average yields, which is even more critical this year given current tight old-crop supplies due to last season's devastating drought. This leaves little room for error in order to assure U.S. and global Soybean inventories can be replenished going into 2014.

Technical Notes

Looking at the daily chart for August Soybeans, we notice prices breaking out to the upside after a period of price consolidation that lasted for approximately 2 months. Prices are now moving well above both the 20- and 200-day moving averages, and trading volume has increased the past several sessions, despite being a rather quiet period for commodities in general, as many traders are off on summer vacation. The 14-day RSI has turned up, with a current reading of 61.49. 1500.00 appears to be the next resistance level for August Soybeans, with a close above this psychologically important price area potentially setting up a test of last September's highs near the 1570.00 price level. Support is seen at the recent low of 1401.00 made back on June 24th.

Mike Zarembski, Senior Commodity Analyst


July 18, 2013

Will the Aussie Show Signs of Life?

Thursday, July 18, 2013

The Australian Dollar has been able to right the ship in recent sessions, as some traders have begun to suggest that the market may have gotten too bearish on the currency. The Royal Bank of Australia ("RBA") released their minutes, which included language that indicated that the central bank has acknowledged that lower rates have hurt the currency and could drive inflation. The minutes triggered some short-covering, as some traders are unsure what to make of the Aussie. On one hand, the RBA seems to be acknowledging that its policies have harmed their currency. On the other hand, Australia's dependence on China and an economic slowdown may force the RBA to lower rates, nonetheless. Technically, holding the 90-cent level can be seen as positive for the currency, and could trigger some technical buying.

Fundamentals

The Australian Dollar has come under pressure in recent months due to economic and rate concerns. Australia has a close trade relationship with China due to the countries' proximity to one another and the wealth of raw materials in the nation's soil. It's no secret that China's economy is slowing much more rapidly than previously expected and the government may need to step up its expansionary policies to avoid a hard landing. The second consecutive quarterly slowdown in China has had a detrimental impact on the Australian economy. This has likely increased the likelihood that the Reserve Bank will cut interest rates to record low levels when the central bank meets next month. Currently, some traders are pricing in a 50% chance of a quarter point rate cut. Lower rates may limit the upside of the Aussie Dollar versus the US Dollar. Fed Chairman Ben Bernanke indicated that the Federal Reserve will begin scaling back treasury purchases later this year. This has caused interest rates to rise in the US, which may hurt the Aussie Dollar's chances.

Technical Notes

Turning to the chart, we see the September Aussie Dollar holding support at technical and psychological support at the 0.9000 level. The currency has been in a virtual free fall since early May, before stabilizing in recent sessions. Prices may gain some upward momentum on strong closes above the 0.9250 level, which could be seen as forming a small W-bottom. The RSI indicator has come back from oversold levels and is currently near the neutral 50 level. Momentum remains below the 0 line.

Rob Kurzatkowski, Senior Commodity Analyst



July 19, 2013

Bond Rally Struggles after Bernanke's Testimony to Congress

Friday, July 19, 2013

The recovery in the U.S. housing market took a detour last month, as both housing starts and building permits unexpectedly fell in June, led by a sharp decline in multi-family residences. Single family construction declined by 0.8% in June to a 591,000 annualized rate. However, home builders' optimism continues to climb, with the National Association of Home Builders sentiment index rising to 57 in July, which was the highest reading in over 7 years. Although rising mortgage rates may eventually slow the gains seen in the housing sector, historically low interest rates and low home inventories will likely help keep the housing market on a recovery path.

Fundamentals

Market participants might be starting to take note that the Federal Reserve really has not yet set a definitive date to begin tapering its $85 billion monthly asset purchases, with testimony before Congress from Fed Chairman Ben Bernanke taking on a decidedly dovish tone towards scaling back its accommodative monetary policies. In his prepared economic outlook to Congress, Chairman Bernanke seemed to focus more on potential downside risks to economic growth than we heard in earlier comments, which was viewed as a nod towards continuing its current rate of Bond purchase. In addition, Chairman Bernanke continues to emphasize that the Fed may not take any action on raising the Fed Funds rate for a significant amount of time, even if a reduction in the unemployment rate below 6.5% was achieved -- especially if the reduction in the rate was tied to lower participation in the labor force. Market reaction was swift after the testimony, with Treasury Bond futures prices initially rallying to 2-week highs, and the yields on cash 10-year Notes falling below 2.50%. Bond prices may have also received some support from some disappointing news on the housing front, with June Housing Starts falling 9.9% to a seasonally adjusted rate of 836,000, with building permits falling by 7.5%. Many analysts were expecting a gain of nearly 4% for housing starts last month, and it appears that the housing sector is beginning to show some of the negative effects of rising mortgage rates on this key economic driver. However, lower than expected weekly jobless claims last week and better than expected readings from the Philadelphia manufacturing activity index may weigh on Bond prices, as continued signs of improving economic activity could reassure the Fed that the economy can withstand a reduction in stimulus measures and speed up the start of tapering back Bond purchases.

Technical Notes

Looking at the daily continuation chart for Treasury Bond futures, we notice the recent price recovery of over 3 full points is occurring on lighter than average trading volume. This may be the result of mainly short-covering buying occurring during the past several sessions, with few new bullish positions being established. Prices have once again moved above the 20-day moving average ("MA") but remain over 10 points below the longer-term 200-day MA. The 14-day RSI is turning up and has moved into neutral territory, with a current reading of 43.55. The 7/3/2013 high of 136-27 looks to be near-term resistance for front month September Bonds, with support found at the 7/8/2013 low of 132-02.

Mike Zarembski, Senior Commodity Analyst



July 22, 2013

Will Short-covering Perk-up Coffee Prices?

Monday, July 22, 2013

The most recent Commitment of Traders report shows large speculators still holding a net-short position in Arabica Coffee futures of 20,586 contracts as of July 9th. However, last week saw a moderate increase of this short position, with an additional 1005 net short contracts added last week, most of which were purchased by commercial traders as prices fell below 120.00. With the market trying to form a base around the 120.00 price level and prices now trading at 5-week highs, we may start to see some serious short-covering buying emerge should the recent rally in prices hold. Producer hedge selling remains light, likely in hopes of higher prices in the coming weeks.

Fundamentals

Arabica Coffee futures have been caught in a bear market trend for months, as record off-year production from Brazil and good harvest weather have pressured prices. In addition to higher Coffee production, weakness in the value of the Brazilian Real vs. the U.S. Dollar has encouraged producer selling. Producers will receive more Reals from their Dollar denominated Coffee exports should the Brazilian currency weaken vs. the "greenback". Global Coffee consumption is estimated at nearly 142 million bags this coming marketing year, which is up over 1 million bags from last season, but still below global production estimates of over 146 million bags. Although prices remain near lows not seen since 2009, there are signs that short-covering buying is starting to emerge as speculators short Coffee start to close out positions as prices move below 120.00. In addition, it was announced that Coffee financing funds should be made available from the Brazilian government this week, which will provide credit lines for struggling growers and hopefully curtail physical Coffee sales by cash strapped producers. This likely would have put additional downward pressure on the market despite Coffee prices already trading near multi-year lows.

Technical Notes

Looking at the daily chart for September Coffee, we notice prices have broken out to the upside after trading in a 9-cent consolidation pattern for the past several weeks. However, Thursday's reversal, after failing to test chart resistance, could be a signal that a "bull trap" has been sprung. Prices are now above the 20-day moving average, and the 14-day RSI has turned up, with a current reading of 55.66. The next resistance level for September Coffee is seen at 135.00, with support found at contract low of 117.10.

Mike Zarembski, Senior Commodity Analyst


July 23, 2013

Housing Slowdown Weighs on Crude Oil

Tuesday, July 23, 2013

Crude Oil futures started off the week on a sour note, shedding more than a dollar after existing home sales missed expectations. The Oil market has moved higher for almost a month without a significant pullback, which has some traders concerned that the market may be overbought. The net fund long has increased significantly and is close to record high levels. The large spec can also be seen as overbought. Technically, yesterday's down day after the spinning top candlestick may have some traders looking for signs of a near-term reversal. Further confirmation could, potentially, trigger technical selling and profit-taking from longs.

Fundamentals

The weak existing home sales figures could be a sign that US economic growth might stall in the months ahead. There is certainly plenty of concern that the world's second largest economy in China is slowing. If the US economic recovery also stalls, the ripple effect could prevent Europe from getting its collective head above water. Fuel demand is already beginning to slow. Gasoline consumption fell to 8.73 million barrels a day for the week ended July 12th, according to the EIA. Total petroleum use dropped to the lowest level since 1997, at 18.7 million barrels a day. Cushing, OK inventory levels have fallen over the past two weeks, which could be supportive of prices, despite negative outside forces. The G-20 had made some positive comments about the economy, which was somewhat supportive of prices.

Technical Notes

Turning to the chart, we see the September Crude Oil contract forming a spinning top candlestick last Friday, which can be seen as a possible sign of a near-term reversal. Yesterday, there was some follow-through selling, but not enough to confirm a reversal. Closes below 105.00 could be seen as bullish and may result in a test of support near 98.50. The 14-day RSI remains overbought at 77.36, which may encourage profit-taking.

Rob Kurzatkowski, Senior Commodity Analyst


July 24, 2013

No "Pop" for Corn Prices this Summer?

Wednesday, July 24, 2013

Weather forecasts calling for cooler temperatures in the Midwest the next few weeks could not come at a better time for producers as the crop heads into the important pollination phase. Hot and dry conditions during pollination can lower Corn yields, as this is the critical period when kernel formation is determined. Although parts of Iowa, Nebraska and Missouri are currently experiencing moisture deficits, increased chances of precipitation the next 2 weeks and normal to below normal temperatures should see the Corn crop progress well through the pollination period, and significantly increase the chances of a record crop this season.

Fundamentals

The potential for a record U.S. Corn crop and strong global competition for Corn exports have sent new-crop December Corn futures below $5 per bushel. Dry conditions in the western regions of the Corn Belt are expected to be helped by forecasts calling for rain and cooler temperatures this week, which should bring great benefits to the Corn crop as it enters a critical growing stage. In addition to a potential bin-busting harvest, U.S. Corn producers may have to face increased competition in the export market from South America and the Black Sea region. The Argentinean Agriculture Minister announced the country's Corn harvest would total just over 32 million tons this season, up from just over 26 million tons in a prior estimate. Most, if not all, of this additional production could end up being available for export, which would help to dampen global Corn prices. Non-commercial traders (large speculators and funds) returned to the long side of Corn futures, currently holding a net-long position of 5,560 contracts as of July 16th, according to the most recent Commitment of Traders report (COT). However, non-reportable traders (small speculators) are becoming very bearish on the prospects for Corn prices, with the COT report showing this market segment net-short a whopping 126,833 contracts, after adding another 13,108 net-short positions the past week. Though the current market fundamentals do seem to favor Corn bears, any weather related issues involving the Corn crop could spark a significant short-covering rally, as these historically weak hands are forced to the exits on any significant price rise.

Technical Notes

Looking at the daily chart for December Corn, we notice prices making multi-year lows on Tuesday, as previous support near the 490.00 area failed to hold. Bearish traders should watch the market's reaction at current price levels, as a rally back above $5 could signal that a double-bottom may have formed -- which, if true, could set the stage for some short-covering buying to emerge, especially from small speculators holding net-short positions. Prices are below both the 20- and 200-day moving averages, and momentum as measured by the 14-day RSI remains weak, with a current reading of 34.74. The next support target for December Corn is seen at 480.00, with resistance found at the July 11th high of 528.25.

Mike Zarembski, Senior Commodity Analyst



July 25, 2013

Is Value Buying Enough to Keep Copper Going?

Thursday, July 25, 2013

Copper prices have risen during the month of July, despite weaker Chinese data and signs that the housing market in the US may be beginning to plateau. The parallels between late 80's Japan and present China are undeniable, even though there is a tremendous population difference, which has many traders concerned over the country's long-term growth prospects. If the Chinese economy continues to slow at this rate, Copper supplies could easily exceed current forecasts. Technically, Copper is overbought in the near-term. Without fundamentals underpinning the market, prices could decline in the near-term.

Fundamentals

Copper futures have been in a slow incline since bottoming out near the $3 level in late June. The failure of the futures market to break through this critical support level triggered short-covering. Value buyers in the futures market also responded to the metal holding support by coming out in full force. However, the same cannot be said of the physical market, where demand remains lackluster at best. LME stocks of Copper have risen 95% since the beginning of the year, and analysts are now forecasting the global surplus of the industrial metal to double by the end of the year. Chinese economic data seems to indicate further slowing, which could curb both manufacturing and construction demand for Copper. Bulls point to the fact that Chinese easing may follow the anemic economic data, but their enthusiasm may soon wane. China has slowed 9 of the last 10 quarters, and the economy may see more bad days before the country is able to right the ship.

Technical Notes

Turning to the chart, we see the September Copper contract moving steadily higher this month, after prices had formed the relative bottom at 3.00. Prices have now run into resistance at the 3.2250 level, and the RSI indicator is showing technically overbought conditions, which could slow the Copper rally. If prices are able to push through the 3.2250 resistance level, more substantial resistance can be found near the 3.4000 level. If prices fall back, the 3.0000 level comes into play again. Failure to hold this critical support level could potentially open the selling floodgates.

Rob Kurzatkowski, Senior Commodity Analyst


July 26, 2013

Hog Prices Resume Rally as Pork Supplies begin to Tighten

Friday, July 26, 2013

Livestock traders saw some bullish figures in the monthly Cold Storage report for June that was released on Monday. Frozen pork inventories fell by nearly 5% vs. last year's levels, and nearly 15% from the previous month. This decrease was larger than expected yearly seasonal declines, and appears to be a sign that pork demand is strengthening.

Fundamentals

Although livestock traders have not yet gone "hog-wildly" bullish of Lean Hog futures, there are signs that pork prices may be heading higher in the coming weeks. Cash Hog sales have been weak lately, mainly due to lower packer demand. Ultimately this may lead to tighter supplies in the coming weeks, especially if moderating temperatures spur increased consumer demand for pork with the summer grilling season now in full force. Cash Pork Belly prices have seen seasonal strength, with prices jumping $4.50 per hundredweight this past week, as bacon demand is expected to increase. Futures prices are trading at a significant discount to the 2-day CME Lean Hog index (currently at 100.64), and if seasonal demand does improve, the discount could begin to narrow. Historically, however, cash hog prices do tend to decline going into the 4th quarter of the year.

Technical Notes

Looking at the daily chart for October Lean Hogs, we notice the recent price rally has occurred on above average trading volume, which may be a sign of fresh longs entering the market. Some of the increased volume may be due to positions being rolled forward from the front month August contract. Prices are above both the 20- and 200-day moving averages, and momentum is strong, with the 14-day RSI reading 61.81. Resistance can be found at the June 28th high of 87.075, with support seen at the July 9th low at 83.275.

Mike Zarembski, Senior Commodity Analyst


July 29, 2013

Wheat Prices Continue to Grind Lower

Monday, July 29, 2013

Going into the fall, many traders will be carefully watching the performance of the Spring Wheat crop, where average yields are expected to fall slightly below last year's levels due to late plantings this season. A crop tour sponsored by the Wheat Quality Council in North Dakota has estimated Spring Wheat yield at 44.9 bushels per acre in this key Spring Wheat producing state.

Fundamentals

Wheat prices continue to struggle, despite improving export sales, as prices seem to be tied to the performance of the new-crop Corn market, which is currently trading at multi-month lows. Lately, the correlation in prices is being tied to using Wheat as a substitute for Corn in animal feed, which gained in popularity after Corn prices reached record levels last year due to the extreme drought in the U.S. This season. traders are anticipating a record U.S. Corn crop, which should help to alleviate high animal feed prices and lower demand for feed grade Wheat. Lower Wheat prices have helped U.S. exports somewhat, with sales totaling just over 661,000 metric tons last week, which was over the high end of traders' estimates. However, abundant global Wheat supplies are currently sending Middle Eastern and North African buyers to purchase Wheat from the Black Sea region, where cash prices are the lowest among the major exporting nations. Egypt, one of the leading global Wheat importers, recently purchased 240,000 metric tons of Wheat from Russia and Ukraine, but none from the U.S. so far. We should note that Sep/Dec Chicago and Kansas City Wheat spreads are turning bullish, which could be a sign that commercial buying is emerging. This could add support for prices, especially if U.S. Wheat becomes more competitive in the export market.

Technical Notes

Looking at the daily chart for September Chicago Wheat, we notice prices trying to find a near-term bottom, but they've run into selling pressure on any rally attempts. We have been starting to see trading volume fall during the past 2 weeks or so, which could be a sign that fresh sellers are not entering the market, but rather long liquidation is accounting for much of the continued price decline. The 14-day RSI remains weak, but has held above oversold levels with a current reading of 35.40. We have to look at a continuation chart for Wheat futures to find the next support level, and it appears that there is little chart support until we reach the 607.50 price level. Near-term resistance is seen at the high made on July 19th at 670.00.

Mike Zarembski, Senior Commodity Analyst



July 30, 2013

GDP Looming

Tuesday, July 30, 2013

Crude Oil futures are poised to have their best month in almost a year, but the month may end on a sour note. Prices have been sliding over the past week and a half. The WTI Oil market is beginning to lose momentum from traders unwinding Brent/WTI spreads. Many traders are now focusing on weak fundamentals. Unless GDP manages to beat the Street, the report is expected to be a downer for Oil prices.

Fundamentals

Crude Oil futures are at their lowest level in almost three weeks ahead of GDP data. US GDP is expected to show that the economy expanded at 1% last quarter, compared to 1.8% in Q1. The slowdown in GDP shows that the US economy still faces many challenges, which could stall growth altogether. Crude Oil futures have remained resilient, despite significantly slower growth in China and the US, who are the two largest petroleum users. The rise in the price of WTI Crude Oil can partially be attributed to traders unwinding Brent/WTI spreads, which has narrowed the spread differential to as low as $1 on July 18th. WTI had been the short leg of many of these spreads. Tomorrow's EIA inventory data is expected to show the Oil glut in Cushing being worked down due to increased pipeline and rail capacity. This could support prices in the near-term. The US dollar has declined in recent weeks, which could also be supportive of Oil prices. The Dollar Index is approaching support at the 80.75 level. If the greenback breaks support, Crude prices could strengthen.

Technical Notes

Turning to the chart, we see the September Crude Oil contract forming a textbook three candlestick reversal before prices decline. The sell-off could partially be attributed to technically oversold conditions. Yesterday's close below the 20-day moving average suggests that a near-term high may be in place. The RSI has gone from overbought to bordering on oversold territory, which may help curb further declines. The next area of significant support can be found near the 97.50 level.

Rob Kurzatkowski, Senior Commodity Analyst


July 31, 2013

Cooler Temperatures =Lower Natural Gas Prices


Wednesday, July 31, 2013

Speculators have mixed opinions about the eventual direction for Natural Gas price, with the most recent Commitment of Traders report showing non-commercial traders (generally large speculators and commodity funds) holding a net-short position totaling 103,816 contracts for the week ending July 23rd. Non-reportable traders (small speculators) held net-long 23,638 contracts as of the same time period. Given the recent trading sessions' sell-off, we could see large specs continue to add to existing short positions this week, with stop loss sell orders from small specs adding to the price weakness.

Fundamentals

Weather forecasts calling for unseasonably cooler temperatures in the eastern and centrals portions of the U.S. have sparked a sharp sell-off in Natural Gas futures, with the lead month September contract now trading at 5-month lows. Late July and early August is usually the peak demand time for power consumption used for cooling, as we enter the height of summer in the northern hemisphere. However, the summer of 2013 now appears to be rather mild in most parts of the U.S., which has produced lower seasonal demand for Natural Gas. Tropical storm formation in the Atlantic basin has been moderate so far, which is helping to keep a weather premium out of Natural Gas prices. The continued move of Natural Gas production inland and away from the Gulf of Mexico due to hydraulic fracturing or "fracking" is lessening the potential disruption of Natural Gas production from a storm reaching the production areas of the Gulf, and has become a major catalyst in lowering Natural Gas price volatility as Atlantic hurricane season takes on a lesser role in influencing rallies in Natural Gas prices.

Technical Notes

Looking at the daily continuation chart for Natural Gas futures, we notice prices trading below the uptrend-line drawn from the major lows made back in April of last year, when lead-month prices fell below $2 for the first time since 2002! The recent price plunge has taken prices below the 38.2% Fibonacci retracement level drawn from the April 2012 low to the recent highs made in May. The 14-day RSI is weak, but remains above oversold levels with a current reading of 37.18. Chart support is not seen until the February low of 3.125, with resistance found at 3.833.

Mike Zarembski, Senior Commodity Analyst