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September 2013 Archives

September 3, 2013

Defensive Premium Sucked out of Bond Market

Tuesday, September 3, 2013

Bond futures are lower after the US did not strike Syria over the weekend. Instead, the Obama administration plans to seek Congressional approval before moving forward with military action. As a result, some of the defensive appeal of Bonds has dissipated. Traders are now back to focusing on fundamentals, which are bearish. Technically, prices must hold the 130-00 level to avoid tumbling even further.

Fundamentals

Now with some of the fear premium sucked out of the Bond market for the time being, traders are left focusing on the Fed and the upcoming auctions. Next week, the Treasury Department will auction 3-Year Notes, 10-Year Notes and 30-Year Bonds. Traders will be keeping a close eye as to how well subscribed these auctions will be in light of the Fed scaling back Bond purchases. The 30-Year Bond auction will give traders a better feel regarding the extent to which central banks and large institutions expect the Fed to taper the Bond buyback program.

Technical Notes

Turning to the chart, we see the December Bond contract bouncing off the 130-00 support level. Failure to hold the 130-00 support level would likely be viewed as extremely bearish. On the upside, the market may be able to gain some traction if prices are able to cross the 132-16 resistance level. The oscillators are currently at neutral territory. .

Rob Kurzatkowski, Senior Commodity Analyst


September 4, 2013

USD at Six Week Highs after Long Labor Day Holiday Weekend

Wednesday September 4, 2013

Financial traders always circle the first Friday of the month on their calendars, as that is when the U.S. Bureau of Labor Statistics releases data on U.S. Non-farm payrolls. Economists are expecting the jobs picture to have shown modest improvement in August, with an estimated 180k jobs created. If true, this would be a slight gain from the 162k jobs created in July. Prior to the release of the payrolls report, traders will attempt to revise their estimates of the "official" government data by studying how the private sector workforce fared last month, when the monthly ADP private sector jobs report is released on Thursday.

Fundamentals

U.S. Dollar Index futures started the month of September with a "pop," as traders returned for the Labor Day holiday in a bullish mood. The first catalyst for a higher "greenback" was the decision by President Barack Obama to seek congressional approval before any military action against Syria. This news removed some of the uncertainty that was present going into the long holiday weekend, as it postponed the chance of immediate U.S. action in the already volatile Middle East, especially with international support for U.S. involvement rather subdued. In addition, traders received some positive news on U.S. manufacturing, as the Institute for Supply Management's manufacturing purchasing managers index rose to 55.7 in August, up from 55.4 in July. This increase was an even bigger surprise, as most analysts were expecting a lower reading (53.8 average estimate) last month. The index is now at its highest levels for 2013, and this was the third straight month of expansion for the U.S. manufacturing sector. Currency traders are in for a slew of U.S. economic reports the remainder of the holiday shortened trading week, with data on U.S. trade balance, jobless claims, factory orders and the ISM non-manufacturing Index all to be released prior to the always anticipated Non-farm Payrolls report for August. September may also be the beginning of a tapering of Bond purchases by the Federal Reserve in anticipation of improving economic conditions in the U.S. If that is the case, the U.S. will be the first of the major economic powers to begin to move away from very accommodative monetary policies, which could trigger a further move by traders into the U.S. Dollar, especially against the currencies of nations who continue to struggle with weak economies and will be forced to remain in an accommodative mode for the foreseeable future.

Technical Notes

Looking at the daily chart for the September Dollar Index futures, we notice the rally to 6-week highs was met with some selling pressure, as comments from several prominent U.S. congressional leaders signaled support for some sort of military action against Syria. However, prices remain above both the 20- and 200-day moving averages (MA), and momentum, as measured by the 14-day RSI, looks strong, with a current reading of 59.67. There may also be a "rounded bottom" technical formation on the daily chart that would add strong confirmation should prices hold above the recent high of 82.610 on a weekly basis. 83.160 looks to be the next resistance level for the September Dollar Index, with support found at 81.930.

Mike Zarembski, Senior Commodity Analyst

September 6, 2013

Sugar Prices Stabilize as Surplus Estimates Shrink

Friday, September 6, 2013

Sugar traders may need to study the forex markets for the foreseeable future, as sharp price swings in the value of major Sugar producing countries' currencies could determine the amount of Sugar supplies on the world market. Emerging market currencies, such as the Brazilian Real and Indian Rupee, have weakened dramatically vs. the U.S. Dollar, which provides strong incentive for Sugar producers in both Brazil and India to export Sugar instead of holding back supplies. Despite current low prices, they will receive a higher amount of their domestic currencies after converting back from Dollars or Euros received from their exports.

Fundamentals

The bear market in Sugar futures may be nearing an end, as a multi-year low price for global raw Sugar has finally spurred demand. U.K. Sugar broker Czarnikow recently lowered its estimate for the 2013-14 global Sugar surplus to 2 million metric tons, vs. 3.9 million tons in its initial estimate. Sugar consumption has increased this past year, especially in Asia and Africa, as lower prices have made this popular sweetener more affordable. Czarnikow also noted that current cash market prices are below the cost of production for many Sugar producing countries, which may force some marginal growers, particularly Sugar beet producers, to curtail production this coming season. Large speculators have been in a long liquidation mode for Sugar futures for some time, with the most recent Commitment of Traders report showing non-commercial traders cutting their net-long position by over 19,000 contracts during the week ending August 27th. This leaves their net-long position at only 24,423 contracts. Commercial traders on the other hand have been buyers from the large specs and may soon turn their net-short position into a net-long position should prices remain near recent lows.

Technical Notes

Looking at the daily chart for October Sugar, we notice prices trying to form a near-term bottom, as prices have rallied modestly from multi-year lows when prices failed to hold below 16 cents when tested back in July. There appears to be a bullish divergence forming in the 14-day RSI, which may be signaling that recent lows are now in place. However, before one becomes too bullish on Sugar's price outlook, we must note that prices still remain below both the 20- and 200-day moving averages, as well as below the downtrend line drawn from the April 2012 highs. It would take a weekly close between 17.50 and 18.00 to give strong signals that the bearish trend has ended. Near-term support is seen at the August 22nd low of 16.26, with near-term resistance found at the August 26th high of 16.67.

Mike Zarembski, Senior Commodity Analyst


September 9, 2013

Never Mind the Headlines. Here Come the Revisions!

Monday, September 9, 2013

The U.S. was not the only country to announce its August employment data on Friday as our neighbors to the north, Canada, reported 59,200 jobs were created last month. This figure was well above the 20,000 jobs most analysts were expecting and was enough to lower the unemployment rate by 0.1% to stand at 7.1%. The biggest beneficiary of the positive labor report was the Canadian Dollar or "Loonie", as it is known in the Forex world. The most active September Canadian Dollar futures rallied over 1%, to trade at a new 2 week high to end the holiday shortened trading week.

Fundamentals

Traders only focusing on the "headline" figure from the August Non-farm payrolls report would have expected a rather "ho hum" market reaction to the jobs data as the Labor Department reported a gain of 169,000 jobs last month. This was a near bull's-eye to the 175,000 jobs gain most analysts were expecting. However, once market participants were able to dig into the "meat" of the report, the results were rather disappointing. The Labor Department revised lower June and July payrolls by a combined 74,000 jobs, with July's totals revised to a very anemic 104,000 vs. 162,000 that was reported in August. The jobs that were created in August were primarily in retail as well as the leisure and hospitality sectors which are generally made up of lower wage jobs. Those who are employed saw subdued increases in earnings so far in 2013 with average hourly earnings up a modest 2.3% for the year. The unemployment rate fell by 0.1% to 7.3%, although this was mainly due to a reduction in the labor force which currently stands at 35 year lows. Market reaction was mixed after the employment report with Bond yields tumbling on the disappointing data. 10-year note yields fell below 3% once again to trade just above 2.9% and the U.S. Dollar fell against most major currencies. Equity indices initially rallied after the report as traders started to believe that the Federal Reserve may delay the start of tapering bond purchases due to the anemic jobs data. However, the equity rally failed to hold and the Dow Jones Index was briefly posting triple digit losses after comments were reported from Russian President Vladimir Putin, who was hosting leaders of G20 nations at its 2013 summit being held in St. Petersburg, Russia, that his country would "assist" Syria if attacked by western forces. This statement brought traders attention back to the continuing conflicts in the Middle East and highlighted the potential uncertainly of U.S. military involvement in the region. Ironically, almost as quickly as the market plunged, equity prices recovered and by mid-day, the major U.S. stock indices were once again back trading in the green. If Friday's trade is any indication of what is in store for the month of September, we can only hope that traders are now well rested after the Labor Day holiday as September is already shaping up as a potentially volatile month for the financial markets.

Technical Notes

Looking at the daily chart for the September Dollar Index, we notice that the recent price rally has stalled after reaching nearly 2 month highs as Friday disappointing jobs report has stymied some of the bullish enthusiasm towards the Dollar, as traders are now a bit more uncertain that the Fed will begin to taper its bond purchases later this month. Despite the sell-off on Friday, the September futures remain above both the 20 and 200-day moving averages, although momentum as measured by the 14-day RSI has turned lower and is now reading a rather neutral 53.88. The recent high of 82.780 remains resistance for the September Dollar Index, with support seen at the August 20th low of 80.770.

Mike Zarembski, Senior Commodity Analyst

September 10, 2013

Aussie Dollar Gets Post-Election Bounce

Tuesday, September 10, 2013

The Aussie Dollar has been building momentum versus the US Dollar in recent sessions. The strong showing in the ADP job report may have gotten traders a bit too upbeat leading up to the Non-farm Payroll report. When Friday's number missed and prior months' reports showed downward revisions, the Aussie got a boost versus the greenback. It will be interesting to see how the FOMC reacts to the softer employment data, and whether the central bank softens their tone a bit on the Bond buyback tapering.

Fundamentals

Australian Dollar futures hit a six-week high after a report showed strong Chinese export data. The government report showed that Chinese exports rose by 7.2% in the month of August, versus the same period a year ago. China is Australia's largest trading partner. Conservatives swept the election, which can likely be seen as business-friendly. The Australian public had become disenfranchised with the Labor party and infighting, so the conservative victory may have the public feeling optimistic. The Aussie also got a boost from Friday's US Non-farm Payroll report, which showed the US economy creating 169,000 jobs in the month of August. This was short of the 175,000 estimate. The report also featured downward revisions of June and July jobs numbers, which cumulatively slashed 74,000 jobs from these months' reports.

Technical Notes

Turning to the chart, we see the September Australian Dollar rallying to close in on resistance at the 0.9250 level. The Aussie could be showing a double-bottom, which could be a sign that the market is ready to reverse. The closes above the 20- and 50-day moving averages could be a sign that a near-term low is in place. The 20-day average looks as though it is ready to cross through the 50-day average on the upside, which can be seen as bullish. The momentum indicator is showing negative divergence from both price and RSI, which gives some traders reason to be cautious.

Rob Kurzatkowski, Senior Commodity Analyst


September 11, 2013

Is Wheat's Retreat Complete?

Wednesday, September 11, 2013

In the August Crop Production report, the USDA forecast Wheat production at 2.11 billion bushels which, if accurate, would be 7% below 2012's total, even though planted acreage increased to 56.53 million acres, vs. 55.74 million acres in the 2012-13 crop year. Average weighted farm prices are expected to be below last season's $7.77 per bushel, with the USDA currently estimating farm prices between $6.40 and $7.60 per bushel for the 2013/14 marketing year.

Fundamentals

Wheat futures are finding little love from traders, as focus has centered on Corn and Soybeans the past couple of years. Since the beginning of the year, December Wheat prices have fallen over $2.50 per bushel, with only a moderate price consolidation this spring, stalling the rather impressive bearish price move. However, improving export sales and potentially lower plantings this fall could signal that an end to the downtrend may be near. U.S. weekly Wheat sales totaled 747,400 tons, up 18% from the 4-week average. Current sales are ahead of the USDA export forecast, as buying has been seen from Mexico, Indonesia and Brazil. Egypt, the world's leading Wheat buyer, has been only moderately active these past few weeks, which is keeping some of the bullish enthusiasm in check. Longer-term, it is notable that U.S. Wheat plantings have been in steady decline since the early 1980's, with the past 4 seasons among the lowest total acreage planted in the past 40 years! Since the 2010/11 marketing year, U.S. all-Wheat production has fallen short of usage, and current prices for new-crop Chicago Wheat futures are providing little incentive for producers to add to acreage in the upcoming growing season.

Technical Notes

Looking at the daily chart for December Chicago Wheat futures, we notice prices finding some good support once prices fall below 640.00. The market is hovering near the 20-day moving average, and we have a fairly major bullish divergence forming in the 14-day RSI, which may be a harbinger of an imminent short-covering rally in the near future. Trading volume has also tailed-off, now that December is the lead month. This could be a sign of little fresh selling entering the market, as prices have failed to make new lows lately. Support is found at the August 14th low of 635.50, with resistance seen at the August 26th high of 676.50.

Mike Zarembski, Senior Commodity Analyst


September 12, 2013

Are Brazilian Crop Concerns Enough To Jolt the Coffee Market?

Thursday, September 12, 2013

The Coffee market traded as if it had a caffeine rush, rising 415 points yesterday, which was the market's strongest close since mid-July. Dry weather conditions in Brazil have led to speculation that the 2014 crop may be lower than previously expected. Conab, Brazil's forecasting agency, predicted that 2013 output could be 2.3% lower than their prior estimate. However, traders may be a bit short-sighted, as this year's bumper crop still outpaces supplies. The rally could also be attributed to some short-covering, suggesting some funds may be moving to the sidelines.

The Coffee market traded as if it had a caffeine rush, rising 415 points yesterday, which was the market's strongest close since mid-July. Dry weather conditions in Brazil have led to speculation that the 2014 crop may be lower than previously expected. Conab, Brazil's forecasting agency, predicted that 2013 output could be 2.3% lower than their prior estimate. However, traders may be a bit short-sighted, as this year's bumper crop still outpaces supplies. The rally could also be attributed to some short-covering, suggesting some funds may be moving to the sidelines.

Fundamentals

Flowering in the southern Zona da Mata growing region began last week, which has traders weather-watching. There is a chance that the blooms on the trees could be damaged by dryness, which could curb the region's Coffee output. The region is not expected to see significant rainfall until this Sunday. While there is some concern over next year's crop, the dry weather conditions are actually helping the harvest of the current crop, adding to the already abundant global supplies. In addition to large existing supplies, the current Brazilian and Columbian crops are very large, which is likely to weigh on prices.

Technical Notes

Turning to the chart, we see the December Coffee contract breaking through the 120.00 level. Yesterday's close above the 20-day moving average suggests that a near-term low may be in place. The pop in the Coffee market could also be attributed to oversold conditions on the RSI. Could the December Coffee contract be forming a bit of a bottom here above 116.25, or is the market simply consolidating before making another move lower?

Rob Kurzatkowski, Senior Commodity Analyst


September 13, 2013

Oil Prices Consolidate ahead of Syrian Talks

Friday, September 13, 2013

The weekly EIA energy stocks report released on Wednesday was deemed overall to be bearish by traders, as Crude Oil inventories fell by 219,000 barrels last week. Analysts, however, were looking for a decline of closer to 1.4 million barrels. Oil product supplies rose last week, with gasoline inventories posting a surprising 1.658 million barrel increase. Traders were expecting a 900,000 barrel decline. Distillate inventories rose by 2.586 million barrels, vs. estimates for a 400,000 barrel increase. Refinery utilization rose to 92.5% last week, although demand for Oil products fell, with gasoline demand down 489,000 barrels and distillate demand down 281,000 barrels the prior week. The one bright spot that Oil bulls focused on was a 639,000 barrel decline in Oil inventories in Cushing, Oklahoma. This is the delivery point for the NYMEX Crude Oil futures contract, and therefore weekly inventory changes are scrutinized more closely by Oil traders given its importance in the delivery process.

Fundamentals

Crude Oil futures have been on a steady price climb since July, as conflicts in the Middle East combined with signs of an improving economic climate in both the U.S. and China have supported prices. However, with front month futures starting to look toppy, increasingly bearish fundamentals may signal a price correction ahead. On Tuesday, the Energy Information Administration (EIA) raised its estimate for U.S. Oil production by just over 15% for 2013 to 7.47 million barrels per day, as production from shale formations continues to increase. In addition, the EIA is forecasting production to increase by nearly 13% in 2014 to 8.43 million barrels per day. This resurgence in U.S. production should allow the U.S. to continue to reduce its dependence on foreign oil, with the EIA reducing its imports estimates for 2014 to near 6.5 million barrels per day. U.S. Oil demand, however, is not keeping pace with increased production, as the EIA forecasts U.S. Oil demand will increase by an anemic 0.2% in 2014. Global risks have also cooled somewhat, as some conditional support has been vocalized by U.S. officials for a Russian proposal to place Syrian chemical weapons under international control. If an agreement can be reached without any military intervention, it could cause traders to remove some of the "risk premium" from oil prices, particularly in Brent Crude.

Technical Notes

Turning to the chart, we see the September Bonds consolidating above support at the 132-00 mark. Looking at the daily chart for November Crude Oil, we notice prices moving higher, but in a stair step fashion that is making it difficult for weak bulls to hold on to their long positions. Prices are above the 200-day moving average (MA), but are holding near the shorter-term 20-day MA. Momentum as measured by the 14-day RSI has turned neutral after hovering near overbought levels last week, with a current reading of 53.99. The "spike" high of 111.34 made on August 28th is seen as resistance for November Crude Oil, with support found at the August 8th low of 100.80.

Mike Zarembski, Senior Commodity Analyst

September 16, 2013

Soybeans Prices Soar after Bullish USDA Report

Monday, September 16, 2013

In last Thursday's crop production and supply/demand report, the USDA estimated U.S. Soybean production at 3.149 billion bushels, down 106 million bushels from the August estimate. Average Soybean yields were lowered to 41.2 bushels per acre, down 1.4 bushels per acre from last month's report. Soybean ending stocks for the 2013-14 season were lowered by 70 million bushels to 150 million bushels.

Fundamentals

A late summer dry spell, combined with above average temperatures has plagued much of the west and central portions of the Midwest during the past several weeks, which may prove harmful to the development of the Soybean crop. Weather conditions in August usually make or break the U.S. Soybean crop, as this is when the key "pod filling" stage usually begins. Moderate to severe drought conditions spread throughout Iowa and central Illinois, two of the largest Soybean producing regions in the world. Soybean crop conditions in Iowa have been particularly hard hit, with the USDA reporting in its weekly crop progress report that 30% of the crop was rated poor to very poor last week. This season was supposed to be a recovery year for Soybean supplies, after the devastating drought during the 2012-13 season left ending stocks at a very tight 125 million bushels and a stocks /use ratio of only 4.0%. However, should actual average yields come in near the USDA estimate of 41.2 bushels per acre, we could see U.S. supplies become even tighter than last year, which may force prices higher to help ration demand.

Technical Notes

Looking at the daily chart for November Soybeans, we notice prices rallied sharply after the USDA report was released on Thursday, as both production and yield estimates were lowered. Even with the bullish USDA report, November Soybean prices remain within the recent consolidation pattern and would require a close above 1410.00 to confirm an upside price breakout. The 14-day RSI is approaching overbought levels, with a current reading of 64.33. Resistance for November Soybeans is found at 1409.50, with support seen at the September 5th low of 1335.00.

Mike Zarembski, Senior Commodity Analyst

September 17, 2013

Easing Geopolitical Risks Send Crude Lower

Tuesday, September 17, 2013

The US-Russian plan to eliminate chemical weapons in Syria all but eliminated a near-term military strike on the nation. The two most powerful and influential members of the UN Security Council agreed to a framework to locate and dispose of Syria's supply of poison gas. This would avoid a US led strike in the near-term, which has calmed fears that Middle East exports of Crude Oil would be disrupted. Syria's neighbors, Iran and Iraq, account for nearly 20% of OPEC output. Technically, two recent attempts to break the $110 level may have cooled some of the bullish momentum for the Crude Oil market.

Fundamentals

In addition to the compromise between Russia and the US on the Syrian chemical weapons program, Oil was lower on the prospect of increased Libyan exports. Libya's Oil production has dwindled to a paltry 250,000 barrels a day, versus capacity of 1.6 million barrels a day due to labor disputes. The government announced resumption of production in the El Feel and Sharara fields, which produce 140,000 and 300,000 barrels of Crude Oil a day respectively. Given the well supplied market, it is somewhat surprising to see Oil only down a little more than $1.50 on the Syrian and Libyan news. The Dollar Index (DXZ13) is near one-month lows, which can be seen as supportive of Oil prices. Funds appear to have become a bit less bullish on the Oil market. The Commitment of Traders report indicated funds being long 379,763 contracts, a 7,219 contract decrease.

Technical Notes

Turning to the chart, we see the October Crude Oil (CLV13) contract trading below 107, which can be seen as forming a near-term bearish pattern on the chart. Stout support comes in near the 103 level. Prices are trading just below the 50-day moving average. Strong closes below the average could be seen as negative over the medium-term. The oscillators are at neutral levels at the moment.

Rob Kurzatkowski, Senior Commodity Analyst

September 18, 2013

Bullish Speculators Indulging their Chocolate Cravings

Wednesday, September 18, 2013

Cocoa production in the Ivory Coast, the world's leading Cocoa producing nation, is expected to decline to 1.42 million tons in the 2013-14 season, which if true, would be the third consecutive yearly production decline. Ghana's Cocoa production is also expected to lag behind last year's levels, with analysts forecasting output of only 800,000 tons. Speculators have been adding to their net-long positions, with the most recent Commitment of Traders report showing combined non-commercial and non-reportable traders adding nearly 8,200 new net long positions for the week ending September 10th. However, additional bullish news may be needed to keep the upward momentum going, as the speculative long position has moved to historically high levels. This could set the stage for a period of long liquidation selling by weak bulls should bearish news occur.

Fundamentals

Cocoa futures are the first of the so called "softs" commodities to breakout from the overall bearish trend seen for this commodity sector, as supply concerns for the 2013/14 season are attracting the focus of traders. Late September and October are traditionally the start of the "rainy" season in West Africa, but current forecasts are calling for only moderate showers in the main Cocoa growing regions of West Africa, and additional rainfall will be critical for the already stressed Cocoa crop. Cocoa supplies at exchange approved warehouses has fallen to six-month lows, which may be adding to the bullish tone, as end-users are securing higher quality Cocoa supplies ahead of the holiday season. Global Cocoa demand is expected to outpace supplies by nearly 210,000 metric tons this year, and the supply deficit is expected to continue into the 2013-14 season as global demand increases. Outside forces are also adding to the bullish tone for the Cocoa market. In particular, the recent rally of the British Pound vs. the U.S. Dollar has added support for Cocoa prices. Economic recovery in Europe may also increase Cocoa demand, as Europe is traditionally the largest consumer of Chocolate, and a stronger economy could see European consumers begin to "splurge" on luxuries such as chocolate, especially during the upcoming holiday season.

Technical Notes

Looking at the daily chart for December Cocoa (CCZ13), we notice that since July, Cocoa futures have rallied over $500 per ton, with the latest wave upward occurring after a nearly month-long consolidation phase where prices fluctuated between $2400 and $2500 per ton. It is notable that trading volume has been decreasing the past several sessions, which could be a sign that fresh buying interest is starting to wane and short-covering is accounting for the upward price move. The 14-day RSI is nearing overbought territory, with a current reading of 68.70. $2700 is seen as the next resistance level for December Cocoa, with support found at the August 30th low of $2406.

Mike Zarembski, Senior Commodity Analyst

September 19, 2013

S&P Hits Record Levels, as the Fed Keeps the Printers Rolling

Thursday, September 19, 2013

The Fed caught the market a bit off guard, deciding that now is not the right time to begin tapering its bond purchases. The FOMC would like to see more "evidence of growth" before it moves forward with tapering. Additionally, most Fed Governors do not envision the central bank reining-in rates until 2015. Fed Chairman Ben Bernanke stated that the Committee believes that downside risks have been greatly reduced. However, the Chairman hedged this statement by indicating that the current economic climate could slow the pace of improvement. The FOMC pleaded to keep interest rates near zero as long as unemployment remains above 6.5% and the inflation outlook remains below 2.5%.

Fundamentals

The FOMC talked a big game when it came to fiscal responsibility, but failed to wield a heavy stick when push came to shove. The idea that cheap money is here to stay for a bit longer than previously expected gave stocks the momentum to push through to all-time highs in the S&P. With quantitative easing having an indefinite end, stocks may continue to ride the momentum of the Fed surprise. The Dollar Tree and Microsoft stock buybacks have given investors a reason to remain in the stock market. Bond prices rose sharply after the Fed announcement, indicating rates may get squeezed once again, giving equities and commodities a boost.

Technical Notes

Turning to the chart, we see the December E-mini S&P (ESZ13) breaking through previous highs and trading in, literally, uncharted territory. The breakout occurred with the RSI above the 70% mark, suggesting the breakout may be explosive. The market may run into a bit of resistance near 1730 (extension of the line from May and August highs) and 1750.

Rob Kurzatkowski, Senior Commodity Analyst

September 20, 2013

Bernanke Steals the Punch Bowl from "Taper Wednesday" Party

Friday, September 20, 2013

The September FOMC meeting produced new forecasts by Fed members on the outlook for interest rates going out through 2016. 10 of the 17 members expected the Fed Funds rate to remain at or below 2% through 2016. The Fed also lowered their economic growth forecast for 2013 to between 2% and 2.3%, and for 2014 to between 2.9% and 3.1%. The Fed has been criticized by some analysts for consistently overstating their growth forecasts, and Wednesday's announcement seems to confirm that the Fed view of the economy was seen through rose-colored glasses.

Fundamentals

It appears the Fed did not share the market's enthusiasm for a "Taper Wednesday" party, as voting members wanted to see further proof of sustained economic improvement prior to pairing back its bond-buying stimulus. Market participants were caught off guard by the Fed's non-action, as expectations prior to the announcement were for a reduction of between 5 and 20 billion dollars worth of treasury and mortgage-backed securities purchases. Treasury futures rallied sharply after the Fed announcement, with the 10-year note yield falling below 2.70%. Other big winners were precious metals, with Gold futures up $60, as well as equity indices, with the S&P 500 making new all-time highs. The "greenback" did not fare as well, as the U.S. Dollar Index fell sharply, with major chart support at 81.00 for the December futures failing to hold. In the post announcement press conference, Fed Chairman Ben Bernanke said there is "no fixed calendar" on when the Fed would begin to taper its bond purchases, but did say it was still possible the Fed would begin to scale back its bond purchases later this year should economic conditions warrant.

Technical Notes

Looking at the daily chart for December Gold futures, we notice the sharp price rise after the Fed postponed any reduction of its bond purchases. The viciousness of the up-move following the announcement may have been due to the nearly $150 price decline seen the past few weeks, catching Gold bears off guard as buy stops were triggered. Prices are now trading near both the 20-day moving average and the uptrend line drawn from the major low made back in July. A weekly close above both of these areas could set the stage for a test of the next major resistance point seen at the August 28th high of 1434.00. Support is found at this past Thursday's low of 1291.50.

Mike Zarembski, Senior Commodity Analyst

September 23, 2013

Will Slack Seasonal Demand Stymie the Natural Gas Rally?

Monday, September 23, 2013

The weekly Energy Information Administration (EIA) Gas storage report was decidedly bullish as gas inventories rose by a smaller than expected 46 billion cubic feet (bcf) last week. Traders were looking for a build closer to 59 bcf which was still well below the 5-year average gain of 74 bcf. However, gas bulls may find further price gain more difficult in the coming weeks as we enter the historically weak gas demand period of early fall as temperatures moderate and the demand for both heating and cooling is more subdued.

Fundamentals

Natural Gas bulls continue their control of the market as the lead month October futures are trading near 9 week highs despite a rather quiet start to the Atlantic hurricane season. Forecasts for above normal temperatures through the beginning of October for a large part of the U.S. is supporting gas prices as traders look for smaller gas injection into storage in the coming weeks due to increased gas usage to meet cooling demand. About 1/3 of U.S. gas demand is used for power generation, so any unexpected changes in demand can affect near-term prices. September is traditionally the heart of the Atlantic hurricane season, but so far any named storms have done little to disrupt the gas producing areas of the Gulf of Mexico. However, there is an area of low pressure currently located near Belize, which is currently moving to the north-northwest and should move over the south western portions of the Gulf in the coming days. Meteorologists at the National Hurricane Center currently give this weather system a 60% chance of becoming a tropical cyclone in the coming days. The Gulf of Mexico is currently producing less than 6% of total U.S. gas supplies and is becoming less of a factor for total U.S. energy production. However, any extended loss of production would be factored into futures prices, especially during periods of increased gas usage.

Technical Notes

Looking at the daily chart for October Natural Gas futures (NGV13), we notice the sharp rally that came about after the bullish EIA Gas Storage report release was short lived as weak longs took profits as prices briefly moved above the 200-day moving average for the first time in nearly 3 months. It appears that the bullish momentum is beginning to wane as a quiet hurricane season and upcoming moderating fall temperatures could slacken gas demand. The 14-day RSI is starting to turn lower with a current reading of 55.10. The 3.844 level is seen as the next resistance for October Natural Gas, with support found at 3.483.

Mike Zarembski, Senior Commodity Analyst

September 25, 2013

Cattle Futures Rally as August Feedlot Placements Decline

Wednesday, September 25, 2013

Monday's USDA monthly cold storage report showed total beef in storage at 433.842 million pounds in August vs. 462.597 million pounds in July and 432.777 million pounds last year. Traders were looking for frozen beef stocks to total near 457 million pounds. Traders deemed the report bullish as frozen beef supplies normally increase in August.

Fundamentals

Live stock traders received a bullish surprise on Friday after the release of the monthly Cattle on Feed report (COF). The USDA estimated cattle placements for August at 1.788 million head, down 11% from a year ago, and the smallest number of young cattle placed on feedlots in august since reporting began back in 1996. Cattle on feed as of September 1st totaled 9.876 million head down 7% from year ago totals. Traders blame current high prices of old crop feed grains for the reduction in cattle placed in feed lots, as producers are keeping young cattle on pasture longer until feed prices decline. The good news for cattle producers is that a rebound in the U.S. Corn crop after last season's devastating drought should lead to sharply lower new-crop prices moving into 2014 which should help feed lot profit margins return to the black in the coming months after posting losses for a record 28 consecutive months. Although beef supplies should tighten in the coming months, current high retail beef prices, especially when compared to pork and chicken, could hurt consumer demand, which if true could limit the prices packers will be willing to pay for cash cattle unless demand improves. A quick look at the most recent Commitment of Traders report (COT) shows non-commercial traders (large speculators) shedding nearly 10,000 net long positions during the week ending September 17th. This was during the time that the December futures were making near-term lows and prior to the "bullish" COF report. Both commercial and non-reportable (small speculators) are still net-short Live Cattle futures, and additional short-covering buying may emerge if recent highs are breached and buy stop orders are triggered above chart resistance levels.


Technical Notes

Looking at the daily chart for December Live Cattle futures (LCZ13), we notice prices breaking out to the upside after trading between the 20 and 100-day moving averages for the past couple of weeks. The 14-day RSI has turned upward and is currently reading a rather strong 64.34. Before Cattle bulls become two aggressive, we will need to see prices close above the February highs of 132.450. Near-term support is seen at the low made back on September 17th at 127.950.

Mike Zarembski, Senior Commodity Analyst

September 26, 2013

Supplies Rise, Oil Drops

Thursday, September 26, 2013

Crude Oil prices suffered a setback yesterday after the Energy Information Administration ("EIA") report showed an increase in US Oil inventories. Demand has been falling, as evidenced by lower refinery use, so the supply build comes at an inopportune time for Oil bulls. Thus far, Syria has avoided military action from the West and the country is cooperating with the UN, to a certain extent, alleviating fears of a supply disruption. Iran's new President, Hassan Rohani, declined President Obama's attempt at direct engagement at the UN, however his speech did have a softer tone. Nevertheless, he did not concede his country's right to nuclear power. Technically, Crude Oil suffered a setback, falling below near-term support yesterday.

Fundamentals

According to the EIA, Crude Oil inventories rose 2.64 million barrels on the week. The consensus estimate was a drawdown of 1 million barrels. Cushing inventories, however, fell by 412,000 barrels to 32.8 million barrels, as pipelines and rail transit improved for the hub. This is the lowest inventory level for the NYMEX's delivery point since February 2012. The refinery utilization rate has fallen to 90.3%, and total US petroleum demand declined 2.8% to 19.3 million barrels a day. Crude Oil prices have been pressured in recent trading sessions by falling equity prices. Since hitting a new record on the 19th, the S&P 500 has fallen for four consecutive trading sessions. Equities and energies were both ripe for profittaking, so the recent weakness was not unexpected. Things have been a bit cooler on the geopolitical front lately, which has cooled-off the bull camp.

Technical Notes

Turning to the chart, we see the November Crude Oil (CLV13) chart suffering some near-term setbacks. Prices declined below near-term support at the 103.08 level and may be on the verge of testing the 100-day moving average. There is some minor support just below the 99.00 level, with more significant support coming in near 97.25. The RSI indicator is nearing oversold levels, which may be supportive of prices in the near-term.

Rob Kurzatkowski Senior Commodity Analyst

September 27, 2013

Bears Losing their Sweet Tooth?

Friday, September 27, 2013

Although many traders tend to focus on Sugar cane production for the outlook on Sugar prices, we must remember that sugar production from Sugar beets also plays an important role, especially for countries in non-tropical climates. Russia's refined Sugar production has totaled only 890,000 tons so far this year vs. 1.09 million tons in 2012. Sugar beet production is behind, as producers scaled back plantings due to lower prices and higher input costs. For the production year, Russia is expected to produce around 4 million tons of refined Sugar, down 16% from 2012.

Fundamentals

Traders are starting to see a potential end to the bear market in raw Sugar futures as lower production and increasing demand is starting to cut into the large global surplus. Reports from such varied areas as Russia and Mexico of reduced Sugar production this season have started to support prices, which has triggered a bout of short-covering buying from weak bears that has taken the March futures prices to near 18 cents per pound. This is the highest price level in nearly 3 months and may be drawing some interest in the market by momentum traders. Rainy conditions have slowed the Brazilian Sugar cane harvest, but additional moisture should help next season's crop get off to a good start. In addition, ample supplies of Sugar in India, one of the world's largest sugar consuming nations, may lower imports as the domestic market is currently well supplied.

Technical Notes

Looking at the daily chart for March Sugar (SBH14), we notice prices approaching the 18 cent per pound level for the first time since June. Although momentum now seems to favor the bull camp, we must note that the recent rally is occurring on declining volume and open interest is falling. This may signal that a good amount of short-covering buying is occurring and we may need to see a weekly close above 18 cents to lure new buying into the market. The 14-day RSI has entered overbought levels with a current reading of 72.45. The 18.47 level is seen as the next resistance for the March contract, with support found at 17.35.

Mike Zarembski Senior Commodity Analyst


September 30, 2013

Corn Prices Weaken Ahead of Quarterly Grain Stocks Report

Monday, September 30, 2013

This morning the USDA will release its estimates for U.S. grain and Soybean inventories as of September 1st. For Corn, traders are looking for inventories as of September 1st, to total 690 million bushels vs. 989 billion bushels this time last year and 2.764 billion bushels as of June 1st. Soybean inventories are expected to total around 125 million bushels vs. 169 million bushels last year. Wheat inventories are expected near 1.93 billion bushels vs. 2.105 billion bushels in 2012.

Fundamentals

New-crop December Corn futures prices are struggling to hold above recent lows, as the potential for a near record U.S. harvest begins. So far this season about 7% of the Corn crop has been harvested with 55% of the U.S. crop rated good to excellent, which was up 2% for the week. The harvest pace is behind the 5-year average of 16% completed as slow plantings this spring has put the crop behind schedule. In the September crop production report, the USDA estimated the U.S Corn crop at 13.843 billion bushels, with an average yield of 155.3 bushels per acre. There have been some reports from producers that yields are running above expectations, especially in the eastern regions of the Corn Belt. Western areas such as Iowa and Northern Missouri that struggled with dry conditions in August may not see quite the output this year, but reports are coming in that production may still be better than anticipated. One supportive factor that is gaining analyst's attention is the possibility that producers will hold back on harvest sales while awaiting higher prices. This may be an important trend to watch in the future as on farm storage has increased sharply the past several years and many producers are still flush from record grain prices the past few years which will make them better able to hold out financially for higher Corn prices into 2014 rather than sell their crops post-harvest when prices are normally suppressed. This may be especially true this year as premiums are still being paid for old-crop Corn and with new-crop cash Corn bids now being quoted with a $4 handle, producers may wish to hold on to their Corn a bit longer hoping to catch a post harvest rally.

Technical Notes

Looking at the daily chart for December Corn (CZ13), we notice traders trying to test support near the 445.00 price area. The last attempt to move the market below 445.00 failed and triggered a short-covering rally that took the December futures back above 500.00 for a short time. However, with the Corn harvest just getting started, we may see prices move below current support, especially if hedge selling is higher than anticipated due to increased cash sales by producers. However, should producers choose to hold back on sales and instead use on farm storage for the recently harvested crop, we may see prices move higher as end-users are forced to increased their bids to obtain supplies. Trading volume has been lighter than average the past few sessions, which might be a sign that fresh selling is starting to diminish. The 14-day RSI has moved into neutral territory, with a current reading of 42.88. The August 13th low of 445.75 remains strong support for December Corn, with resistance found at the August 26th high of 508.25.

Mike Zarembski Senior Commodity Analyst