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October 2013 Archives

October 1, 2013

Government Shutdown Looms

Tuesday October 1, 2013

With the Senate likely to shoot down a bill that would stop many of the central provisions of the Affordable Care Act, the government could shut down as early as tomorrow. Both parties have dug in their heels, with neither side offering anything in the form of concessions to the other side. A shutdown could drag on until there is enough public outrage to prompt the two sides to meet somewhere in the middle.

Fundamentals

The government shutdown could have a negative effect on consumer spending, given the growth in public sector jobs in recent years. As many as 800,000 federal employees could be placed on temporary unpaid leave. This does not include state employees, who could suffer from the trickle-down effect of states not receiving federal funding. On the bright side, essential programs and operations will continue to operate and social security payments will continue to be made. Equities were overdue for a sell-off after the market made all-time highs due to overbought conditions.

Technical Notes

Turning to the chart, we see the December E-mini S&P hitting the upper trendline and selling off. Currently, prices are near the center of the up channel. The lower end of the up channel coincides with the 100-day moving average. A breakdown below this level could result in significant downside pressure on the market. The RSI has come back down from overbought levels.

Rob Kurzatkowski, Senior Commodity Analyst

October 2, 2013

Bulls facing "Grain Drain"?

Wednesday, October 2, 2013

In addition to the quarterly stocks report, the USDA also released its estimates for U.S. Wheat production in the annual Small Grains summary. The USDA estimated all U.S. Wheat production at 2.128 billion bushels, down 6% from 2012, but above pre-report estimates of almost 2.11 billion bushels. Winter Wheat production is estimated at 1.534 billion bushels, which is 7% below last year's totals. U.S. Wheat acreage has declined during the past decade, as producers have focused on more profitable crops the past few seasons. This could set the stage for higher Wheat prices in the future, especially if other global producers experience a down year in production due to weather or lower planted acreage.

Fundamentals

Apparently the demand for old-crop Corn and Soybeans was not as great as many traders expected, and this fact was brought to light after the USDA released its quarterly grain stocks report on Monday. The biggest surprise was for Corn, with the USDA estimating inventory at 824 million bushels as of September 1st. This was well above the high end of analysts' estimates, but still nearly 17% below last year's totals. Lower end-user demand from livestock producers was responsible for the larger inventory totals, and traders fear lower demand may keep prices under pressure as the Corn harvest advances. Soybean inventories were also larger than anticipated, with the USDA reporting 141 million bushels of Soybeans in storage at the beginning of September. Although inventories were nearly 15 million bushels above traders' pre-report estimates, inventories are still historically tight just prior to harvest. Market reaction was swift after the bearish report, with December Corn prices falling to nearly 3-year lows and November Soybeans trading at their lowest levels in nearly 6 weeks. Soybeans may be the most vulnerable for further selling pressure, as a rather large net-long position is still being held by large speculators. These normally trend-following traders will likely begin to exit long positions should prices continue to move lower.

Technical Notes

Looking at the daily chart for November Soybeans, we notice prices in a near-free fall since the USDA report was released. However, the seed for a price move lower was planted several sessions ago when the chart gap made back in August was filled and prices continued to move lower. Tuesday's sell-off took prices back below the 200-day moving average for the first time since mid-August. The 14-day RSI has turned weak, with a current reading of 36.37. The next major chart support point is not found until the July 8th low of 1225.00, with resistance found at 1305.25.

Mike Zarembski Senior Commodity Analyst


October 3, 2013

Corn Traders Brace for Bumper Crop

Thursday, October 3, 2013

Corn futures have fallen to three-year lows amid speculation that US yields are increasing. Traders and forecasters are expecting a very big crop this year. FCStone suggested that the Corn crop may top 14.15 billion bushels, which would be a record crop. The USDA's September forecast was 13.84 billion bushels. It is important to note that the USDA has suspended reporting crop and livestock data because of the government shutdown, so traders may have to more closely monitor private forecasters and word of mouth from farmers.

Weather conditions have been favorable for harvesting, with freeze conditions coming in well past the normal freeze date. There is expected to be some moisture in the northern plains, but this should not affect the harvest. There have been reports that farmers have been caught a bit off guard by how big the yields have been this year. Dry weather has plagued Argentina, which could affect Corn plantings. Ideally, farmers would like to have seeds in the ground by mid-September. If the dry spell stretches on, Argentinean farmers may opt to plant Soybeans, which have a later growing season and are easier to grow. Weather models suggest good rains from October through the end of February, which could benefit farmers who decide to plant Corn a bit later than usual.

Fundamentals

Weather conditions have been favorable for harvesting, with freeze conditions coming in well past the normal freeze date. There is expected to be some moisture in the northern plains, but this should not affect the harvest. There have been reports that farmers have been caught a bit off guard by how big the yields have been this year. Dry weather has plagued Argentina, which could affect Corn plantings. Ideally, farmers would like to have seeds in the ground by mid-September. If the dry spell stretches on, Argentinean farmers may opt to plant Soybeans, which have a later growing season and are easier to grow. Weather models suggest good rains from October through the end of February, which could benefit farmers who decide to plant Corn a bit later than usual.

Technical Notes

Turning to the chart, we see the December Corn futures (CZ13) contract breaking down and trading at multi-year lows. Prices are approaching support at the 425 level. If the Corn market fails to hold support at the 425 mark, prices could find themselves trapped in a wide range between 305 and 425. The market found itself mired in this range from 2009 to mid 2010. If Corn is able to break 515 on the upside, the market may gain some momentum.

Rob Kurzatkowski Senior Commodity Analyst



October 4, 2013

Euro Strengthens as ECB Holds Rates Steady

Friday, October 4, 2013

Due to the government shut-down in the U.S., the usually highly anticipated Non-farm Payrolls report for September will not be released this morning. So far, no alternate release date has been set. For those traders who need their monthly payrolls "fix", we did receive the private sector job report from Automatic Data Processing (ADP) and Moody's Analytics this past Wednesday. The data was a bit of a disappointment, with 166,000 jobs created last month. This was slightly below the 178,000 jobs analysts were looking for, but this really was within the range of forecasts. Although the ADP data can vary from the official government data on a month-to-month basis, the longer-term trend does correlate fairly closely, So it appears that the U.S. may be resigned to slow employment growth for the foreseeable future, especially if U.S. political leaders remain far apart on an agreement to resolve the current government shutdown -- and more importantly, if they find a way to finally curtail soaring U.S. government debt

Fundamentals

Despite continued concerns about the strength of southern European economies, the Euro has strengthened vs the U.S. Dollar, as traders have turned their focus to the government shutdown in the U.S and the possible ramifications of the Federal Reserve beginning its "tapering" in the near future. The European Central Bank (ECB) announced on Wednesday that it is keeping its benchmark interest rate at 0.5%, as real GDP growth was positive in the 2nd quarter and inflation continued to stay below the 2% target. The Euro also received some support, as an attempt to topple the Italian Government by a faction led by Silvio Berlusconi was averted, as he ultimately agreed to support the current Prime Minister Enrico Letta. In the post-meeting press conference, ECB president Mario Draghi showed little concern with the recent strength in the Euro, and continued with previous language regarding keeping open any options to provide ample liquidity if needed. He did not specifically mention any additional long-term financing operations (LTRO). However, it appears that a flight away from the U.S. Dollar is due to disappointing employment data from ADP (160,000 private sector jobs created in September, vs. expectations of 176,000 jobs), as well as few signs of an agreement being reached by U.S. lawmakers to end the partial shutdown of the U.S. government, or more importantly, an agreement being reached to raise the debt ceiling limit later this month. Should we actually see an agreement out of Washington in the near future, especially if there was little damage done to the overall U.S. economy, a "relief rally" in the greenback would not come as a surprise, which could put at least a temporary end to the recent Euro rally and would most likely be a welcome event for the ECB, especially for European exporters.

Technical Notes

Looking at the daily continuation chart for the Euro FX futures (front month ECZ13), we notice prices breaking out to the upside after trading in a 2-week consolidation pattern near recent highs. It is notable that trading volume has slowed the past few months, but especially during the last move up. The 14-day RSI has reached overbought levels, with a current reading of 70.77. The 2013 high of 1.3715 looks to be the next resistance level for the Euro FX futures, with support found at the low of the recent price consolidation phase at 1.3464.

Mike Zarembski, Senior Commodity Analyst

October 7, 2013

Natural Gas Bears Show Little Fear as Tropical Storm Karen Approaches

Monday, October 7, 2013

Natural Gas traders are apparently looking beyond the arrival of Tropical Storm Karen and instead may be keeping their focus on the amount of Gas that is currently in storage. This past Thursday, Natural Gas futures prices fell sharply after the Energy Information Administration (EIA) reported that Gas storage build was 101 billion cubic feet (bcf) last week. This was well above the 95 bcf build traders were expecting. Gas inventories are running about 1.4% above the 5-year average for this time of year, with the potential for an even larger increase in the coming weeks if the current 11 to 15 day weather forecast calling for above normal temperatures throughout most of the U.S. proves accurate.

Fundamentals

2013 has been rather quiet in regards to tropical storm activity in the Atlantic basin, however, that could change now that Tropical Storm Karen has entered the Gulf of Mexico. Karen currently has maximum sustained winds of just over 60 miles per hour and is forecast to reach landfall near the Florida and Alabama border. Some energy companies in the area are taking precautions and are evacuating workers from drilling platforms. The Gulf supplies just over 4% of U.S. Gas output and although production disruptions are expected to be minimal, more cautious traders may close out short positions prior to the weekend. Any short-covering buying could lend support to prices in the near-term, but with weather forecasters calling for moderate fall temperatures in the eastern half of the U.S. in the coming days, more aggressive traders may attempt to take advantage of any price rally to establish short positions, especially with Gas storage levels that are well above the 10-year average as we approach the start of the winter heating season that traditionally begins in November.

Technical Notes

Looking at the daily chart for November Natural Gas (NGX13), we notice prices holding near recent lows despite Tropical Storm Karen forming in the Gulf of Mexico. Prices remain well 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 38.43. Near-term support is found at the "spike" low of 3.450 made on September 26th, with resistance seen at the October 1st high of 3.653.

Mike Zarembski, Senior Commodity Analyst


October 8, 2013

Gulf Coast Refineries Escape Damage from Karen

Tuesday, October 8, 2013

Gasoline futures were little changed yesterday, as traders took a pause from selling. The RBOB futures contract has slid more than 50 cents since mid-July, as demand for motor fuel has remained soft. The ongoing government shutdown will certainly not help spur demand. The US government is inching closer to the debt ceiling and a default is closer to becoming a reality, as the two sides are still far apart. In addition to 800,000 government workers being affected by the government shut down, consumer confidence could take a hit.

Fundamentals

Tropical Storm Karen passed through the Gulf of Mexico without doing any significant damage to drilling equipment. Roughly 62 percent of Gulf Oil production (866,000 barrels a day) was shut down in advance of the storm, but should resume in short order. Gulf Coast refineries were also able to escape the storm without significant damage, suggesting refinery operations did not skip a beat. Cushing, OK Crude Oil stocks may be a bit higher after the brief outage in the Seaway pipeline temporarily halted the outflow of Crude Oil from the NYMEX delivery point.

Technical Notes

Turning to the chart, we see the November RBOB (RBX13) contract continuing to edge lower after breaking support at the 2.70 level. Prices may find support near the 2.5735 level in the near-term. If they are not able to do so, the RBOB contract could come down to test the mid-2.40's. The RSI indicator has moved slightly higher since mid-September while prices have declined. This divergence may be interpreted as a sign that the market could be on the verge of reversing.

Rob Kurzatkowski, Senior Commodity Analyst

October 9, 2013

Bond Rally Vulnerable once Washington Settles Debit Ceiling Issue?

Wednesday, October 9, 2013

The government shutdown of 1995-96 is viewed by many analysts as the benchmark for how the U.S. economy might fare during the current federal government shutdown. U.S. GDP may have to be adjusted lower by just over 0.1% for Q4 according to economists which, if true, would only nominally affect current U.S. growth forecasts for all of 2013. However, it is the debt ceiling talks that are really catching the focus of traders, as the prospects of even a "technical" default could send markets reeling. Concerns of a possible U.S. default can be seen in the cash T-bill market, where maturities that come due in late October, which is just past the Oct 17 "deadline" for a resolution on raising the debt ceiling, were trading at a yield premium of nearly 13 basis points over 3-month bills. This anomaly may be a sign that anxious investors, particularly foreign holders of U.S. debt, do not want to risk holding very short-term U.S. paper, even if the possibility is remote that an agreement over raising the debt ceiling would not be reached in time to prevent a "technical' default on debt payments.

Fundamentals

The ongoing political stalemate in Washington regarding the continued funding of the federal government, as well as the upcoming debt ceiling debate, is propelling nervous traders and investors into safe haven investments, one of which is ironically U.S. Treasury Bonds. The flight into longer-term U.S. government Bonds and notes is occurring despite all the gloom and doom talk by U.S. government officials about the possibility of a "technical' default on debt payments occurring if an agreement by Congress to extend the amount of the debt ceiling cap does not occur by October 17th. Apparently, many market participants may be expressing little fear of an actual "default" occurring and seem more than willing to invest in U.S. Treasuries on the belief that the Federal Reserve will be forced to delay any 'tapering" of U.S. bond purchases due to the federal government shutdown and its effects on U.S. economic growth. Outside the U.S., economic conditions are not exactly robust, with reports of weaker GDP growth out of China and concerns that the Eurozone economy is beginning to stumble giving traders additional reasons to bid for U.S. Treasuries and sending bond yields back below 3.75%.

Technical Notes

Looking at the daily continuation chart for Treasury Bond futures (lead month USZ13), we notice the recent Bond rally beginning to stall, as yields have stalled around 3.7% for the past 2 weeks. It is notable that trading volume has slowed the past several sessions and momentum as measured by the 14-day RSI has turned lower and is now reading a more neutral 55.76. The next major resistance level is seen at the August 12th high of 135-02, with support seen at the 20-day moving average, currently near the 132-03 price level.

Mike Zarembski, Senior Commodity Analyst


October 10, 2013

Gold Consolidation Continues and Debt Ceiling Debate Drags On

Thursday, October 10 2013

Gold futures have been pulled in opposite directions over the past several weeks. Lawmakers were unable to reach a compromise before the October 1st deadline to avoid a government shutdown. Now, the debt ceiling is coming into play, which could have much more dire consequences compared to the government shutdown. These developments are almost certain to negatively affect consumer confidence and lead to lower growth and inflation projections. On the other hand, demand for Gold as a defensive instrument may rise the longer the bickering in Washington lasts. Also, Asian demand, namely from India and China, may increase in the 4th quarter. The fact that President Obama is likely to nominate a candidate that favors growth can be viewed favorably by Gold traders.

Fundamentals

Gold futures continue to consolidate as traders weigh the impact of the government slowdown and potential breach of the debt ceiling. The longer the shutdown lasts, the greater the impact on the overall economy, and it could naturally curb inflation. On the other side of this tug-o-war is the imminent nomination of Janet Yellen to take the reigns as the new Fed chief. Yellen is one of the designers of the current stimulus plan and was a key proponent in instituting the Bond buyback program. Her ascension to the Fed throne could be a harbinger of continued loose economic policies, which favor growth ahead of avoiding an inflation time bomb. Her nomination may be viewed as highly favorable for precious metals over the long haul. Several FOMC members have been increasingly vocal in their calls for winding down the Bond buyback program, which could negatively affect the Gold market. Fundamentally, Gold demand could be robust, as traders look for alternate investments in light of the shaky economic conditions facing the US and much of the rest of the globe. Forecasts suggest Indian demand may rise 15% in the 4th quarter, year over year.

Technical Notes

Turning to the chart, we see the December Gold contract consolidating in an increasingly tight range, which has formed a wedge. The pattern can be viewed as non-directional, meaning it does not hint at a possible direction until a breakout occurs. The formation has tightened significantly and could be on the verge of determining a market direction at some point in the not too distant future. The oscillators also give neutral readings, providing traders no hints as to the possible near-term direction of the Gold market.

Rob Kurzatkowski, Senior Commodity Analyst


October 11, 2013

Yen Rally Defies Long-term Outlook

Friday, October 11, 2013

Earlier this week it was reported that Japan's current account surplus fell to a record low for August, as imports surpassed exports for the first time in 9 months. The surplus tumbled to 161.5 billion Yen, which was well below the over 500 billion Yen surplus economists were expecting. This data, in addition to the nomination of Janet Yellen for Chairman of the Federal Reserve, may renew calls for Japanese monetary policymakers to step-up their economic stimulus to prevent further damage to the struggling economy. It is generally believed that Ms. Yellen will continue with the accommodative monetary policies of current Fed Chairman Ben Bernanke, which could help to strengthen the Yen, as any "tapering" of Bond purchases by the Fed may be delayed until well into 2014.

Fundamentals

The nearly month-long rally in the Yen vs. the U.S. Dollar caught many long-term traders by surprise, as the looming U.S. debt ceiling debate has trumped negative fundamentals for the Japanese currency. The Japanese economy has been mired in a deflationary spiral for more than a decade, which current Prime Minister Shinzo Abe is attempting to end via massive economic stimulus intended to spark inflation and weaken the value of the Yen. A weak Yen likely will benefit the country's exporters, which should help to revitalize the country's manufacturing sector. However, the Yen has been a favorite of forex traders as a funding currency in so called "carry" trades, where a higher yielding currency is purchased and a lower yielding currency (such as the Yen) is sold in hopes of appreciation, as well as earning the interest rate differential. However, at times of risk aversion, traders could be forced to liquidate these carry trades, which adds to buying support for the Yen and works against the monetary policies of the Abe government. In late September, the Abe government announced as 5 trillion Yen stimulus package as a way to help alleviate some of the economic pain being caused by a hike in the nation's sales tax, which was raised to 8% to help pay down the country's massive debt, currently totaling over 1 quadrillion Yen! The country's debt to GDP ratio is well over 200%, which is by far the highest ratio among developed countries and makes the U.S. 73% of debt/GDP ratio look positively frugal.

Technical Notes

Looking at the daily continuation chart for Japanese Yen futures (lead month JYZ13), we notice the recent rally has fallen just short of the 200-day moving average (MA), as many forex traders see this indicator as a significant resistance barrier. Trading volume has been trending lower during the nearly month-long rally off recent lows, which might be a sign that short-covering buying has been behind the Yen's recent strength. The 14-day RSI has started to turn lower, and is now reading a rather neutral 50.98. The 200-day MA, currently near 1.0374 is seen as the next resistance level for the Yen futures, with support seen at the 20-day MA, currently near 1.0184.

Mike Zarembski, Senior Commodity Analyst

October 14, 2013

Will a Weaker GBP Melt the Cocoa Rally?

Monday, October 14, 2013

On Thursday, Cocoa traders anxiously awaited the release of the European Cocoa grinding totals for the 3rd quarter as a gauge of demand from the largest market for Cocoa products. The report showed Europe's Cocoa grindings rose by 4.7% in the third quarter to 331,514 metric tons, which was deemed bullish by traders. Later this week, traders will await the release of the Cocoa grinding figures for North America, where demand for Cocoa ahead of the holidays has sent U.S. warehouse stockpiles to nearly 8-month lows.

Fundamentals

Cocoa futures have been the best performer of the so called "softs" complex the past several months, with prices rising by nearly $600 per ton since July. The lead month December contract (CCZ13) is currently trading near 2-year highs, as the International Cocoa Organization (ICCO) has projected that Cocoa supplies will be in deficit for the next several years. Increased demand for Cocoa, especially from Asia, is a key component in the supply/demand outlook. An expansion of the middle class, especially in India, is leading to a 10% increase in Asian Cocoa demand this year, as a rising middle class consumer is now able to afford luxuries such as Chocolate. For the 2013-14 season, the ICCO estimates a 70,000 ton Cocoa shortfall, which follows a 52,000 shortfall from the 2012-13 season. In addition to the potential increase in Cocoa demand, traders also note that this season's Cocoa production was hampered in much of the West African Cocoa producting regions due to dry weather earlier in the year. This bullish supply and demand scenario helps to explain the sharp rally in prices for Cocoa, when most of the "softs" have struggled. One bearish note for near-term Cocoa prices is the recent weakness in the value of the British Pound vs. the U.S. Dollar. Pound weakness encourages arbitrage traders to sell Cocoa in New York, which is priced in USD, and buy Cocoa in London, which is priced in GBP. This arbitrage may have placed a temporary cap on the New York Cocoa price rally, which could encourage weak bulls to begin to liquidate long positions should new highs not be made in the near future.

Technical Notes

Looking at the daily chart for December Cocoa, we notice prices beginning to pause near recent highs, as a weaker British Pound has triggered some arbitrage selling in the New York Cocoa market. However, the technical's still look positive, with prices trading well above both the 20-and 200-day moving averages. Momentum as measured by the 14-day RSI is strong, with a current reading of 67.90. 2800 is seen as the next resistance level for December Cocoa, with chart support not found until the September 26th low of 2555.

Mike Zarembski, Senior Commodity Analyst

October 15, 2013

Surplus Talk Fails to Sink Copper

Tuesday, October 15, 2013

Copper futures continue to consolidate, despite projections that the global surplus of the metal will triple in 2014. One would think that the oversupply of Copper and possible US default would have a negative impact on Copper prices, however, China's economy is beginning to show signs of life. Chinese imports of Copper jumped unexpectedly, setting a positive tone for the start of the week. Technically, Copper is trading in a narrowing sideways range, suggesting a breakout may be on the horizon.

Fundamentals

The international Monetary Fund ("IMF") predicted that world economic growth for 2014 would be weaker than previously expected. The IMF also warned that a US default could result in a global recession, underscoring the urgency for the two sides to come to an agreement. The International Copper Study Group forecast that the 2014 global surplus of Copper will reach 272,000 metric tons. The group cited expansions in major South American and Asian Copper mines along with slower economic growth. Chinese demand for the red metal is expected to be the softest in almost a quarter of a century.

Technical Notes

Turning to the chart, we see the December Copper contract (HGZ13) trading in a sideways range between 3.2250 and 3.3750. More recently, the range has been tightening, suggesting the market could be on the verge of a breakout. Prices are also bracketed between the 100-day moving average below the range and the 200-day moving average on the upside.

Robert Kurzatkowski Senior Commodity Analyst

October 16, 2013

No Soft Landing for Cotton prices?

Wednesday, October 16, 2013

One of the annoyances faced by traders due to the ongoing shutdown of non-essential Federal Government offices was the postponement of the USDA October Crop Production and Supply/Demand Report that was due out this past Friday. Many traders believed that the USDA would lower its estimate for U.S. Cotton production slightly from the 12.9 million 480-pound bale estimate in the September report due to declining crop conditions the past several weeks. However, some analysts note that ideal weather conditions in September may have helped the late planted crop, and average yields may prove to be above expectations once the harvest is complete.

Fundamentals

Aside from a brief price "spike" in August, new-crop Cotton futures prices have been range-bound for most of 2013, as the prospects for lower U.S. production were offset by huge Cotton reserves in China. Since February, December Cotton has been trading in a relatively narrow 8-cent per pound price band, with the exception of the August rally which sent prices above 90 cents per pound. As we move into the 4th quarter of 2013, it appears that Cotton bears may be gaining the upper hand. Historically, October has been a difficult month for Cotton prices, as U.S. inventories tend to increase due to harvest activity, in addition to increased hedge selling by producers which tends to dominate market activity. In Asia, current forecasts are calling for increased Cotton supplies out of India this season, which comes at a time when global consumption is expected to moderate. The wildcard for Cotton prices will likely once again be China, which is the world's largest Cotton consuming nation. China has been a large buyer of U.S. Cotton this year, despite having already accumulated large inventories being held in government reserves. Some traders believe that China will continue to add to strategic reserves now that prices have fallen from record levels just 2 years ago, as the government does not want to be caught short should any major supply issues occur. However, there appears to be a growing segment of market participants that believe that China will curtail it's Cotton purchases in the coming months, which if accurate, could send December Cotton prices below 80 cents as speculators begin to liquidate their long positions.

Technical Notes

Looking at the daily chart for December Cotton (CTZ13), we notice prices trading near the lower end of a multi-month trading range that has stymied both Cotton bulls and bears. Prices are currently holding below both the 20- and 200-day moving averages, and momentum as measured by the 14-day RSI is weak, with a current reading of 42.50. The recent low of 82.11 looks to be strongsupport for December Cotton, with resistance found at the October 3rd high of 87.78.

Mike Zarembski, Senior Commodity Analyst


October 17, 2013

Senate Deal Triggers Jump in Oil Prices

Thursday, October 17, 2013

The Senate has reached a deal to expand the debt limit and avoid a US government default, which could have had disastrous consequences. The ball is now in the court of the House, where Republican leaders indicated they would allow the bill to pass. If GOP leaders block the vote or the bill fails, Oil prices could find themselves under pressure. The government shutdown has had a negative psychological impact on energy prices. The actual impact of the government shutdown is unknown at this point. Economic indicators were already showing growth slowing prior to October 1st , and the shutdown is certainly not likely to inspire any confidence from traders.

Fundamentals

Normally, Wednesday would offer traders petroleum inventory data from the Energy Information Administration ("EIA"), but the administration is one of the "non-essential" departments that have been shut down. Instead, traders will have to rely on inventory data from the American Petroleum Institute ("API") released on Wednesday afternoon. Fitch, one of the country's three major credit agencies, indicated that it had put the US government credit rating on review for a possible downgrade, citing brinksmanship in the debt limit negotiations. Iran indicated that it is preparing to take confidence-building measures by the second quarter of next year, which can likely be seen as negative for Oil prices. The Iranian government, however, was vague and did not indicate what those steps are.

Technical Notes

Turning to the chart, we see the November Crude Oil contract (CLX13) trading below the 103.08 support level. Prices have been trading below the 100-day moving average for the past three sessions. This could indicate that prices may test the next support level at the 97.25 mark. The RSI indicator has been moving steadily higher and diverging from prices, which could be interpreted as slightly bullish in the near-term.

Rob Kurzatkowski Senior Commodity Analyst

October 18, 2013

Bulls Not Getting "Juiced" over OJ Futures

Friday, October 18, 2013

A lack of any significant tropical storm activity this hurricane season has taken most of the "weather premium" out of front month Orange Juice futures prices, as the peak Atlantic Hurricane season is coming to a close. Florida, where nearly 75% of U.S Orange production is centered, has received only minimal amounts of tropical storm activity this season, which missed the key citrus growing regions of the state. As we head ever closer towards winter, we may see some increased bullish interest in winter month OJ futures contracts, as traders turn their focus towards weather forecasts for signs of any potential freezing temperatures reaching the central portions of Florida, which could potentially damage the 2013-14 Orange crop.

Fundamentals

Even Randolph and Mortimer Duke would not be bullish about the Frozen Concentrate Orange Juice (FCOJ) futures market this year, as prices continue to drift lower. Weak retail demand for Orange Juice has been a major catalyst for the trend towards lower futures prices, as sales of this traditional breakfast drink have fallen to their lowest levels in at least 15 years, as consumers now have more choices for their morning beverage with high retail juice prices also helping to cull consumer demand. In addition, traders cite a lack of information regarding the potential size of the Florida Orange crop due to the ongoing Federal Government shutdown, which has forced a postponement of USDA crop data. The October USDA report is highly anticipated by FCOJ traders, as it is the first "official" estimate of the size of the orange crop from the government analysts. So without this potentially significant market making news, traders may continue to bide their time elsewhere until potentially market moving data for FCOJ occurs.

Technical Notes

Looking at the daily chart for November FCOJ futures (OJX13), we notice prices trading below recent lows, as a lack of bullish news keeps the downtrend intact. Both trading volume and open interest have fallen lately, which shows a lack of interest by traders at current price levels. The 20-day moving average has acted as resistance the past few weeks, with daily market highs failing to hold above the widely watched short-term indicator since mid-September. The 14-day RSI is trending lower, having moved into oversold territory with a current reading of 29.73. 115.00 looks to be the next support level for the November contract, with resistance found at the recent high of 132.70.

Mike Zarembski, Senior Commodity Analyst


October 21, 2013

Soybean Sell-off Stalls as Chinese Buying Resumes

Monday, October 21, 2013

Soybean products (Soybean Oil and Meal) also received some bullish news following the release of the National Oil Seed Processors Association (NOPA) Soybean Crush figures for September. Nearly 108.7 million bushels of Soybeans were crushed by processors last month, which was above the 106.2 million bushels traders were expecting. Lower Soybean inventories as well as higher Palm Oil prices are seen as additional factors supporting product prices.

Fundamentals

Following a nearly $1.50 per bushel price decline, Soybean futures prices appear poised for a rebound, as China has resumed its buying of U.S. Soybeans. The 20% plus price decline since July has allowed U.S. Soybeans to become more attractive to foreign buyers, but especially China, where demand for food commodities continues to increase. Weekly Soybean exports totaled 47.381 million bushels, vs. 30.6 million bushels the past week, with China believed to be a buyer of several Soybean cargos. However, the grain trade has been "trading blind" the past few weeks, as data and reports from the USDA are "on hold" due to the government shutdown. Now that an agreement is in place to re-open the government, there is still expected to be a delay before the USDA is able to resume supplying data. Among the most anticipated of the USDA data will be the eventual release of the October crop production and supply/demand report. Here traders expect the USDA to raise its estimate of U.S. Soybean production by nearly 50 million bushels from the 3.149 billion bushel estimate in the September crop report. Yield estimates are also expected to be increased, with analysts looking for a nearly 1 bushel per acre increase for the September report. U.S. ending stocks are expected to rise this season, after falling to an extremely tight 125 million bushels in the 2012-13 marketing year. However, if U.S. Soybean exports remain strong, U.S. Soybean inventories may not rise as much as anticipated and the potential for tight inventories to continue into 2014 are heightened.

Technical Notes

Looking at the daily chart for January Soybeans (SF14), we notice prices beginning to stabilize just above the 1260.00 price level. Although prices remain below the short-term 20-day moving average (MA), prices have now moved above the longer-term 200-day MA. This mixed signal between these long and short-term indicators may be a sign that a period of price consolidation may be in the offing. Momentum, as measured by the 14-day RSI has turned higher, with a current reading of 44.90. Support is seen at the October 14th low of 1261.25, with resistance found at the October 8th high of 1305.00.

Mike Zarembski Senior Commodity Analyst

October 22, 2013

Huge Crop Continues to Push Down Coffee Prices

Tuesday, October 22, 2013

December Coffee (KCZ13) made new contract lows amid improved growing conditions in Brazil, the world's largest producer. The massive supply of Coffee may continue to plague the market going forward. Outside markets were of little help to Coffee prices, as commodities were mostly soft across the board yesterday. The recent weakness in energies could have negative implications for commodities as a whole. Technically, the pattern of lower lows continues, indicating the market is still mired in a downtrend.

Fundamentals

Much of Brazil's Coffee growing region is expected to see plenty of sunlight this week, which is expected to allow farmers to work fields to get a good jump on the 2013-14 crop. Brazil has seen a good mix of alternating rainy and dry weather conditions, which has some forecasters calling for an even larger than previously expected crop. The USDA has forecast that global Coffee production will exceed demand for the fourth consecutive year. In addition to a potentially massive Brazilian crop, crops in Indonesia and Columbia are expected to be in the upper range of expectations.es this summer, we may see a Corn crop totaling nearly 14 ½ billion bushels!

Technical Notes

Turning to the December Coffee chart, we see the contract continuing its pattern of lower highs and lows. The downtrend line has been flattening of late, but there are no signs that the market is ready to reverse course anytime soon. The 50-day moving average has acted as the upper barrier to the downtrend, while prices have largely centered around the 20-day average. If prices can gain enough traction to cross through the 50-day average on the upside, the market could gain some momentum.

Rob Kurzatkowski, Senior Commodity Analyst

October 23, 2013

Better Late than Never for U.S. Employment Report

Wednesday, October 23, 2013

The monthly non-farm payrolls and unemployment reports were not the only government data release that was postponed due to the Federal Government shutdown. Below are some of the updated release dates that have been announced. October 23rd: Import Price Index (SEP), October 29th: PPI (SEP), October 30th: CPI (SEP) November 7th: 3rd-Quarter GDP Estimate, November 8th: Non-farm payrolls/Unemployment (Oct), and Consumer Spending (SEP).

Fundamentals

Traders and analysts had to be extra patient this month while waiting for the release of the Non-farm payrolls /Unemployment report for September, as this highly anticipated report was delayed due to the nearly 2-week long Federal Government shutdown. At long last, the report was finally released on Tuesday, with the Labor Department announcing that 148,000 jobs were created last month vs. 169,000 jobs created in August. This was below the average analyst forecast of 180,000 jobs created. The unemployment rate declined in September falling by 0.1% to 7.2%. Traders were looking for the unemployment rate to remain unchanged from August. As we always like to look at the monthly revisions to the employment data we did see some good news, with august payrolls revised upward to 193,000 jobs created, which nearly offset the September's lower totals. Private sector payrolls rose by 126,000 jobs in September although a significant amount of the jobs being created were in the generally low paying retail services sector. Government payrolls rebounded last month adding 22,000 jobs mostly at the state and local levels. The release of the employment data followed a report showing a modest slowdown in the all important U.S. housing sector, with the National Association of Realtors reporting existing-home sales had fallen by 1.9% in September to a seasonally adjusted rate of 5.29 million. Economists attributed the decline to rising home mortgage rates which rose nearly 1% from the beginning of the year. Treasury Bond futures rallies sharply after the release of the employment data as traders seem to believe that the continued sluggish jobs growth coupled with any fallout from the Federal Government shutdown will remove any chance of the Federal Reserve beginning its tapering of bond purchases in 2013, and with current Fed Chairman Ben Bernanke leaving his post early next year, the slowing of any Fed stimulus will now fall squarely with the new Fed Chairman, which is expected to be Janet Yellen, a noted "dove" on the Fed Board of Governors.

Technical Notes

Looking at the daily continuation chart for Treasury Bond futures, we notice prices trading near 2-month highs as bond bears are being forced to cover their short positions as market opinions have moved into the future when the Federal Reserve will lower the amount of its bond purchases. Prices have moved above the 20-day moving average and momentum as measured by the 14-day RSI is strong with a current reading of 64.84. We should also note what appears to be a head-and-shoulders bottom forming on the daily chart. This technical pattern, if confirmed, might signal that the recent downtrend in prices could be nearing an end. Trading volume has been lighter than average during the 3-month long consolidation phase and a move above resistance at 136-00, especially on higher than average trading volume, would definitely give credence to the formation of this "reversal" pattern. Support is seen at the September 6th low of 128-12.

Mike Zarembski, Senior Commodity Analyst


October 24, 2013

Wheat Strong on South American Drought

Thursday, October 24, 2013

Drought conditions in South America and firmer demand have shifted Wheat market fundamentals toward the bull camp. The damaged South American Wheat crop could spur demand for US crops. Roughly 20.58 million bushels of US Wheat were inspected for export during the week ended Oct. 17, which is 25% higher than the same period last year.

Fundamentals

Wheat fundamentals have been increasingly bullish in recent weeks, as Argentinean farmers are concerned that the drought plaguing the nation has caused irreversible damage to the crop. The Wheat crops in other South American growing regions are not faring much better. Parts of Brazil, Uruguay, and Paraguay are facing similar conditions to those plaguing Argentina. These nations are also expected to have shortfalls. US and European planting conditions, on the other hand, have been very good. This could put a ceiling on prices in the near-term. Eastern Europe has been a mixed bag for Wheat, with the Russian harvest being about 95% complete. Russian winter planting is only 79.5% complete, while Ukrainian plaiting is about 86% complete, however the planted crop is said to be healthy.

Technical Notes

Turning to the chart, we see the December Wheat contract (WZ13) forming a double-bottom pattern, indicating the downtrend may be reversing course. Prices have broken out just above the 700 resistance level, but not in convincing fashion. December Wheat is now trading above the 20-day, 50-day and 100-day moving averages ("MA"). Prices are now trading just below the 200-day MA. If Wheat crosses above the 200-day average, it may offer further bullish technical validation.

Rob Kurzatkowski, Senior Commodity Analyst

October 25, 2013

Bank of Canada's "Doves" Delay the "Loonies" Flight

Friday, October 25, 2013

Canadian equities were a major beneficiary after the Bank of Canada (BOC) removed its "hawkish" bias towards interest rates. Traders now seem to be anticipating accommodative monetary policies to remain in place for a longer period of time than previously anticipated. This is deemed a bullish factor for stocks.

Fundamentals

The BOC surprised currency traders on Wednesday with rather "dovish" comments regarding interest rates, which sent the "Loonie" tumbling to 2-week lows. The BOC kept its benchmark interest rate steady at 1%, however in the statement following the rate announcement, Governor Stephen Poloz removed language regarding the need for rate increases, as concerns about economic growth and lower inflation have overtaken concerns of a potential housing bubble forming for our neighbors to the north. The bank expects inflation to remain below its 2% target until at least mid-2015, as the economy is operating well below capacity which is keeping labor costs in check. The Bank also lowered its forecast for 3rd quarter growth to 1.8% annualized from 3.8%, and lowered overall growth in 2013 to 1.6%. In addition to a rather subdued economic outlook, falling Crude Oil prices have also added pressure to the currency, as Oil is Canada's largest commodity export. Unless economic data begins to improve or inflationary pressures unexpectedly return, the "Loonie

Technical Notes

Looking at the daily continuation chart for Canadian Dollar futures (CD), we notice the 200-day moving average acting as strong overhead resistance since March, with the recent rally attempt once again failing to move above this long-term indicator. Wednesday's sell-off following the BOC interest rate announcement occurred on higher than average volume, which elevates the odds of further price weakness, with a test of recent lows not out of the question. The 14-day RSI has turned lower, with a current reading of 40.43. Near-term support is seen at the September 6th low of 0.9516, with resistance found at the 200-day moving average, currently near the 0.9748 price level.

Mike Zarembski Senior Commodity Analyst

October 28, 2013

What a Difference a Year Makes for the Euro

Monday, October 28, 2013

The prospect of a stronger Euro has not being warmly received by EU corporations, especially those who rely on exports for the bulk of their earnings. A stronger Euro makes European exports more expensive for foreign buyers and as a consequence, has led to lower earnings for many European based corporations. Although many corporations will attempt to hedge at least some of their foreign exchange risk, the surprising strength in the value of the Euro appears to have caught a good portion of EU companies off-guard and under hedged.

Fundamentals

It was only a few years ago that many pundits were expecting a breakup of the Euro currency due to the dire financial straits of a few of the Euro zone member nations. How things have changed as we enter the 4th quarter of 2013, with the once beleaguered currency now trading at 2-year highs vs. the U.S. Dollar. In fact, the Euro has shown surprising strength across many currencies, rising nearly 7% vs. a basket of major currencies. Euro zone economic growth has improved of late, with 2nd quarter GDP rising by 0.3% vs. a negative growth rate of 0.2% in the 1st quarter of 2013. Signs of economic improvement for the 17 member nations that make up the Euro, could allow the European Central Bank (ECB) to shun further interest rate cuts. Many analysts are now looking for the ECB to keep its benchmark interest rate steady at a record low of 0.5% for some time, unless inflationary pressures rise sharply. Although European corporations would like to see the Euro weaken vs. its peers, in order to make its exports more competitive in the global market, it appears that further cuts might be unwarranted given signs that the recessionary environment that has plagued the Euro zone since the start of 2012 is finally coming to an end.

Technical Notes

Looking at the daily continuation chart for Euro futures (EC), we notice that prices are now trading above the prior 2013 high, as upside momentum is sending the Euro to price levels not seen since November 2011. Although prices have moved above recent resistance levels, we should note that the likelihood of a potentially significant price correction might be increasing. We have seen trading volume decline during the past few months, which could be a sign that a good portion of the recent price rise was due to short-covering buying and not new long positions being initiated. In addition, the 14-day RSI has reached overbought levels, with a current reading of 73.74. 1.3879 is seen as the next resistance level with support found at 1.3464.

Mike Zarembski, Senior Commodity Analyst


October 29, 2013

Russian Gold Selling Catches Traders Off Guard

Tuesday, October 29, 2013

Gold futures continue to grind higher ahead of the FOMC policy meeting. The central bank is expected to keep an expansionary tone in light of the recent government shutdown, which likely had a detrimental effect on economic growth. Technically, Gold futures have bounced back strongly after flirting with the sub-1300 level, which has set a positive tone to the market. Traders may want to be a bit cautious moving forward.

Fundamentals

Russia has reduced its Gold reserves for the first time in a year, which set a somewhat negative tone to yesterday's trading. Even after the surprise sale of 12,000 ounces, Russian reserves are up 4.7 % on the year. Mexico, Canada and France all pared reserves of the metal to the tune of 3,697, 2,000 and 1,000 ounces, respectively. Metal demand could remain soft going forward, which could undermine rallies in the near-term. Gold traders are expecting the Fed to put off tapering for at least a few months to give the US economy time to recover from the government shutdown. Anything short of a dovish statement from the Fed could put selling pressure on the metal.
Technical Notes

Turning to the chart, we see the December Gold contract (GCZ13) forming a spinning top candlestick from yesterday's market action. This may be an indication that prices could reverse course after the recent leg up. Prices have run into minor resistance here near the 1350 level, which could cause prices to grind higher. The RSI indicator is edging toward overbought levels, while momentum has edged above the zero line.

Rob Kurzatkowski, Senior Commodity Analyst

October 30, 2013

Beef not Cheap as Cattle Prices Trade near Record Highs

Wednesday, October 30, 2013

Feeder Cattle futures are trading near record highs, as an end to drought conditions in a large section of the Great Plains is allowing Cattle producers to keep young calves on pasture land for a longer stretch of time, rather than sending them to feedlots early to put on weight. This has caused feed lot operators to pay higher prices for young cattle, which is possible now that Corn prices have fallen sharply and feedlot profit margins are improving.

Fundamentals

Live Cattle futures continue to trade near record highs, as bullish fundamentals continue to attract fresh buyers. Cash cattle prices are at record highs, and buyers are forced to pay even higher prices as market ready supplies continue to tighten. Midwest cash Cattle trade was reported between $132 and $134 per hundredweight last week, up 3 to 4 dollars from the previous week. Record high cash prices are the result of record high feed prices the past season, which came about following the severe Midwest drought in 2012. High grain prices forced producers to reduce herd sizes and to liquidate breeding stock, which led to fewer Cattle being placed on pasture and in feedlots earlier this year. Poor profit margins for meat packers (loss of 50 to 60 dollars per head) are expected to lead to lower slaughter rates in the coming weeks, which should lead to lower beef supplies going into the 1st quarter of next year. For all of 2014, analysts are looking for beef production to fall by nearly 6% from 2013 levels. In many years when beef prices were high, retail demand would plummet, as consumers switched to "cheaper" proteins such as chicken or pork. However, with Hog prices also trading near record levels, weary consumers might be resigned to having to pay more for most types of meat at the grocery store, which could lessen the impact on beef demand in the coming year.

Technical Notes

Looking at the daily chart for December Live Cattle (LCZ13), we notice prices trading near recent highs, as cash Cattle prices continue to soar to record levels. Prices are now trading well above both the 20- and 200-day moving averages, and momentum as measured by the 14-day RSI is strong, with a current reading of 70.04. There were some concerns that Friday's price reversal would be the start of a near-term price correction, but Monday's strong upside price move and Tuesday's follow-through rally seem to have discouraged many traders still in the bear camp. Friday's high of 134.575 looks to be the next resistance level for the December futures, with support found at the October 17th low of 131.325.

Mike Zarembski, Senior Commodity Analyst

October 31, 2013

Coffee Prices Continue to Grind Lower

Thursday, October 31, 2013

Robusta coffee futures (Symbol: LKD) prices are trading near multi-year lows, as producer hedge selling from Vietnam, the world's largest Robusta Coffee producer, is increasing ahead of this season's harvest. Robusta supplies are not nearly as abundant as Arabica supplies, but the anticipation of a large Vietnam harvest should keep the market in a surplus throughout 2014.

Fundamentals

The Arabica Coffee futures market continues to be mired in a bear market, as large supplies out of Brazil and increased production from Columbia are adding to the current global surplus. Coffee prices are down over 50% during the past two years, with a record off-year harvest from Brazil of 47.5 million bags adding to the supply woes in the market. Columbia, the second largest Arabia Coffee producer, has been plagued by a coffee fungus that has hurt production totals during the past few seasons. However, production is expected to have rebounded this year as the harvest from disease resistant varieties is expected to reach the market this season. Near ideal weather condition in the Coffee producing regions of Brazil, is causing analysts to raise early estimates for next season's crop which will do little to help alleviate the current supply surplus.

Technical Notes

Looking at the daily chart for December Arabica Coffee (KCZ13) we see a market that is becoming rather oversold. The 14-day RSI is very weak with a current reading of 24.76. Prices are trying to stabilize just above the 106.00 price level and a near-term upside price correction might be seen in the future. The recent low of 106.60 is near-term support for December Coffee with resistance found at the 20-day moving average, which is currently near the 112.60 price level.

Mike Zarembski, Senior Commodity Analyst