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June 2014 Archives

June 2, 2014

Are Oil Bulls Climbing a Slippery Slope?

Monday, June 2, 2014

Large speculators continue to add to their net-long positions in Crude Oil, with the most recent Commitment of Traders report showing non-commercial traders, usually large funds and speculators, added over 24,000 new net-long positions during the week ending May 20th. The total net-long position for non-commercial and non-reportable traders has surpassed 440,000 contracts, which is nearly a record net-long position. This may set the stage for a potentially steep price correction should the price-trend turn bearish and this huge net-long position starts to be liquidated.

Fundamentals

Oil prices continue to hold near recent highs, despite U.S. Oil inventories that are well above the 5-year average. The most recent Energy Information Administration (EIA) energy stocks report released this past Thursday showed that U.S. Oil inventories increased by nearly 1.66 million barrels last week to stand at 392.954 million barrels. This is nearly 16 million barrels above the 5-year average for this time of year. However, inventories held at Cushing, Oklahoma, the delivery point for the NYMEX WTI Oil futures, continue to decline, falling to their lowest levels in 6 years. Outside the U.S., concerns about a continued shutdown of Libyan Oil fields due to a conflict between government forces and rebel groups over Oil revenues has prevented a ramping-up of production from this important Oil exporting nation. Although it appears that political tensions between Ukraine and Russia remained at a heightened state, the recent election of Petro Poroshenko as Ukrainian President and a noticeable withdrawal of Russian troops from the Ukrainian boarder may be a signal that tensions might begin to ease, which could allow Crude traders to remove some of the risk premium from Oil prices in the coming weeks.

Technical Notes

Looking at the daily chart for July Crude Oil, we notice a bearish divergence forming in the 14- day RSI as this momentum indicator has failed to make new highs as prices rose. It appears that we might be in the midst of a near-term price correction, although it is still too early to call a near-term top in prices -- especially with the market holding above the 20-day moving average. The 14-day RSI is also trending back towards more neutral levels, with a current reading of 55.85. Support is seen at the recent low of 100.82, with resistance seen at the recent high of 104.50.

Mike Zarembski, Senior Commodity Analyst


June 3, 2014

Gold Bulls Hoping for Value Buyers to Step In

Tuesday, June 3, 2014

Gold futures are trading near their lowest levels since late January due to lackluster investment demand for the metal. Equities have had a strong start to the new month, bolstered by positive economic data. This seems to have whet investors' appetites for risk at the expense of safe haven investments, such as precious metals. Traders will soon have plenty of job data to digest, as the first week of the month brings all major jobs reports. As prices approach the key chart and psychological support level of 1200, Gold bulls are hoping the price declines will prompt value buyers of the metal to step in

Fundamentals

It is not only the risk-on attitude from stock investors that has Gold bulls singing the blues, as the US Dollar index has rebounded since the middle part of May. The index was threatening a downside breakout below the critical 79.00 level, but the greenback averted this setback and could be poised to take on near-term resistance at 81.31. Traders also believe the Federal Reserve is far from done with regard to its reduction in asset purchases. Decreased asset purchases could be seen as positive for the greenback and, more importantly for Gold traders, decreases the likelihood that the central bank will allow inflation to run away from them. In addition to the plethora of US job data this week, the ECB will be meeting and will have a rate decision on Thursday. Tamer inflation in Europe is expected to prompt the central bank to ease interest rates. If this is indeed the case, the US Dollar could find additional support, which may negatively impact metal prices.

Technical Notes

Turning to the continuation chart, we see the August Gold contract breaking out of a wedge formation to the downside. The August contract is trading near minor support around the 1235 mark. If Gold prices are unable to hold the level, traders may wish to keep an eye on the 1200 level. Not only is this chart support, but failure to hold the 1200 mark could be a psychological setback for metal bulls. Due to recent negative price action, the RSI indicator is showing oversold levels, which could be seen as slightly positive in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst


June 4, 2014

Bears in Charge as Corn Prices Plunge

Wednesday, June 4, 2014

Even though Corn prices are trending lower, large speculators continue to hold a rather large net-long position according to the most recent Commitment of Traders report. As of May 27th, non-commercial traders were holding a net-long position of over 253,000 contracts. While this was down nearly 27,000 contracts for the week, it was still over 140,000 contracts above the net-long position this time last year. Continued long-liquidation selling may occur unless we start to see some sort of weather scare that could trigger a "risk premium" to be factored into prices in the coming weeks.

Fundamentals

U.S. Corn producers have taken advantage of ideal weather conditions, as nearly the entire Corn crop has been planted. The USDA in its weekly crop progress report noted that 95% of the U.S. Corn crop has been planted as of this past Sunday, vs. 88% last week. Plantings in the important Corn producing states of Iowa and Illinois are nearly complete at 99% and 98% respectively. In addition, the condition of the newly emerging Corn crop is stellar, with 76% rated good to excellent. Recent weather forecasts are calling for a large part of the Midwest to experience above normal rainfall, with average to slightly above average temperatures, which should help to keep the Corn crop in top condition. Already some analysts are beginning to raise their estimates for the size of the U.S. Corn harvest, although it is really too early in the season to declare the crop "made". New-crop December Corn futures prices have tumbled the past few weeks and are now trading at 4-month lows. Solid export demand has helped to support old-crop/new-crop spreads, with the July/December Corn spread trading at a 4-cent July premium, vs. a 12-cent December premium earlier this year. However, even old-crop Corn prices have been trending lower, despite decent exports. Traders will get the latest crop outlook from the government next Wednesday, when the USDA releases its forecast in the June Crop Production and Supply/Demand report.

Technical Notes

Looking at the daily chart for December Corn, we notice the uptrend drawn from the January lows was broken in mid-May, which triggered a nearly 50-cent per bushel sell-off as weak longs exited the market. Prices are now trading below both the 20- and 200-day moving averages (MA), and the 20-day MA appears poised to cross below the longer-term 200-day MA, which is generally viewed as a bearish indicator by technicians. The 14-day RSI has entered into oversold territory, with a current reading of 27.67. 450.00 is seen as the next support level for December Corn, with resistance seen at the 200-day MA currently near the 478.00 price level.

Mike Zarembski, Senior Commodity Analyst

June 5, 2014

Cushing Squeeze Continues

Thursday, June 5 2014

Crude Oil inventories at the NYMEX's Cushing, OK delivery point have declined for the 17th time in 18 weeks. The declines in stockpiles can be attributed to improvements to Oil distribution channels. It will be interesting to see if this trend will continue. US production started the year at 8.1 million barrels/day and was expected to reach 8.7 million barrels/ day during the fourth quarter, which could ultimately result in higher inventories at Cushing. We are also coming up on refinery maintenance season, which could result in higher Crude Oil stocks due to the decrease in capacity utilization.

Fundamentals

Cushing inventories stand at 21.4 million barrels according to the EIA, which is the lowest level for the delivery point in five years. Supplies at the hub have been on the decline since the Keystone XL pipeline began moving Oil to the Gulf Coast back in January. The increase in Cushing inventory levels has resulted in the tightening of the WTI-Brent Crude Oil spread. The spread was nearly $20 back in the latter portion of last year and has been steadily tightening. If the trend of Cushing destocking continues, the spread has the potential to narrow to parity. Russia and Ukraine have been inching towards a more amicable relationship, which could sap some of the risk premium out of the Oil market. Furthermore, it appears that growth in the Eurozone could be slower than that in the US. Both regions have had a tame inflationary outlook as well.

Technical Notes

Turning to the chart, we see the July Crude Oil contract in range-bound trading between 97.50 and 105. The chart pattern and oscillators hint at further sideways trading. The price channel has narrowed a bit, but not enough to suggest that a breakout is imminent. The RSI closed the session almost exactly on the 50 line.

Rob Kurzatkowski, Senior Commodity Analyst

June 6, 2014

Euro Rallies Despite ECB Rate Cut

Friday, June 6 2014

Both large and small speculators have been adding to their net-short position in the Euro futures the past week according to the Commitment of Traders report. For the week ending May 27th , speculators added nearly 9,000 new net-short positions in the Euro futures, which now totaled over 43,500 contracts. Small speculators held the largest overall net-short position and are most likely the ones covering their short positions now that the ECB rate announcement is out.

Fundamentals

The European Central Bank ("ECB") finally was drawn to action to help support the struggling economy in the Euro zone. During Thursday's ECB policy meeting, ECB President Mario Draghi announced a 10-basis-point cut in the main lending rate to 0.15%, as well as a move to a negative interest rate of 0.10% for funds held by banks in their deposit facility in order to help spur lending by commercial banks. In addition, President Draghi announced that measures are being taken to begin the ECB's own version of "Quantitative Easing," with the purchases of asset-backed securities from banks as opposed to the purchase of sovereign debt of Euro zone nations. The inflation rate is running well below the ECB target of 2%, with the latest data having Euro zone inflation falling to 0.5%, which is the lowest rate in nearly 5 years. It is the fear of possible deflation that is triggering the unprecedented stimulus moves by the ECB in order to revive the moribund economy. Currency traders have been selling the Euro of late, with the EUR/USD declining over 400 pips since the recent highs were made back in early May. However, the Euro staged a moderate rally after the ECB announcement, as weak bears closed-out short positions to book profits, even though the announcement was viewed as generally bearish for the Euro in the near- to mid-term.

Technical Notes

Looking at the daily continuation chart for the Euro futures, we notice what appears to be a reversal of the recent downtrend, as prices "spiked" lower after the ECB interest rate announcement, but rallied higher to close the session. Prices continue to hover just below the 200-day moving average, but remain above the up-trend line drawn from the July 2013 lows. The 14-day RSI has rebounded from oversold levels and has turned upward, but is still reading a rather neutral to weak 41.75. Thursday's low of 1.3502 is now the new support level for the June Euro futures, with resistance seen at 1.3773.

Mike Zarembski, Senior Commodity Analyst

June 9, 2014

Few Surprises in June Non-Farm Payrolls Report

Monday, June 9, 2014

Our neighbors to the north also saw jobs increase in May, although once again "the devil is in the details". Statistics Canada reported 28,500 jobs were created in May, which was a big improvement from the 28,900 jobs lost in April. However, part-time jobs were solely responsible for the increase, with 54,900 jobs added. Full time employment continues to face headwinds, with a loss of 29,100 jobs in May. The Canadian Dollar was little changed following the employment report.

Fundamentals

"Slow and steady" best describes the pace of job creation in the U.S. following another uneventful Non-Farm Payrolls report. The Labor Department reported the U.S. economy created 217,000 jobs in May, which was in line with the pre-report estimate of 210,000 jobs added last month. The unemployment rate held steady at 6.3%, matching the lowest unemployment rate since the end of the 3rd quarter of 2008. However, the quality of jobs being created still leaves a lot to be desired. Service-sector jobs, which are generally lower paying, led the way, with 39,000 jobs added in May, while the widely-watched manufacturing sector saw employment increase by 10,000 jobs. Average hourly earnings increased by a modest $0.05 to $24.38, which shows that wage inflation is nearly non-existent. The reaction by financial markets was modest following the report, with the S&P 500 up less than one-half of one percent and 10-year Note yields falling moderately to 2.554% as of this writing. Traders believe recent economic data, including the employment picture, will do little to sway the Federal Reserve from its outlook for the economy and its tapering of Bond purchases, which is expected to be complete by the end of the year. So in the end, it appears that traders can enjoy an early start to the weekend after getting up early for Friday's "yawn" of an employment report.

Technical Notes

Looking at the daily chart for the CBOE Volatility Index (VIX) and the June VX futures, we notice the index hovering at the low end of the recent trading range and approaching lows not seen since March 2013. The June futures have fallen sharply the past two trading sessions, as the front-month futures start to lose some of their premium to the cash index as we approach expiration. Support for the Jun VX is seen at 10.50, with resistance found at 13.10.

Mike Zarembski, Senior Commodity Analyst


June 11, 2014

Natural Gas Rally Stalls on Weather Forecasts

Wednesday, June 11, 2014

Natural Gas traders will once again be waiting eagerly at their computers for the release of the weekly Energy Information Administration (EIA) Gas storage report due out on Thursday at 9:30 AM Central Time. Traders are looking for another week of above normal gas injections, with the average analyst's estimate of +112 bcf vs. the 5-year average of +88 bcf.

Fundamentals

It has been tough to be a Natural Gas bear this spring, as prices have been in a uptrend the past month or so, due mainly to below normal gas storage levels for this time of year. The brutal weather this past winter had forced power producers to draw down Gas inventories from storage, leaving current supplies nearly 40% below the 5-year average. The National Weather Service Climate Prediction Center is calling for above normal temperatures for vast portions of the Central and Eastern portions of the U.S. in its 6 to 10 day weather forecast, although longer-term models are predicting more moderate temperatures for most of the U.S. Warmer than normal temperatures in the coming days are expected to increase the demand for cooling, which may require power producers utilize increasing amounts of Natural Gas for use in power generation. Speculators have generally been net-sellers of Natural Gas futures on the belief that increased production of Gas from shale formations would help to reduce storage deficits this spring when Gas is usually placed into storage. In fact, last week's 119 billion cubic feet (bcf) gas injection into storage was above analysts' expectations, but gas inventories still remains 737 bcf below last year's levels. With power production accounting for nearly 1/3 of Natural Gas usage in the U.S., traders will certainly keep their focus on longer-term weather forecasts to help predict if increased power usage for cooling will keep Gas inventories well below normal going into the winter heating season.

Technical Notes

Looking at the daily chart for July Natural Gas, we notice the recent price rally that began back in mid-May has stalled as prices approached the 4.750 level. Prices are currently trading above both the 20 and 200-day moving averages, although prices are still below the previous two market highs made back in April and February of 2014. Should the recent rally stall below these two key resistance levels, we may see the market sentiment turn bearish. The 14-day RSI has turned down and now reads a more neutral 50.38. The April 30th high of 4.877 is seen as resistance for the July futures, with support found at the May 30th low of 4.489.

Mike Zarembski, Senior Commodity Analyst


June 12, 2014

Rising Stocks Add to Wheat's Woes

Thursday, June 12, 2014

Wheat futures continue to find themselves under heavy selling pressure after the USDA reported that supplies of the grain were larger than previously forecast. In addition to swelling world supplies of Wheat, outside markets have piled on and added to price woes. The USDA is expecting a record Corn yield of 167.5 bushels per acre this year compared to the agency's prior forecast of 165.3 bushels per acre. Corn stocks are expected to reach 15 year highs. The agency also raised Soybean yield and supply forecasts. This has dampened the hopes of Wheat bulls, who believed that lower prices could spur demand.

Fundamentals

World Wheat inventories are expected to have reached 188.61 million metric tons by the end of May, topping the USDA's prior estimate of 187.4 million bushels. The export market for Wheat has also become more competitive, which does not bode well for prices. There is a slight delay to the winter harvest, which has kept domestic cash prices steady. However, areas that have seen too much moisture are expected to be dryer for the remainder of June, which suggests the pace of harvesting should increase. Russian analyst IKAR did cut their production forecast for 2014 to 93.5 million tons, down from 96 million last week. The USDA expects world production of the grain to top 701.6 million metric tons, up from last month's forecast of 697 million metric tons. The demand side of the market has been very soft. Buyers are not exactly rushing to the market, given the recent decline in prices. Rather, they are buying for current needs and hoping to buy more at lower prices in the future.

Technical Notes

Turning to the continuation chart, we see the July Wheat contract falling sharply since early May. Prices closed just above minor support in the 587.50 areas, but the real test for Wheat prices may be at 550. Failure to hold the 550 mark could result in sellers coming in with greater fervor. The RSI indicator is still showing extremely oversold conditions. The indicator had actually posted near zero readings last week. The oversold conditions could be seen as somewhat supportive in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst


Copper Prices Tumble on China Loan Concerns

Friday, June 13, 2014

While Copper inventories held in approved warehouses by the Shanghai Futures Exchange are falling, traders fear that a huge amount of Copper remains in the country is being used as collateral for bank loans. Shanghai Futures Exchange stocks have fallen to 92,000 tons as China's Copper imports fell be 15.6% in May. However, it is believed that nearly 700,000 tons of Copper may be held outside of exchange warehouses, with much of the inventory believed to be used as collateral towards loans. It is this potentially huge Copper supply that is keeping traders nervous should banks seize these assets and liquidate holdings to pay back outstanding loans.

Fundamentals

Dr. Copper appears under the weather of late because of concerns of potential fraud involving loans against base metal inventories in China. Chinese authorities have been investigating allegations that companies have been using the same stocks of Copper and other base metals held in the port of Qingdao as collateral against loans. This issue may force banks to withhold financing by Chinese companies using their physical commodity holdings collateral, and may force the liquidation of commodities to obtain needed funds. This could put additional pressure on Copper prices in the near-term as the rate of Chinese imports tumbles as inventories are liquidated. We are already seeing some weakness in Chinese imports, which fell by 1.6% in May, due mainly to lower imports of both Copper and Iron Ore. This could be a sign that Chinese economic growth rates are slowing more than analysts' forecasts. It should be noted that the spot price premium that Copper trades at in China has fallen recently, which could be a signal that domestic supplies are not as tight as previously thought and that local demand is starting to weaken which is not a happy prospect for Copper bulls in the near-term.

Technical Notes

Looking at the daily chart for July Copper, we notice the uptrend line drawn from the March 19th lows has definitely been broken as prices have plunged the past several session on the news of potential fraudulent loan backed by metals in China. Trading volume has increased as well of late, which could be a sign that large speculators and trend-following traders are adding to short positions. Prices are now well below both the 20 and 200-day moving averages and the 14-day RSI has turned weak with a current reading of 36.44. Support is now seen at the May 1st low of 3.0030, with resistance seen at 3.0985.

Mike Zarembski, Senior Commodity Analyst

Grain Prices Slump Following USDA Report

Monday, June 16, 2014

Not all U.S. crops will be bin busters this season. Florida citrus growers continue to struggle with citrus-greening disease, which has devastated many of the citrus groves throughout the Sunshine state. The disease causes fruit to drop from the trees before maturity which has caused Florida's orange production to fall to its lowest levels in nearly 3 decades. The USDA has estimated the Florida orange crop at 104.3 million 90-pound boxes, down a whopping 6 million boxes from the May forecast. Front month O.J. futures have already rallied nearly 50% from the October 2013 lows and weak longs took profits after the USDA report was released which sent prices lower despite the seemingly bullish crop outlook.

Fundamentals

You have to hand it to U.S. grain producers, who just a few years ago suffered thorough one of the worst droughts in recent memory, but are now poised to produce record or near record crops this season. The USDA, in its June crop production and supply/demand report, estimated 2014-15 U.S. Corn production of 13.935 billion bushels. This would surpass the previous record of 13.925 billion bushels and help to elevate tight supplies seen this past year due to better than expected export demand. A record U.S. Corn crop combined with an expected rise in global Corn supplies to 182.7 million metric tons is expected to raise U.S. Corn carryover totals to a rather bearish 1.726 billion bushels in the 2014-15 marketing year vs. 1.146 billion bushels in the 2013-14 season.

Expectations for this year's Soybean crop were also impressive, with the USDA estimating U.S. production at a record 3.635 billion bushels. This should allow 2014-15 Soybean carryover rebound from a very tight 125 million bushels this season, to a more comfortable 325 million bushels in the 2014-15 crop year. Global soybean production is projected to swell to nearly 300 million tons, with a projected 2014-15 carryout of 82.88 million tons. Although it appears that the prospects for a bumper crop are solid given the near-ideal weather condition for most of the Midwest. We should still remember that Mother Nature can be moody at times and it is still very early in the production cycle to declare the crops "made". However, barring any major changes in weather forecasts or export demand, grain bears and livestock producers should be licking their chops at the prospects for potentially lower Corn and Soybean prices in the coming months

Technical Notes

Looking at the daily chart for November Soybeans we notice what has turned into a "bull trap" back in late May, when the market attempted an upside breakout from the recent consolidation pattern. However the upside momentum failed to hold and prices have now trudged back into the recent 50-cent wide price band. Prices are holding above the 200-day moving average (MA) but remain just below the shorter term 20-day MA. Momentum is beginning to favor the bear camp with the 14-day RSI reading 43.58. 1201.25 is seen as the next support level for November Soybeans, with resistance found at 1257.25.

Michael Zarembski, Senior Commodity Analyst


June 17, 2014

Iraqi Army Halts Insurgents and Oil Prices for the Time Being

Tuesday, June 17, 2014

Crude Oil futures halted their recent climb, as Iraqi forces managed to slow down advancing insurgent forces. Nonetheless, the situation in the nation could underpin Oil prices. President Obama is sending some 275 forces to the nation for embassy security, but emphasized that he did not intend to engage in a military operation in the country. So far, not a single barrel of Oil has been displaced by the conflict, and most analysts do not expect a supply disruption. The Iraqi army did abandon the area near Kirkuk, the fourth largest Oil field in the country, but Kurdish forces stepped in and are now defending the area. Even though supplies have not been disrupted, prices can be seen as sensitive to developments and we may see a fear driven market.

Fundamentals

Iraq is expected to ship 2.79 million barrels a day from its Basra terminal in July, which is a very healthy output. In the US, traders will get API data this afternoon and EIA data tomorrow to digest. Traders may wish to keep an eye on Cushing, OK inventory levels, which have shown a pattern of destocking since the Keystone pipeline became operational. Inventories at the hub shrank 32% in April and May alone. Stocks there are at their lowest levels in two and a half years. Analysts are expecting the EIA to report that Crude Oil inventories shrank by 750,000 barrels this past week. On the product side, traders are expecting gasoline inventories to have fallen by 550,000 barrels, while distillates are forecast to have climbed by 350,000 barrels.

Technical Notes

Turning to the chart, we see the August Crude Oil contract steadily climbing since the beginning of May. Prices have seen a bit of a sharper upturn recently. Prices are trading above previous resistance near $105, however, are in danger of failing to confirm a breakout by retreating. The RSI indicator is showing overbought levels, which can be seen as slightly negative in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst


June 18, 2014

Pinnacle for Pork Prices in Place?

Wednesday, June 18, 2014

Large Speculators have been eager bulls in the Lean Hog futures market, following the trend higher as prices made new-all time highs. However, we have started to see some resistance to adding to the already large net-long position last week, despite rising prices. The most recent Commitment of Traders report showed that non-commercial traders trimmed their net-long position by 1,151 contracts during the reporting period ending June 10th. This leaves the non-commercial net-long position at 71,417 contracts, which remains near extreme levels. Trading may become choppy the next several sessions as market participants cover positions ahead of the quarterly hogs and pigs report due out after the close of trading on Friday, June 27th.

Fundamentals

The historic bull market in Lean Hog futures appears a bit long in the tooth as prices begin to show signs of a near-term top. 2014 Futures prices started the week sharply lower following a decline in wholesale pork prices on Friday. Pork production was up 3.4% last week according to the USDA, as higher Hog weights more than made up for fewer hogs being sent for processing. Traders are also becoming concerned that the premium of nearby futures prices to the cash index has become excessive at over 17 cents per pound for the August futures versus an historical average of closer to 2 cent per pound for this time of year. Hog producers are expected to take advantage of near-record cash Hog prices and the potential for sharply lower feed costs going into 2015 to expand the size of the Hog herd, which has been decimated by the outbreak of the PEDv virus in the U.S. This potential increase in the supply of Hogs could finally put an end to rising cash market prices later this year, as packers may become hesitant to aggressively bid for supplies with the potential for lower prices as more Hogs are moved to market in the coming months.

Technical Notes

Looking at the daily chart for August Lean Hog futures, we notice a "reversal" pattern forming in the daily chart as this past Friday closed well off contract highs and was followed by a near-limit down move on Monday. There is a major bearish divergence forming in the 14-day RSI and the indicator itself has fallen from overbought reading to a much more neutral 55.33. Monday's steep price sell-off has prices holding just above the 20-day moving average, with a close below this widely watched indicator, setting up a potential move toward support at the recent low of 123.725. Resistance is seen at the contract high of 132.650.

Mike Zarembski, Senior Commodity Analyst


June 19, 2014

Fed, Iraq Set Positive Tone for Gold

Thursday, June 19, 2014

Gold futures are higher this morning, bolstered by a slightly more dovish statement from the FOMC. The Fed's policy statement was hardly surprising to most traders in terms of trimming asset purchases and rate policy. The central bank's asset purchase program was reduced by another $10 billion, which was in line with expectations. The Fed also went out of its way to emphasize that it plans to keep interest rates low long after the asset purchase plan ends. Additionally, the bank plans to very gradually raise rates in the future.

Fundamentals

In addition to the very favorable FOMC policy statement, Gold futures are being supported by the conflict in Iraq. There are reports of a major Oil refinery being overrun in the northern city of Kirkuk. The fear premium in Gold prices may continue to rise if ISIS forces cannot be contained. The US Dollar Index has also fallen to its lowest level this month, stoking demand for the metal. Precious metals as a whole have also gotten support from the extended labor turmoil in South African Platinum mines. Companies hope to negotiate the terms of a new agreement, which would end 21 weeks of unrest. The two sides are said to be far apart on pay.

Technical Notes

Turning to the chart, we see the August Gold contract climbing after forming a relative low to begin the month. Prices are now trading near resistance at the 1285 level. August Gold is entering an area with heavy chart congestion, which could slow the metal's ascent.

Rob Kurzatkowski, Senior Commodity Analyst

June 20, 2014

Speculators are Still "Cuckoo" for Cocoa Futures

Friday, June 20, 2014

Large speculators have been adding to their already large net-long position in Cocoa futures the past week, while small specs, were lightening up on their long positions as prices traded near 3 year highs. The most recent Commitment of Traders report shows non-commercial traders, which are normally large commodity funds and traders, added nearly 2,500 new long positions for the reporting period ending June 10th. This put the net-long position at over 71,000 contracts. Both commercial and non-reportable traders were net-sellers of Cocoa last week, with the commercial position rising to a net-short 78,615 contracts as of June 10th.

Fundamentals

Cocoa futures remain firmly in the bull camp as prices remain near highs not seen in nearly three years, despite early signs of improving crop prospects. Mid-crop Cocoa arrivals at ports out of the Ivory Coast are running above last season's totals, which could see analysts potentially raising their estimates for the 2013-14 crop. This increase in production is sorely needed given the current robust demand outlook, especially out of Asia. Ample rains have been falling in the West African Cocoa growing region of late, which is seen as good news for the development of the main 2014-15 crop, which is currently in its early development stage. However, it appears that market participants, especially speculative accounts, fear the potential of an El Nino weather event later this year, which historically has led to lower Cocoa production due to lack of rainfall. Any supply declines could cause prices to rise even further to help curtail demand and prevent the Cocoa market from falling into a large deficit in the 2014-15 marketing season.

Technical Notes

Looking at the daily chart for September Cocoa, we notice prices grinding higher after several sessions of increased price volatility as the market tests the $3100 per ton price level. Although prices are currently at their highest levels since August 2011, we notice the 14-day RSI forming a bearish divergence with actual readings near 50 despite Cocoa trading near contract highs. This could be signaling that the market is setting up for a near-term price correction, especially if recent price gains turns out to be just short-covering buying and not fresh long positions being established. 3150 looks to be near-term resistance for September Cocoa, with support found at 3050.

Mike Zarembski, Senior Commodity Analyst


Hard Red Winter Wheat to Wet to Harvest?

Monday, June 23, 2014

While large speculators continue to hold a net-long position in K.C. Wheat futures, the bullish enthusiasm appears to be waning. During the 7 day period ending June 10th, non-commercial traders shed over 6000 contracts off of their net-long positions according to the Commitment of Traders report. However, the speculators were outright bearish on Chicago Wheat futures, having turned net-short of Soft Red Winter Wheat by becoming a seller of over 19,000 contracts during the same period. This positioning of the two Winter Wheat futures has led to a widening of the K.C. Wheat premium vs. Chicago Wheat to nearly $1.30 versus the September futures.

Fundamentals

Wheat producers in the Plains have lamented the lack of moisture this past winter that has plagued this season's production of Hard Red Winter Wheat. However, now that the Wheat harvest is taking place, and producers are looking for dry conditions to get the crop out of the ground, heavy rainfall has occurred in this previously parched region, halting the harvest in its tracks and sparking concerns of an outbreak of disease hurting the quality of the soon to be harvested crop. Low quality Wheat may end up as livestock feed, which is sold at a lower price, and would be bearish for Corn futures but a bullish event for K.C. Wheat futures, as it would curtail the amount of HRW Wheat available for use in milling bread flour. Wheat prices may also receive some support from what looks to be a disappointing grain harvest from Russia this season, as a late start to the harvest coupled with reports of lower yields that could ultimately curtail the nation's grain exports. Lower production from Russia combined with the uncertainty surrounding the political situation in Ukraine, may send grain importers to more "reliable" supplies such as the U.S. and Europe as long as prices are generally competitive. USDA export sales for the 2014-15 marketing year totaled 372,600 tons last week, which was towards the lower end of analysts' expectations.

Technical Notes

Looking at the daily chart for September K.C. Wheat, we notice what appears to be a bottoming formation developing as prices have held above the 700.00 price level and the 14-day RSI has turned upward after a brief stint in oversold territory. We are starting to see a convergence of the 20 and 200-day moving averages, with prices trading near both of these indicators. 702.50 is seen at support for the September futures, with resistance found at the June 9th high of 748.00.

Mike Zarembski, Senior Commodity Analyst


June 24, 2014

Crude Still Holding Above $105, But Will It Hold?

Tuesday, June 24 2014

Crude Oil futures continue to trade north of the $105 level, underpinned by the Iraqi forces clashing with ISIS rebels. Iraqi military forces have taken control of the Baiji refinery back from Islamist rebels. The likelihood of supplies from the nation being disrupted is very low at the moment. Nevertheless, fear has been a major driving force behind prices. If the Iraqi army is able to suppress the ISIS rebels, we could see a good chunk of this fear premium dissipate.

Fundamentals

The supply of Crude Oil in the US and abroad is very ample at the present time. China has significantly bolstered its emergency reserves of Crude Oil to 246.2 million barrels, which is the highest level since inventories began being tracked in January 2010. China may continue to add to the nation's strategic reserves. However, economic activity in the Asian giant remains lackluster, at best, which could have negative implications. There have been calls for the People's Bank of China to offer further easing to stimulate activity. In the US, the Fed made a point to emphasize that it intends to keep interest rates low for the foreseeable future. Traders took this as a sign that the Fed will continue pumping money supply. Domestically, traders will want to keep an eye on Cushing inventories. Destocking is expected, as the Keystone XL and other pipelines move Oil to the Gulf Coast. If the trend of destocking is broken, it could be taken as a sign that demand is faltering.

Technical Notes

Turning to the chart, we see the August Crude Oil contract continuing to trade north of the 105 level after breaking out on the 12th of this month. The 105 mark has been tested once and held. However, it may be interesting to note that the chart does show a potential M top forming. If prices break through the aforementioned 105 level, we may see a short term reversal. The RSI indicator remains north of the 70 mark, indicating overbought conditions.

Rob Kurzatkowski, Senior Commodity Analyst

Warm Weather Forecast Halts Natural Gas Price Decline

Wednesday, June 25, 2014

Speculators have a mixed opinion as to the direction for Natural Gas prices according to the Commitment of Traders (COT) report. For the reporting period ending June 17th, non-reportable traders, normally large speculators and commodity funds, were net-short 99,361 contracts, while non-reportable traders, small speculators were net-long 49,312 contracts. Breaking the stalemate were commercial traders who are net-long over 50,000 contracts according to the latest COT report.

Fundamentals

Natural Gas futures prices have been in a slump of late as larger than anticipated storage injections have alleviated some of the concerns of very tight Gas supplies this winter. The harsh winter of 2013-14 left U.S. Gas storage levels more than 1/3 below the 5-year average for this time of year, just as the summer cooling season is set to begin. Natural Gas is normally placed into storage starting in April and increases through the month of October when the "official "start of the winter heating season begins on November 1st. However, an outbreak of above normal temperatures this summer could trigger much greater usage of Gas for use in power production, which could hamper the amount of Gas placed in storage during the "dog days" of July and August. The 8 to 14 day weather outlook from the Climate Prediction Center has a majority of the U.S. experiencing above normal temperatures to start the month of July, including almost the entire region to the east of the Mississippi river. Should this above normal temperature forecast continue, it may become difficult, even with increased Gas production, to meet the Energy Information Administration's forecast of 3.42 trillion cubic feet gas to be in storage at the start of the heating season on November 1st.

Technical Notes

Looking at the daily chart for August Natural Gas, we notice prices trying to stage a "reversal" on the daily chart as prices rebounded from nearly 1-month lows on Tuesday to close sharply higher to end the session. Prices are holding inside the major moving averages (MA), trading just below the 20-day MA but well above the longer-term 200-day MA. The 14-day RSI has moved back into neutral territory with a current reading of 47.39. Major support is seen at 4.296, with resistance seen at 4.893.

Mike Zarembski, Senior Commodity Analyst


June 26, 2014

Cheap Duds?

Thursday, June 26 2014

Cotton futures continue their slide due to favorable growing conditions and the July roll ahead of first notice day. ICE inventories of Cotton have risen to 439,198 from 436,979, indicating weak delivery demand. Increased plantings and soft demand strongly suggest that stockpiles of Cotton thread are slated to increase this year. Technically, the December futures have fallen by over 20%, signifying a technical bear market. This could trigger further technical liquidation.

Fundamentals

Drought plagued regions in Texas, near the Lubbock area, have seen ample rainfall over the past two weeks, easing concerns over possible crop damage. Analysts predict that US production may increase by 16% due to increased plantings and improved growing conditions. China has been stockpiling Cotton, but actual textile demand has been extremely weak. This leads many, including the USDA, to believe that global inventories may reach record levels. Speaking of the USDA, the recent liquidation can also be attributed to traders being a bit concerned that the government agency could revise its forecast upward. The recent quarterly GDP figures for the US showed a contraction of 2.9%, a much larger contraction than forecast. A slowing economy could result in lower demand for clothing.

Technical Notes

Turning to the chart, we see the December Cotton contract breaking out on the downside and reaching technical bear market conditions. The contract also broke support near the 76.50 area, which may further liquidation. The RSI indicator has fallen into oversold territory, which could be seen as supportive in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

Has Dr. Copper Turned Bullish?

Friday, June 27, 2014

While Copper prices have rallied the past few sessions, there is some skepticism that the recent buying was actually new bullish trades as opposed to short-covering. The most recent Commitment of Traders (COT) reports show both large and small speculators adding to their net-short positions for the reporting period ending June 17th. This was just prior to the "bottoming" chart pattern that has formed on the daily chart. This does lead to some credence that prices have rallied mostly on short-covering, but this can be confirmed once the next COT report is released on Friday afternoon.

Fundamentals

"Dr. Copper "has been on a minor bull run of late despite a dismal report on 1st quarter U.S gross domestic product (GDP). On Wednesday, the third and final revision on 1st quarter GDP was released and to say the number was a disappointment is a bit of an understatement. The Commerce Department reported that 1st quarter GDP contracted by 2.9% vs. expectations of 1.8%. However, it appears that base metal traders looked at the GDP data as "old news" and were more optimistic about U.S. economic growth expanding in the coming months, and Copper prices actually closed higher on the day despite an initial price decline following the GDP report. Traders noted a weaker U.S. Dollar and improving economic data as reasons for a rise in Copper prices along with talk that inflation expectations may not be as muted as the Federal Reserve seems to be inferring. Copper prices are also drawing some support from other base metals such as Zinc and Aluminum which analysts are forecasting the potential for higher prices due to tighter supplies in the case of Zinc and potentially higher demand for Aluminum in the coming months.

Technical Notes

Looking at the daily continuation chart for Copper futures, we notice the market restoring nearly all of its recent losses that were tied to concerns of a Chinese government investigation into bank lending practices that may have involved the pledge of commodities, including Copper that may not exist. Prices are now back above the 20-day moving average (MA) but are still hovering just below the widely watched 200-day MA, which many trades view as the determinant as to whether a market is in a bull or bear market state. The 14-day RSI is strong, with a current reading of 63.94. The next resistance level is seen at 3.1780, with support found at 3.0100.

Mike Zarembski, Senior Commodity Analyst


June 30, 2014

Grain Traders Await USDA Acreage Report

Monday, June 30, 2014

The following are the average estimates for U.S. Grain and Soybean Plantings:
Current Estimate March 31st Estimate

Corn 91.787 million acres 91.691 million acres

Soybeans 82.173 million acres 81.493 million acres

Spring Wheat 11.947 million acres 12.009 million acres


Fundamentals

Grain traders were busy squaring their positions last week in anticipation of the USDA Planted Acreage and Grain Stocks report due out at 11 am Chicago time this morning. Here is a summary of what traders are focusing on in this report:

Corn: Traders are anticipating a modest increase in planted acreage for Corn from the March report, with average expectations of 91.787 million acres planted. Weather conditions have been good so far this year for the emerging Corn crop, so a figure north of 91.8 million acres would be considered fairly bearish for new-crop Corn. Analysts have a very mixed opinion as to the size of U.S. Corn supplies as of June first with estimates ranging for a low of 3.045 billion bushels to just over 4.05 billion bushels! However, U.S. Corn inventories will still be sharply higher YoY from the 2.766 billion bushels last June.

Soybeans: A large Soybean crop is anticipated this season as U.S. growers are expected to have planted a record amount to Soybeans. The question is how large will the Soybean acreage turn out to be? Analysts are expecting U.S. Soybean acreage to total 82.173 million acres up from 81.493 million acres in the March report, although there are some thoughts that over 83 million acres may have been planted. Soybean inventories are expected to total 390 million bushels as of June 1st vs. 435 million bushels last year.

Spring Wheat: Producers in the Northern Plains are expected to have planted fewer acres towards Spring Wheat than originally forecast, with the average estimate falling by slightly to 11.947 million acres vs. 12.009 million acres in March. Statistics Canada reported on Friday that Spring Wheat acreage totaled 17,636 million acres vs. 19,043 million acres in 2013.

Technical Notes

Looking at the daily chart for September Minneapolis Wheat (MWU14), we notice what looks like a potential bottoming formation as prices appear to be putting in a floor just above 680.00. In addition, we are starting to see what may be a bullish divergence in the 14-day RSI as this momentum indicator has formed a bottom prior to the recent lows made in the futures. 680.50 is seen as support for the September contract, with resistance found at the June 9th high of 724.25.

Mike Zarembski, Senior Commodity Analyst