« June 2014 | Main | August 2014 »

July 2014 Archives

July 1, 2014

Record Soybean Crop Incoming?

Tuesday, July 1, 2014

Soybean futures are being pummeled after the USDA crop report showed that farmers intend on planting the largest acreage on record. Bean futures are already slumping prior to the government agency report. Normally, one can latch onto at least one or two items in a USDA report and say the data is not all bearish or bullish. However, yesterday's report does not show a single detail that can even modestly be seen as supportive of prices.

Fundamentals

US Soybean inventories were 405 million bushels to begin the month of June, trumping most estimates. The median estimate was around 382 million bushels which was already a lofty figure. Soybean area for harvest is estimated at a record high 84.1 million acres, if realized, up 7.4 million acres (11 percent) from 2013.most of the gains came in northern states, which experienced a long, harsh winter. The winner delayed Corn plantings. The combination of delays and unattractive Corn prices resulted in the shift in acreage. Record high planted acreage is estimated in Michigan, Minnesota, Nebraska, New York, North Dakota, Ohio, Pennsylvania, South Dakota and Wisconsin. According to a separate report from the USDA, about 72 percent of the crop was rated in good or excellent condition on June 29, up from 67 percent a year earlier. Soybean futures are unlikely to find outside support from Corn or Wheat. At this juncture, Soybean bulls are hoping that cheaper price could spark some demand.

Technical Notes

Turning to the chart, we see the November Soybean contract breaking near-term support at the 1200 level in very convincing fashion. Prices also moved through some minor support near 1170. The November contract also took out the 100 day moving average, which can be seen as bearish in the intermediate. The sharp drop in prices also resulted in the RSI indicator dipping into oversold territory.

Rob Kurzatkowski, Senior Commodity Analyst

No Soft Landing for Cotton Prices

Wednesday, July 2, 2014

Speculators continue to hold a net-long position in Cotton despite seemingly bearish market fundamentals. The most recent Commitment of Traders report (COT) shows non-commercial traders (large speculators and commodity funds) holding a net-long position totaling 28,356 contracts for the reporting period ending June 24th. Non-reportable traders (small speculators) are bucking the bearish trend by adding 375 new net-long positions during the same period. Commercial traders remain net-short at 28,861 contracts.

Fundamentals

Cotton producers appear to be a bit more optimistic than analysts are as U.S. Cotton acreage increased this season. The USDA reported on Monday that 11.4 million acres of Cotton were planted, up from 11.1 million acres in the March report and just over 9% higher than last year. In addition, recent rainfall in the Southern Plains and into Texas has helped to alleviate drought conditions in the region and is seen as a supporting factor for the development of the Texas Cotton crop. Bearish news for Cotton prices continues in the Far East where traders look at the huge holdings of Cotton controlled by the Chinese Governments and wonder when it will be released into the domestic market, which would lessen the need for Cotton imports especially from the United States. With global Cotton inventories at record levels, an increase in the size U.S. Cotton crop would not be a welcomed event for Cotton bulls as the current bear market continues to gain traction.

Technical Notes

Looking at the daily chart for new-crop December Cotton, we notice prices have plunged to multi-year lows after a brief consolidation phase between 79.00 and 76.00. Trading volume has increased sharply the past month as traders have rolled forward their positions from the old-crop July futures to new-crop December. The 14-day RSI has entered oversold territory with a current reading of 21.84, but Tuesday's moderate "reversal" may be a signal that a near-term low is in place. 70.00 is seen as the next support level for December Cotton, with resistance found at 76.10.

Mike Zarembski, Senior Commodity Analyst


July 3, 2014

Will Corn Have a Bumper Crop

Thursday, July 3, 2014

Corn traders are bracing for what could, potentially, be the largest crop on record. Corn traders are not going to find outside support from other gains, as Wheat futures have already hit near market conditions, while Soybeans have faced an onslaught of selling pressure of late. It remains to be seen which direction the US Dollar is heading. The Dollar Index has held a pivotal support level at 79.00, but its rebound has hardly been inspiring for traders

Fundamentals

Despite plantings being behind its normal pace, ideal growing conditions have farmers and traders thinking yields could be very good. The weather across much of the growing region has been very mild with ample rains. The month of July is key to the success of the Corn crop, as this is the time when pollination takes place. If weather turns hot and dry, yields could be negatively affected. If, however, weather remains mild, there is little in the way of Corn reaching near record or record output. There had been some talk that farmers could simply hold off selling Corn until prices rise, but it remains to see if that will happen and last.

Technical Notes

Turning to the chart, we see the December Corn contract breaking out of a sideways consolidation pattern on the chart to the downside. The preceding downtrend move in the market suggests technical selling may continue. Corn prices are nearing a technical bear market, which would certainly add to the bearish sentiment. Prices are in danger of taking out support near the 412.00 level.

Rob Kurzatkowski, Senior Commodity Analyst

July 7, 2014

"Metal Mania" Making a Comeback?

Monday, July 7, 2014

Gold's recent positive performance comes despite physical demand rising only slightly above sales in June. Gold's 6.2% price gain in June kept buyers at bay but spurred some physical selling by weak longs taking advantage of the price rally. However, better than expected Jobs data from the June non-farm payrolls report sent Gold prices lower to end the holiday shortened week as the Dollar and U.S. Treasury yields rose, which are usually a toxic potion for Gold prices.

Fundamentals

Don't look now but one of the least loved commodity sectors by trader and analysts to start 2014-- Precious Metals, are starting to display rather bullish price moves. Leading the Charge has been Palladium, with prices trading near its highest levels in nearly 3 years on tight supplies and improving auto sales. Palladium's use in auto catalyst for gasoline powered vehicles is by far the largest use of this precious/industrial metal. However, some of the biggest surprises are in the performance of Gold and Silver of late. Here, analysts note that Gold ETF purchases have increased and now stand at their highest levels since mid- April, as buyers are starting to turn once again towards Gold as a diversification from equities and bonds due to rising global tensions especially in the Middle East, as well as, a potential hedge against rising inflation. Even the Base Metals sector is starting to show some support, especially Aluminum, Zinc and Copper. Traders view a potential Chinese economic rebound, which is being spurred by data showing manufacturing expanding at its fastest pace so far this year, along with continued improvement in U.S employment, which may encourage expansion in the industrial sector and in turn help support demand for industrial metals.

Technical Notes

Looking at the weekly continuation chart for September Silver, we notice what appears to be a longer-term bottom forming as prices have found strong support just above the 18.000 price level. In addition, we note that prices are now above the downtrend line drawn from the major 2011 highs when prices failed at a test of the 50.000 price level. The market is trading above the 20-week moving average (MA), but remains well below the 200-week MA, which is currently at 28.30. The 14-week RSI has turned positive, with a current reading of 57.24. 22.180 is seen as the next resistance level, with support found at 18.620.

Mike Zarembski, Senior Commodity Analyst


July 8, 2014

Will Consumers Balk at Buoyant Beef Prices?

Wednesday, July 9, 2014

Feeder Cattle futures prices are near record levels as signs of a record Corn crop and resulting lower Corn prices in the U.S. is encouraging Feed lot owners to pay higher prices for young cattle as feeding margins have soared. To give an example, last week feed lot margins rose above $280 per head vs. about $165 last month. However, last year feedlot margins were sharply in the red so it seems to behoove feedlots to try to maximize profits during this bull market.

Fundamentals

There appears no stopping the bull market in Live Cattle futures as the lead month August contract made a new record high following the Independence Day Holiday. Processors paid record high prices for market ready Cattle last week as consumers have yet to shy away from beef purchases, despite lofty prices. This gave packers the incentive to pay up to a record $159 per hundredweight to secure what cattle was available for sale. Record high wholesale pork prices are helping to keep consumers from switching their protein sources as alternatives are also becoming pricey. While the up move in Cattle prices is impressive, we should note that market ready Cattle weights have begun to increase the past few weeks which should help to increase beef production totals, while lower Corn and feed prices should encourage feedlots to increase the time young Cattle is kept on feed, especially given the current profit margins. All this including a speculative long position that is near record levels, could be the catalysts to finally wrangle this historic bull market.

Technical Notes

Today we are taking an historic look at the Live Cattle futures market going back nearly 50 years for a perspective on the current price move. Prices have increased over 6 fold since the mid-sixties when prices were below $25 per hundredweight. Prices were relatively subdued from the late 1970's until 2003 when prices nearly broke the 100.000 price level. Since that time, was have seen increased price volatility that ultimately resulted in the nearly 5-year bull market run following the major low near 75.000 back in the summer of 2009 during the height of the global financial crisis. Front-month August Live Cattle is looking overbought on the weekly charts as the 14-week RSI is at an extreme level of 85.74. The most recent Commitment of Traders report shows non-commercial traders beginning to lighten-up on their net-long position, shedding 2,427 contracts for the reporting period ending July 1st, which was just prior to the recent move to new highs. Monday's high of 156.475 looks to be resistance for the August contract, with support seen at 149.750.

Mike Zarembski, Senior Commodity Analyst


July 11, 2014

Are Bulls Still in "Hog Heaven"?

Friday, July 11, 2014

Large and small speculators have a difference of opinion as to the direction of the Lean Hog futures market, at least according to the Commitment of Traders report. For the reporting period ending July 1st, non-commercial traders (large speculators and funds) added 1,313 new net-long positions for a cumulative total of 83,480 contracts. However, non-reportable traders (small speculators) continue to try to pick a top in this bull market by adding an additional 1,028 new net-short positions which now total 7,802 contracts. Commercial traders are net-short 75,678 contracts as of July 1st.

Fundamentals

Lean Hog bulls are starting to get nervous as this historic bull market approaches 1 year. Seasonal demand tends to turn lower going into August following an up-tick in demand for the Independence Day Holiday. An expected decline in pork production and slower cash Hog sales triggered a bout of profit-taking selling earlier in the week, although buyers re-emerged on Wednesday as pork cutout values made a new all time high. Analysts expect market ready Hog supplies to remain tight going into late Summer which may lend support for the October futures, which are currently trading at a wider than average discount to the CME 2-day Lean Hog Index. Traders will also keep a close eye on U.S. pork exports in the coming months for any effects of record high prices for foreign purchases, especially to China, where monthly export totals have declined of late.

Technical Notes

Looking at the weekly chart for October Lean Hogs, we note how few "down" weeks we have had since the beginning of February when the bull market really started its upward momentum. Prices are sharply lower for the week despite a move to new contract highs on Monday. The 14-week RSI is showing a bearish divergence despite remaining at overbought levels. With Live Cattle moving limit down on Wednesday, due to traders fearing that beef demand will suffer due to record high prices. We may also see this same scenario occur in the Lean Hog market, especially if large speculators begin to lighten their large net-long position. Contract highs of 118.350 should act as resistance for the October contract, with support seen at 105.825.

Mike Zarembski, Senior Commodity Analyst


July 15, 2014

Can Oil Stop Its Slide?

Tuesday, July 15, 2014

Crude Oil futures have fallen to 3 month lows, as tensions in Iraq and Libya have eased a bit. In Iraq, rebels have control of significant portions of the northwestern part of the country, but the Iraqi army has stemmed the tide and prevented ISIS rebels from expanding their control. This has sucked much of the Iraq premium out of Oil prices. Libyan rebels are returning two key terminals to government control. Libya has 7.5 million barrels ready to export from its Es Sider and Ras Lanuf terminals. Crude Oil has also felt some pressure from outside markets. Precious metals have stolen some of the Oil market's thunder. Also, weakness in grain prices has had a negative impact on commodity prices as a whole.

Fundamentals

On the supply side, the consensus estimate is that US Crude Oil inventories fell by 2.5 million barrels the past week. If this is in line with actual results, US supplies would stand at about 380.1 million in the week ended July 11. The market remains extremely well supplied in North America, but inventory levels have been steadily declining since reaching a record 399. 4 million barrels back in April. The API will report its data later this afternoon, while the EIA government report will be released tomorrow morning. Traders may want to keep an eye on Cushing, OK inventory levels, which may actually climb this week. A rise in inventory levels at the NYMEX delivery point could be a sign that demand at refineries along the Gulf Coast could be softening. If refinery demand is indeed softening, the backwardation in Oil prices could flatten out a bit. The Brent Crude contact already finds itself in a steepening contango, a sign that the market is oversupplied.

Technical Notes

Turning to the chart, we see the August Crude Oil contract trading near the 100 level, threatening to take out this psychological support. Prices have already broken support near 102.15. Oil prices now find themselves below the 100 day moving average, which can be seen as bearish. The recent sell-off has resulted in technically oversold conditions.

Rob Kurzatkowski, Senior Commodity Analyst

July 16, 2014

Cocoa Grinds Data Halts Rally

Wednesday, July 16, 2014

Large speculators have started to slowly lighten-up on their net-long positions in Cocoa, with the most recent Commitment of Traders reports showing non-commercial traders shedding 365 net-long positions during the reporting period ending July 8th. This still leaves a rather lofty 71,788 net-long contracts, which could be a catalyst for a rather meaningful price correction should recent support near 3040 basis the September futures fail to hold.

Fundamentals

Cocoa has been the only so called "softs" commodity that is in a bullish trend of late, but there are now some signs that commodity bears may be starting to indulge in their chocolate cravings. A report on European Cocoa grindings was viewed as "disappointing" by analysts as grindings fell by 0.7% in the second quarter. This may be a sign that demand for Cocoa products, especially Cocoa Butter, might be starting to wane. The market is already well supplied with Cocoa Power, so any slippage in demand for Cocoa Butter could further curtail European grinding in the third quarter. On the supply side, Nigeria is expected to see a nearly 10% rise in Cocoa production for the 2014-15 season as a government program to increase Cocoa production by subsiding the cost of fertilizer and insecticides for producers. Traders continue to keep their focus on production out of the Ivory Coast, the world's largest Cocoa producing nation. Recent rains might be slowing Cocoa arrivals for the mid-crop, but adequate moisture levels should aid production for next season main crop, with some analysts looking for a potential record crop in 2014-15. If true, we would need to see Cocoa demand continue at its current strong pace, especially out of Asia, going into 2015 in order to support prices at current rather lofty levels.

Technical Notes

Looking at the daily chart for September Cocoa, we notice what appears to be a rounded-top formation as prices seem to have lost some of the upside momentum the past few weeks as prices have consolidated just below recent highs. Trading volume has declined and the 14-day RSI is beginning to from a bearish divergence. We find support at the June 25th low of 3040, with resistance at the recent high of 3149.

Mike Zarembski, Senior Commodity Analyst


July 17, 2014

Tension Enough to Lift Gold?

Thursday, July 17, 2014

Gold prices are holding steady for the second consecutive session after a rocky start to the week. Gold is finding continued support from the Russian/Ukraine conflict. The West is attempting to put some more pressure on Russia to not meddle in Ukrainian affairs by putting sanctions on Russian energy firms, defense contractors and banks. Gold is finding outside support from Palladium. South African labor unrest had cut production but production there and Russia had halted selling of the metal from government stockpiles. Exports of Palladium increased by 29 percent in May and a good chunk of those exports were to Switzerland, where Russia refines and stores the metal.

Fundamentals

While the geopolitical climate can be seen as supportive for metal prices, recent statements from the Fed have hardly been bullish. Fed Chairwoman Janet Yellen had indicated that the central bank was prepared to raise interest rates at the first sign of inflation, even if the economy was in needed. Whether this was lip service or if the Fed plans to follow through remains to be seen. Has the Federal Reserve finally come to the realization that tackling inflation was more important than showing "economic gains" on paper? Yellen's predecessor certainly did not grasp this concept, leading to a largely lost decade due to commodity appreciation. If the Fed shows it is serious in tackling inflation, it would be negative for Gold prices. There is a good amount of Fed ineptitude premium priced into Gold at the moment, which could quickly dissipate if the Fed fails to make the same missteps.

Technical Notes

Turning to the chart, we see the August Gold contract failing to make a serious run at the 1350 level, sharply falling back into the trading range the market saw in April and May. This can, at least partially, attributed to overbought levels on the RSI indicator. The RSI was already beginning to fall prior to the Monday-Tuesday sell-off and the indicator now finds itself flirting with over sold territory.

Rob Kurzatkowski, Senior Commodity Analyst

July 18, 2014

No "Pop" for Corn Prices so far this Summer

Friday, July 18, 2014

While it does appear we are in for a record U.S. Corn harvest this fall, lower Corn prices may spur increased demand -- not just by U.S. livestock producers, but export sales could also increase sharply. This will be necessary to help absorb what likely will be huge U.S. stockpiles next year. The USDA is currently estimating Sept. 1st 2015 Corn inventories at 1.801 billion bushels, vs. an estimated 1.246 billion bushels for the 2013-14 season. While global Corn supply is expected to rise to 188.05 million metric tons for the 2014-15 season, the question remains whether major Corn consumers such as China may wish to take advantage of the recent price decline to help to bolster state-owned reserves.

Fundamentals

You could not ask for any better weather if you are a Corn or Soybean producer in the U.S., as ample moisture coupled with moderate summer temperatures has set the stage for a potential record harvest this fall. The downside to record production is, of course, lower prices, and that has certainly been the case for Corn futures, as prices have fallen to levels not seen in nearly 4 years, with front-month contracts now sporting a 3-dollar handle. Some analysts have sharply raised their estimates for average Corn yields to over 170 bushels per acre, which is currently well above the USDA forecast for 165.3 bushels per acre. If private forecasts are accurate, this would be an all-time high average yield. Crop development is ahead of schedule, and conditions are excellent, with the USDA reporting 76% of the crop rated good to excellent, vs. the 10-year average of 63%. U.S. Corn exports are running near USDA forecasts, although this past week's inspections were slightly below projections. U.S. producers holding old-crop Corn appear to be waiting for a near-term rally to unload inventory, which would be bearish for Corn prices, as any rally attempts in the near-term futures would be met with cash market selling pressure. Large speculators continue to hold a rather large net-long position in Corn futures -- net-long 168,296 contracts as of the most recent Commitment of Traders report, despite the large downward move in prices. This could trigger further selling pressure in the market if these large traders finally give up on their positions should the trend continue against them.

Technical Notes

Looking at the daily continuation chart for Corn futures, we note that the downtrend in Corn prices actually began back in 2012, after prices peaked following the devastating drought that plagued vast swaths of the U.S. that summer. Although prices are currently hovering near 4-year lows, we should note that the recent price floor for Corn prices is closer to the $3 per bushel seen back in 2009. This leaves the possibility for further downside price movement, especially if large speculators continue to unwind their net long positions. However, in the near-term, prices appear to be oversold, with the 14-day RSI currently reading a much oversold 20.99. 362.00 is now seen as the next major support level for December Corn, while resistance is seen at 409.00.

Mike Zarembski, Senior Commodity Analyst

July 21, 2014

Bears Confounded as Treasuries Rally

Monday, July 21, 2014

U.S. Treasuries received an addition boost late Wednesday after the U.S. imposed additional sanctions against Russia for its continued involvement in Ukraine. This increase in political tensions has triggered renewed buying interest in both U.S. and German Bonds, and once again confounding the analysts who keep calling for a top in the U.S. Treasury market.

Fundamentals

Treasury Bond traders appear to believe Janet Yellen, that the Federal Reserve is not in any hurry to pursue a tightening of monetary policy, as Bond prices seem to be holding steady despite signs of an improving employment picture. Not even a better than expected Non-Farm Payrolls Report for June or a larger than expected rise in CPI last month appears to have swayed the Fed Chairwomen that keeping rates low for an extended period will keep U.S. economic growth on its current moderate upward progression. Bond yields moved little following the release of the Fed beige book on Wednesday, which describes U.S. economic conditions among the Fed's twelve districts. Here the term "moderate growth and expansion" were used to describe economic conditions throughout the Fed districts, with particular notes describing growth in consumer spending, especially in auto sales and tourism the past several weeks. Housing was mentioned by several districts as a potential headwind, as home sales were down from last year's levels in several parts of the country. It appears the biggest movement for the interest rate market is in the yield curve, where the yield on the 5-year note has narrowed sharply vs. the long term 30-year Bond rate. This flattening of curve appears to be a sign that Bond traders believe the Fed may begin to raise short-term rates sooner than expected, although the overall rate of tightening will be moderated. Longer-term Treasuries may also be receiving a boost from the accommodative monetary policies by both the Bank of Japan and the European Central Bank, which is having the effect of making U.S. long-term Bond yields look attractive to foreign buyers vs. the sub 2% yields that can be obtained from Japanese and German government Bonds.

Technical Notes

Looking at the daily continuation chart for Treasury Bond futures, we notice prices in a moderate upswing, currently trading at price levels not seen since May 30th. Longer-term traders will note that the uptrend line drawn from the June 2007 lows has not yet been tested this year, so it is curious how anyone could be calling for a bear market in Bond prices until this key support indicator has been invalidated. Prices are above both the 20- and 200-day moving averages, and the 14-day RSI is reading a moderately positive 57.09. 139-03 is seen as the next resistance level for Sept. Bonds, with support found near the 134-11 area.

Mike Zarembski, Senior Commodity Analyst

July 22, 2014

Weather Stymies Soybean Bulls

Tuesday, July 22, 2014

The downward pressure on the Soybean market continues, however prices have been hesitant to break the 1050 mark, offering a ray of hope that the show could be nearing an end. Weather has been the primary driving force for sellers and very little has changed on that front. For that reason, it is difficult to fathom a scenario where Bean fundamentals suddenly turn positive.

Fundamentals

The ideal growing conditions have resulted in the US Soybean crop being in the best shape it's been in two decades. At the present time, 73% of the US crop is in good or excellent condition. Furthermore, weather is expected to remain perfect for the foreseeable future, which will aid the development of the crop. If Bean traders are holding out hope that one of the other gains will offer some outside support they may be disappointed. Corn, despite its late start to the growing season, has very similar conditions. As of the writing of this newsletter, 76% of the Corn crop is rated as good or excellent, the best rating since 2004 for this week. The end of July is almost upon us, which would mark the end of Corn pollination for most of the country. Barring the unforeseeable, weather conditions will remain conducive to healthy pollination. Traders may want to look at the weekly export sales figures. Skittish shorts could be tempted to cash out and take profits on strong sales figures.

Technical Notes

Tuning to the chart, we see the November Soybean contract testing the 1065 level on the downside twice in recent sessions. Prices have, however, failed to break through this level. The chart has the makings of a possible W or double bottom if prices manage to trade above 1118.75 level in the near-term. The RSI indicator remains oversold in the near-term, which could be supportive of prices.

Rob Kurzatkowski, Senior Commodity Analyst


July 23, 2014

Coffee Prices Ready to Jolt?

Wednesday, July 23, 2014

Large and small speculators have been aggressively cutting their net-long positions this past week according to the most recent Commitment of Traders report. For the reporting period ending on July 15th, the combined non-commercial and non-reportable net-long positions fell by nearly 7,200 contracts to 35,017 contracts. Commercials were covering their short positions on the price decline and it would not be a surprise to see Coffee roasters increasing their purchases should it become apparent that the recent price sell-off has run its course.

Fundamentals

The three-month long bearish price trend for Coffee futures appears to have stalled as traders have once again, started to show concerns about the size of the Brazilian Arabica Coffee harvest following one of the worst droughts in decades. It appears that the recent selling pressure due to the ongoing harvest in Brazil has begun to wane, with producers becoming reluctant to sell at current prices in the hopes of obtaining higher prices in the coming months. The big concern among analysts is how this season's drought will affect the 2015-16 production season, with the impact of dry conditions on tree flowering as well as new growth from tree branches. These factors can affect Coffee bean production and will become an even bigger factor next season, which is a down year in the Arabica production cycle. All these factors, including prices that are 50-cents per pound lower than recent highs, may entice end-users to become willing buyers to lock-in supplies with the prospects for potentially tighter supplies and higher prices going into 2015.

Technical Notes

Looking at the daily chart for September Coffee we notice prices resisting a downward test of the 200-day moving average (MA), which currently resides just below the recent lows near the 156.75 price level. This past Friday's price surge has taken the market back above the 20-day MA, which is adding support to the notion that near-term lows may be in place. The 14-day RSI has turned up and is now reading a more neutral 47.07. We note that Monday's continuation of Friday's price rally has found some resistance at the down-trend line drawn from the April highs. Bullish trades would wish to see a weekly close above the trend-line to add confirmation that the bearish move has ended. 184.90 is now seen as the next major resistance level for September Coffee, with support occurring at the July 15th low of 159.25. r than recent highs, may entice end-users to become willing buyers to lock-in supplies with the prospects for potentially tighter supplies and higher prices going into 2015.

Mike Zarembski, Senior Commodity Analyst

July 24, 2014

Gold Choppiness Continues

Thursday, July 24, 2014

Gold futures have been unable to gain any traction in recent sessions, as a stronger US Dollar has thwarted the bull camp. Recent comments from the Federal Reserve indicated that the central bank will try to get ahead of inflation as soon as it rears its head. Unless the Fed changes its tone, the comments are likely to hang above the Gold market like a black cloud. At the same time, prices may continue to be underpinned by unrest in Ukraine and the Middle East. The ongoing questions as to who downed the Malaysian airliner make it virtually impossible for Ukrainian-Russian relations to improve. In Gaza, similarly, there seems to be no light at the end of the tunnel to the conflict.

Fundamentals

Many investors are becoming more optimistic about the US economy, which may continue to pressure the price of Gold. Even investors who are bullish long-term on Gold are favoring stocks and other riskier assets, fearing the metal may move higher but underperform versus equities. Physical consumption of Gold has also failed to inspire traders. Chinese consumption of Gold has fallen by 19% during the first half of this year. Last year, China eclipsed India as the world's largest Gold consumer. India's import restrictions on Gold have also hurt demand for the precious metal. The Gold Investor Index, which measures the balance of customers adding to Gold holdings over those reducing them, dropped to 51.2 in June from 52.4 in May. This is certainly trending lower, indicating reduced investor appetite for Gold. A 50 reading on this indicator would indicate an equal number of investors adding and reducing their positions.

Technical Notes

Turning to the chart, we see the December Gold contract mired in choppy, sideways trading. Prices may continue to center around the 1300 level, trading in a wide range between 1250 and 1350. Prices have been so flat longer-term that the 100-day moving average is virtually horizontal.

Rob Kurzatkowski, Senior Commodity Analyst

July 25, 2014

Natural Gas Prices Tumble on Cool Summer Weather

Friday, July 25, 2014

Natural Gas bulls received a bit of a reprieve from the vicious sell-off in prices after the weekly Energy Information Administration (EIA) gas storage report showed a less than expected build in storage last week. Producers added 90 billion cubic feet (bcf) of gas into storage for the week ending July 18, which was below the average forecast of closer to 95 bcf of gas placed in storage. While prices initially rallied following the report, traders should note that the storage build was still nearly double that of last year's 46 bcf build and more than twice that of the 5-year average of a 43 bcf build.

Fundamentals

Natural Gas prices are mired in a bear market trend as cooler than normal temperatures this summer have curtailed gas demand for power production used for cooling. Front month August Natural Gas has fallen to 8 month lows, with prices down by over 40% from 2014 highs as production has greatly outpaced recent demand leading to well above average Gas injections into storage the past several weeks. Long liquidation selling by speculators has aided the sharp price decline, sending prices well below $4 per million British thermal units. Weather forecasters are adding to the bearish tone in the market as the 8 to 14-day forecast is calling for below normal temperatures through the beginning of August, which should keep the demand for air-conditioning subdued. 14 consecutive weeks of above average Gas storage injections will help to alleviate what were tight supplies of Gas in storage coming into the summer, a result of the so called "polar vortex" that send most of the U.S. into a deep freeze this past winter and sent heating demand soaring. Now it appears that a benevolent Mother Nature is allowing U.S. gas storage levels to be replenished significantly, which will go a long way towards alleviating concerns of inadequate gas supplies in storage going into November, which is the traditional start of the winter heating season.

Technical Notes

Looking at the daily chart for September Natural Gas, we notice the market trying to forge a near-term bottom near the 3.750 price level. Prices remain well below both the 20 and 200-day moving averages but the 14-day RSI has moved into oversold territory with a current reading of 27.61. With the market currently at oversold levels, we may see a bounce to close the chart gap at 3.938 which is now the next resistance level. Support is found at the recent low of 3.759.

Mike Zarembski, Senior Commodity Analyst


July 28, 2014

Soybeans Find Support on Strong Export Sales

Monday, July 28, 2014

The sell-off in Soybean prices this season on expectations of a record U.S. harvest has repercussions for South American producers, as lower prices will discourage plantings on more marginal acreage, as well as reduce the usage of fertilizers as profit margins are squeezed. This loss of production from Brazil and Argentina could help send more export business to the U.S., which would lend some support to prices in the first half of 2015.

Fundamentals

Although grain prices continue to hover near-multi year lows, Soybean futures remain above $10 per bushel despite what could be a record U.S. harvest this fall. Tight old-crop supplies combined with solid demand is helping to keep prices at historically high levels. Soybean exports totaled 226,700 metric tons for the 2013-14 season last week, as buyers are still willing to pay a premium compared to new-crop sales to obtain supplies for short-term delivery. Traders may also be placing a "weather premium" on new-crop prices as concerns that weather forecasts for dry weather in the next 10 days could hurt the Soybean crop as it goes through the key pod-setting stage. August is normally the critical month for Soybeans and analysts fear that hot and dry weather may return which could force trades to lower their estimates for U.S. Soybean production. However, should Mother Nature cooperate and provide ample moisture and seasonal temperatures next month, we may see any price rally attempts capped as producers may wish to establish short hedgers once the crop get through its critical development stage.

Technical Notes

Looking at the daily chart for November Soybeans, we notice some increased price volatility of late after prices fell nearly $2 per bushel in less than two weeks. It appears that the market is attempting to form a near-term bottom between 1050.00 and 1100.00 with a potential diamond bottom formation on the daily chart. The 14-day RSI is struggling to rise out of oversold territory with a current reading of 33.02. The recent low of 1055.00 is seen as support for November Soybeans, with resistance found at the July 17 high of 1118.75.

Mike Zarembski, Senior Commodity Analyst

July 29, 2014

Oil Traders Await Inventory Data

Tuesday, July 29, 2014

Crude Oil futures are lower ahead of supply data, which is expected to show a decline of 1 million barrels. Despite the forecast decline in Oil stocks, traders have been focused on demand, which may disappoint this driving season. Energy traders have been closely monitoring the situation in Russia and Ukraine. Specifically, traders are looking for clarification on the sanctions being levied against Russia. The sanctions are meant to target key segments of the economy, which would include energy. Russian leadership has already talked about blocking the sale of McDonald's chicken and fruit and grain from the EU. It will be interesting to see if the country's posturing will have an impact on the export of its bountiful petroleum and Natural Gas supplies.

Fundamentals

Traders are expecting a wryly decline of roughly 1 million barrels of Crude Oil this past week. US Crude Oil inventories, while lower than last year, are above the 5-year average for this time of year. Declines in supplies are the norm during the warm weather months, so a 1 million barrel decrease in inventory levels is not at all unexpected. Typically, inventory levels decline from May to September. Traders, instead of focusing on weekly increases and declines, may want to, instead, focus on how quickly inventory levels fall through August. Usually, the July through August time-frame is when petroleum inventories suffer their sharpest declines. Traders will also want to focus on raw economic data, as this will give traders a clue as to the demand outlook for Oil. The Russian sanctions could have a negative impact on Oil demand. Russia, despite its posturing, still relies on petroleum exports, so it is doubtful that it will decrease its exports as retaliation to the sanctions.

Technical Notes

Turning to the chart, we see the September Crude Oil contract slowly edging its way back toward the 100 level. Prices tested this level earlier this month, only to bounce back. The 200-day moving average can also be viewed as support and is currently sitting at just below the 100 level. How the price of Crude Oil behaves when it trades at this level could very well set the tone for the market, near-term. Failure to hold 100 could trigger a wave of selling. On the other hand, firmness at this mark could result in a test of 104.
Rob Kurzatkowski, Senior Commodity Analyst

July 30, 2014

Bond Traders Await Comments Following FOMC Meeting

Wednesday, July 30, 2014

Traders of U.S. government securities will focus not only on how each individual maturity is trading but also on the relationship between the maturities, or the so-called yield curve. Here we see the yield curve continue to flatten with the 5yr/30yr yield differential currently at 155 basis points vs. 225 basis points 1-year ago. Analysts attribute this flattening of the curve to expectations that the Fed will be raising interest rates in the coming months, which is putting pressure on shorter-term yields that are more sensitive to interest rate actions by the Federal Reserve. However, longer-term rates are finding support from expectations that global economic growth will continue to struggle and in turn, see foreign Central Banks continue loose monetary policies for potentially longer periods of time than the Fed, which will make U.S. Bonds at the long end of the curve more attractive for foreign buyers due to higher yields.

Fundamentals

30-year Treasury bond yields have fallen to their lowest levels since June of last year as recent weakness in the U.S. equity markets, combined with lackluster economic data have sent traders into the long-end of the yield curve. Long bonds got an additional boost on Monday as U.S. pending home sales fell by 1.1% in June vs. expectations for a 0.5% gain. This was the first decline in 3 months and raises questions on how strong the housing recovery actually is, especially with interest rates at historically low levels. Analysts note that foreign buyers still find U.S. Treasuries attractive as a safe haven asset, despite current low yields, as alternatives such as German and Japanese government bonds are yielding even less than U.S. government debt. Traders will be carefully parsing the Fed statement following the 2-day FOMC meeting that is ending this morning for any changes in opinion from Fed voting members on when the Fed may need to begin shifting to a tighter monetary policy. Currently, traders are expecting the first rate hike to occur in the middle part of 2015, which if true, would be the first interest rate hike in 6 ½ years. However, Fed Chairwomen Janet Yellen is on record stating that the Fed may need to keep interest rates at low levels for a considerable period to make certain that the U.S. economy is on solid footing. Given the inconsistencies we have seen in economic data, the Fed may remain in a very accommodating monetary stance for longer than analysts and traders currently expect.

Technical Notes

Looking at the weekly continuation chart for U.S. Treasury Bond futures, we notice prices now trading above the 200-week moving average, which is a bullish long-term indicator. The 14-week RSI is positive with a current reading of 60.10. Bullish traders will need to see front-month bonds close above resistance at 139-03 to set-up a test of the June highs just below 141-00. Bearish traders would need to see a close below chart support at 134-11, to signal that a near-term top may be in place.

Mike Zarembski, Senior Commodity Analyst


July 31, 2014

Euro Sees Outflows

Thursday, July 31, 2014

The Euro has been in a steady decline versus the greenback since May. Prices now find themselves at the lowest levels since November of last year, as investors have been leaving Euro-based assets. The ongoing conflict between Ukraine and Russia has shaken some investor confidence. The sanction game that Europe and the US are playing with Russia has the potential to have more of a negative impact on European nations. In addition to EU concerns, the Euro has suffered due to a renewed appetite for Dollars.

Fundamentals

Capital inflows into European government debt instruments fell to roughly $7.5 billion in the second quarter from around $14 the quarter prior. Investors have good reason to be shunning European assets. The ECB has been struggling to keep inflation from falling too low, which may result in more stimulus efforts. Euro area inflation fell to 0.4 % in July, versus 0.5 % in June. The 0.4% inflation mark is the lowest reading since the world economy began recovering from the banking meltdown in 2009. The inflation conversation in the US has had a very different tone, with the Fed hinting toward tightening to keep inflation in check. The Fed has recently cut its asset purchases to $25 billion a month, staying on track for the central bank's October target to end the program. Currency traders are also down on the Euro in light of economic progress in the US. Traders are looking for tomorrow's non-farm payroll data to show the US private sector added 231,000 jobs in July, and for unemployment to stay at 6.1%.

Technical Notes

Turning to the chart, we see the September Euro FX contract pushing closer to the relative low from November near 1.3350. If prices are unable to stay north of this level, the Euro could test additional support near the 1.3150 mark. However, the key downside support traders may wish to focus on is 1.2750. A downside breakout below these levels could be seen as a long-term directional shift. The result of recent selling has resulted in the RSI indicator falling into single-digit territory, which can be seen as extremely oversold. This may be supportive of prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst