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August 2014 Archives

August 1, 2014

Moderating Growth and Inflation Data Should Keep Fed on Track

Friday, August 1, 2014

The Fed is keenly focused on the labor market, and if private forecasts are correct, private sector employment continues to rise at a moderate pace. ADP reported on Wednesday that private sector payrolls rose by 218,000 in July, following a 281,000 rise in jobs in June. Although July's gains were the 4th consecutive month of 200,000 plus jobs created, traders were looking for an even larger 230,000 jobs increase. This shows that market participants are becoming more optimistic about U.S. employment, but we may need to see jobs creation surpass 300,000 per month for the Fed to be satisfied that the U.S. labor market is in a sustained recovery and will be more likely to consider raising short-term rates for the first time since 2008.

Fundamentals

Federal Reserve officials saw some good news on the pace of U.S. economic growth in the second quarter, as gross domestic product rose by a seasonally adjusted rate of 4.0% according to the Commerce Department. This was above the +3.0% rate economists were expecting, and the highest rate since the 3rd quarter of last year. 1st quarter GDP was revised upward to -2.1%. A huge build in inventories as well as increased consumer spending in Q2 were behind the strong GDP figure, although an increase in imports kept the growth rate from accelerating even higher. While second quarter growth was robust, there were also signs that the rate of inflation also accelerated, with the personal consumption expenditure price index(PCE) rising by a larger than expected annualized rate of 2.3%, which is higher than the Fed's target of 2%. While both economic growth and inflationary pressures appear on the rise, the Fed is still content with its current tract of reducing its debt purchases and holding short-term rates at low levels for an extended period of time, according to the statement released after the July FOMC meeting on Wednesday. However, the statement was a bit more optimistic on current economic conditions, which led traders to sell U.S. Treasuries and purchase equities initially following the announcement.

Technical Notes

Looking at the daily continuation chart for the E-mini S&P 500 futures, we notice bulls having a "Fed hangover" on Thursday, as prices fell to their lowest levels in a month. While we are starting to see some near-term weakness in equities, the mid-term uptrend starting at the 2011 lows and the short-term uptrend starting at February 2014 lows are not yet close to being tested. The long-term 200-day moving average is currently near the 1850.00 price level, and equity bears will not be able to flex their muscles until we see a weekly close below this widely watched indicator. Near-term support is found at 1921.00, with resistance found at the contract high of 1985.75.

Mike Zarembski, Senior Commodity Analyst


August 4, 2014

Mid-Curve Treasury Yields Fall on Moderate Employment Gains

Monday, August 4, 2014

In addition to data on employment, traders got a glimpse of consumer spending as well as inflationary pressures in the economy. Personal spending rose by a seasonally adjusted 0.4% in June vs. a 0.3% increase in May. Personal Income also rose by 0.4% in June, which matched economists' expectations. However, the personal consumption expenditures index or PCE Index rose by 1.6% in June from year ago levels vs. a revised 1.7% rise in May. The PCE Index is followed closely by Fed officials and current levels remain below the Fed's target of 2%. With U.S. employment rising at a very moderate pace, there was not much in Friday's data to alter the Fed's stance that monetary policy will remain accommodative for a considerable time period.

Fundamentals

July's employment data failed to live up to the lofty expectations of traders as Non-farm payrolls rose by 209,000 vs. the average pre-report estimate of 230,000. The unemployment rate also unexpectedly rose by 0.1% to 6.2% as the labor participation rate remains near its lowest levels in nearly 3 decades. Inflationary pressures from rising wages remains subdued, with average hourly earnings by a very modest $0.01 to $24.45 and the average workweek remaining unchanged at 34.5 hours. The employment picture appears to confirm the Fed's view that although the labor market is showing signs of improvement, there is still a great amount of slack in employment, especially with a high number of part-time jobs being created. It is unlikely that the Fed will be in any hurry to tighten monetary policy while the so called "U-6" unemployment rate, which includes part-time employees who cannot find full time work and marginally employed workers remains at an elevated 12.2% and employee wage growth remains subdued. Treasuries were the biggest gainers following the release of the employment data, in particular the 5 and 10-year Notes, which caused the yield curve to steepen. Equity indices initially rallied following the report although gains were short-lived as traders took advantage of the rally to continue to lighten-up on long positions in what may be the start of a correction in the bull market for stocks.

Technical Notes

Looking at the daily continuation chart for 10-year Note futures, we notice prices becoming range bound after making a series of lower highs and higher lows since September of 2013. The 20 and 200-day moving averages have converged as both bulls and bears have stalemated. The 14-day RSI has recently fallen below 50 with a current reading of 46.50. Near-term resistance is seen at 125-23.5, with near-term support found at 123-25.

Mike Zarembski, Senior Commodity Analyst


August 6, 2014

Wheat Prices Rebound Off 4-Year Lows

Wednesday, August 6, 2014

Spring Wheat crop conditions continue to impress with 70% currently rated good to excellent this past week. Crop conditions traditionally decline during the dog days of summer so the prospects for a large crop look good. Trader's will be busy squaring their positions this week ahead of the August USDA crop production and supply/demand report due out at 11 am this coming Tuesday.

Fundamentals

Chicago Wheat futures prices have begun to recover from 4-year lows as concerns about the quality of the European Wheat crop combined with decent U.S. exports has weak shorts running to the exits. Rainy conditions in France, in the midst of the Wheat harvest, has analysts concerned that the nation's crop will be reduced to feed quality which would hurt exports and potentially drive buyers to the United States. 2014-15 Hard Red Winter Wheat exports are running near last year's levels so far this marketing year, with production down over 5% from year ago totals. Although prices have recovered from recent lows, one has to wonder how high prices can go with potentially huge Corn and Soybean crops waiting to be harvested this fall and on farm and commercial grain storage already tight. This could force Wheat producers to sell the recently harvested crop to help make room for Corn and Soybeans. This additional cash market activity could lower the cash basis for wheat as grain elevators face storage issues as well as potential transportation problems as rail cars are in short supply, especially in the Northern Plains, which makes moving grain to ports for export a much more difficult endeavor.

Technical Notes

Looking at the daily chart for September Minneapolis Wheat, we notice what appears to be a bear-flag chart pattern forming. This chart-pattern usually forms in a down-trend and is normally seen as a continuation pattern of the previous trend. Prices have also slipped back below the 20-day moving average, which is turning short-term momentum back in favor of the bears. The 14-day RSI remains weak, with a current reading of 38.47. The "spike" high of 651.75 made back on July 17th looks to be the next major resistance level for the September futures, with support found atthe recent low of 607.25.

Mike Zarembski, Senior Commodity Analyst


August 8, 2014

Crude Rebound Off of 3-month Lows

Friday, August 8, 2014

While the U.S. is currently well supplied with Oil, gasoline and distillates inventories remain below the 5-year average. Distillate inventories fell by 1.798 billion barrels last week to stand at 124.923 million barrels, which is well below the 5-year average of 147.384 million barrels. Demand is also rising at 4.034 million barrels per day vs. just under 3.9 million barrels last year. Gasoline inventories fell by a larger than expected 4.38 million barrels this past week, which has inventories falling just below the 5-year average of 215.715 million barrels. Demand is running slightly above last year at 9.359 million barrels per day.

Fundamentals

Crude Prices have rebounded off of 3-month lows as oversold technical conditions and continued concerns over the upheaval in Iraq, caused weak shorts to cover positions. Oil prices have been weak of late as ample domestic supplies, 7.6 million barrels above the 5-year average, and a stronger U.S. Dollar have weighted on Oil prices. On Wednesday, the Energy Information Administration or EIA reported that U.S. Crude inventories fell by 1.756 million barrels last week to 365.618 million barrels. While the decline in inventories was slightly below average analysts' estimates, U.S. inventories are running over 7.5 million barrels above the 5-year average. With political tensions in the Middle East and Russia rising, it may be difficult for traders to become overly short the Oil market with its "bullish bias" towards political turmoil.

Technical Notes

Looking at the daily chart for October Crude Oil, we notice prices trying to form a near-term bottom as prices trade near the 200-day moving average. Although the down-trend line drawn from the late June lows remains untested, the 14-day RSI has rebounded off of oversold levels with a current reading of 33.85. Thursday's low at 95.88 looks to be near-term support for October Crude, with near-term resistance found at 97.72.

Mike Zarembski, Senior Commodity Analyst

August 11, 2014

Gold Rally Stalls Despite Heightened Global Tensions

Monday, August 11, 2014

Large speculators have continued to lighten their long positions in Gold with the most recent Commitment of Traders report showing a net-long position of 133,874 contracts as of August 5th. This was down by over 20,000 contracts for the week and demonstrates that Gold bulls are not comfortable holding long positions despite rising political tensions.

Fundamentals

Between targeted U.S. airstrikes in Iraq and increased tensions over Russian involvement in Ukraine, one would think that investors would rush to Gold in a move towards "safe haven" assets. However, gold prices have posted only modest gains of late as it appears that traders are focused on a stronger U.S. Dollar and improving economic conditions in the U.S. which could force to Federal Reserve to raise short-term rates. These last two factors are generally bearish for Gold which may be capping some of the flight to safety buying in the precious metals sector. Another possible explanation for Gold's rather lackluster performance to end the week is that investors believe that the current economic sanctions against Russia will cause enough economic pain to force Russian President Vladimir Putin to look towards a political solution to address the Ukrainian instead of additional military intervention. A late day rally in U.S. equity indices may have also taken some of the shine off of Gold as funds appear to be moving back into equities after a nearly 5% price correction in the S&P500.

Technical Notes

Looking at the daily continuation chart for Gold, we notice the market remaining in a multi-month consolidation pattern that started in late June. Since that time, Gold prices have made a series of higher lows and lower highs with neither bulls nor bears gaining the upper hand. The 14-day RSI has turned up, but remains relatively neutral with a current reading of 53.60. Near-term support is seen at 1279.70, with resistance found at 1346.80.

Mike Zarembski, Senior Commodity Analyst


August 12, 2014

Inventories Sink Crude, Despite Uncertainty in the Middle East

Wednesday, August 12, 2014

Crude Oil futures continue to trade south of the $100 mark, as inventory data is expected to show plentiful supplies. Geopolitical events have had no impact on supplies and, as a result, Oil traders have largely shrugged off recent escalations. The crisis in Baghdad is very real, as Iraq remains without a succession plan and ISIS rebels control large swaths of the northern part of the country. Nouri al-Maliki has remained defiant, despite seemingly losing his position of Prime Minister and losing the support of party members. While the country has a dysfunctional government, forces have managed to keep Oil fields protected from rebels.

Fundamentals

The large glut of Crude Oil has overshadowed the events in the Middle East, keeping price in check. The International Energy Administration, or IEA, expects consumption of petroleum to increase by 180,000 barrels per day in 2014 and 90,000 barrels per day in 2015. The agency also noted that demand growth has slowed to 700,000 barrels per day, which is the lowest level in over 2 years. This suggests that the IEA forecast could be a bit rosier than it should be. Demand has been growing at a slower pace and, at the same time, OPEC production has been increasing. The cartel expanded its production by 300,000 barrels per day recently, which may add to the global glut. In the US, traders are expecting the EIA to report that inventories decreased by 1.75 million barrels.

Technical Notes

Turning to the chart, we see the September Crude Oil contract trading near support around the 97.00 area. Failure to hold this support suggests prices could test the 92.50 level on the downside. Prices have breached the 200-day moving average to the downside, which can be seen as negative. Recent selling pressure in Crude Oil has resulted in the RSI showing oversold reading in the high teens. In the near-term, this could be supportive of prices.

Rob Kurzatkowski, Senior Commodity Analyst

August 13, 2014

Beef Rally Grounded as Speculators Liquidate Long Positions

Wednesday, August 13, 2014

Seasonal trends point to lower Live Cattle prices, as the dog days of summer tend to see lower red meat sales. However, the recent sell-off in prices has deferred futures prices trading at a significant discount to cash prices, when seasonal trends call for spring futures to trade at a premium. Even the front month October futures are trading at a discount to Cash, which could lend some support once the long liquidation selling subsides.

Fundamentals

The historic bull market in Live Cattle futures has run into some headwinds, as traders fear increased domestic pork and poultry supplies may hurt beef demand. After trading above 160.00 to start the month of August, October Live Cattle futures prices have fallen over 12 cents per pound on what appears to be long liquidation selling. The downward momentum in prices accelerated once the market fell below the 20-day moving average. Traders are showing concerns that trade sanctions against Russia, for its involvement in Ukraine, will sharply curtail U.S. exports to this important meat purchaser. Although the size of U.S. beef sales to Russia are relatively minor, U.S. poultry producers rely on Russia for a significant amount of sales. Any excess production will fall to the U.S. market and help to keep prices competitive compared to both pork and beef which are near record levels. While current beef production totals continue to lag behind the 5-year average, the potential for a record Corn and Soybean crop this season have sent feed grain prices sharply lower which should provide significant encouragement for livestock producers to expand production in the coming months.

Technical Notes

Looking at the daily chart for October Live Cattle futures, we notice prices attempted to rebound from a limit down close on Friday as buyers emerged once prices reached the chart support zone between 146.50 and 148.00. However, the bullish hopes were dashed as prices, once again, briefly tumbled the 3.000 limit on Tuesday. Despite the recent price declines, the 14-day RSI is holding just above oversold levels, with a current reading of 32.15. The June 18th low of 146.50 is seen as the next support level for October Live Cattle, with resistance found at 157.250.

Mike Zarembski Senior Commodity Analyst

August 14, 2014

Golden Abyss

Thursday, August 14, 2014

Gold futures remain centered around the $1300 level, unable to form a trend in either direction. Physical demand for the precious metal has remained lackluster, at best, while the recent strength in the greenback has made Gold unappealing to investors. However, tension in the Middle East and Ukraine has provided price support for the metal. Trading volume in Gold is also down 18% over the past 100 trading days, according to Bloomberg, which can be viewed as a sign that traders are undecided and would rather sit on the sidelines.

Fundamentals

Demand for Gold was down 16% in the second quarter this year, largely due to weak imports by China and India. Indian demand for Gold could remain very soft as long as government restrictions on imports remain in place. The Indian government has loosened the restrictions for some banks, but is reluctant to repeal the laws. China has been cracking down on corruption, making the wealthy more reluctant to display their wealth. As a result, demand for luxury items, including jewelry, has been extremely weak. The US Dollar recently reached 9-month highs versus the Euro. The US and Europe are heading in different directions on the inflation front. The Federal Reserve has been curtailing its asset purchases and suggests that it will raise interest rates sooner rather than later. On the other hand, the ECB has continued to inject liquidity in hopes of stimulating inflation.

Technical Notes

Turning to the chart, we see the December Gold contract continuing to trade in a sideways pattern, centered on the 1310 level. The oscillators and chart pattern both point toward more choppiness ahead. The RSI near the 50 percent level while the momentum indicator sits near the zero line.

Rob Kurzatkowski, Senior Commodity Analyst


August 15, 2014

Will There Be Room in the Bins for Beans This Season?

Friday, August 15, 2014

A record harvest is expected not just for Soybeans but for Corn as well. The USDA estimated the 2014 Corn harvest at 14.032 billion bushels with an average yield of 167.4 bushels per acre. While both of these estimates would be new record highs, analysts were looking for even higher totals including average yields of a once unthinkable 170 bushels per acre. Either way, producers will be extremely busy come fall in harvesting these historic crops.

Fundamentals

U.S. Soybean producers may face a dilemma this year as the odds for a record crop appear more likely as the crop moves through the key pod setting stage this month with what appears to be near-ideal weather conditions. Rainfall has been more ample during the so-called "dog days" of summer, with moderate temperatures relieving the usual summer stress on the crop. Current weather forecasts are calling for additional rainfall in the next 6 to 10 days, which could help yields to improve even more than the current USDA estimates. The USDA forecasted a record 3.8 billion Soybean crop this season, which if accurate would greatly surpass the previous record of 3.4 billion bushels produced in 2009. Average yields are also expected to be a record 45.4 bushels per acre. What might concern producers even more than prices that are near 4-year lows, is the availability of storage for this record crop. More temporary storage will be needed on the farm as many grain elevators are expected to be at capacity as the harvest begins. In addition, a shortage of rail cars could cause bottlenecks as crop shipments face delays of week or even months until rail equipment becomes available.

Technical Notes

Looking at the daily chart for November Soybeans, we notice prices attempting to form a near-term bottom after tumbling to 4-year lows following the bearish USDA crop production report. While prices remain well below both the 20 and 200-day moving averages, we do note, however, what appears to be a bullish divergence in the 14-day RSI, which failed to make a new low reading on the recent price decline. The overall reading for the 14-day RSI is still weak, however, at 37.71. Thursday's low of 1038.75 is the next support level for November Soybeans, with resistance found at the recent high of 1118.75, made back on July 17.

Mike Zarembski, Senior Commodity Analyst


August 18, 2014

Treasury Yields Fall on Ukraine Concerns

Monday, August 18, 2014

Mixed economic data on Friday, did little to sway the bullish bond price trend. For example: The Empire state manufacturing index, which measures manufacturing growth in the state of New York, slowed to a reading of 14.7 vs. 25.6 in July. However, this data was offset by a larger than expected rise in U.S. Industrial production which rose by 0.4% vs. an expected 0.3% gain.

Fundamentals

U.S. Treasury yields continue to tumble, defying analysts who are looking for interest rates to increase in the coming months as the Federal Reserve winds down it's program of bond purchases. 10-year Note yields fell to their lowest levels in 14 months as reports of Ukrainian troops attacking a Russian convoy. This heightened traders concerns that Russia is planning to increase its military presence in the embattled nation. Traders reported heavy buying in the cash treasury market after the reports surfaced, in an apparent move towards "safe haven" assets going into the weekend. Bonds also received a boost from a well-received auction of 30-year Bonds on Thursday, which is a sign of strong demand for longer-term Treasuries despite current low yields. U.S. Bonds look attractive to foreign buyers, especially in Europe and Japan where government bond yields are even lower. Traders will turn their focus this week to comments by prominent central bank officials and finance ministers such as Fed Chairwomen Janet Yellen and ECB President Mario Draghi who are meeting at the annual Jackson Hole Economic Policy Symposium hosted by the Federal Reserve Bank of Kansas City.

Technical Notes

Looking at the daily continuation chart for 10-year Note futures, we notice prices attempting an upside break-out. We are seeing the 20-day moving average (MA) begin to pull away to the upside from the 200-day MA, which is viewed as bullish signal by some technicians. The 14-day RSI has entered overbought territory, however, with a current reading of 70.70. 127-10 is seen as the next resistance level for the front-month 10-year Note futures, with support seen at 124-07.5.

Mike Zarembski, Senior Commodity Analyst


August 20, 2014

Less Pain at the Pump Ahead?

Wednesday, August 20, 2014

While RBOB Gasoline futures prices continue to tumble, large traders are increasing their net-long position according to the most recent Commitment of Traders report. Non-commercial traders, normally commodity and hedge funds, added 4,688 new net-long positions for the reporting period ending August 12th. This increased the overall net-long position to 52,900 contracts. Non-reportable traders are rather neutral on the prospects for Gasoline, holding an overall net position of short 48 contracts. Commercial traders have added to their net-short position last week, which now totals 52,852 contracts.

Fundamentals

U.S. consumers have received some good news this summer with Gasoline prices heading lower as we approach the upcoming Labor Day Holiday weekend. Average retail Gasoline prices have fallen below $3.50 per gallon in the U.S. despite political turmoil in both Ukraine and Iraq. Lower Crude Oil prices continue to account for the bulk of the declines in Gasoline prices as over two-thirds of the price of gasoline is derived from the price of Crude Oil. Not even refinery outages in Texas and Kansas has curtailed the bearish trend for Gasoline as production continues to surpass demand, despite the recent refinery outages. The Energy Information Administration (EIA) reported that Gasoline demand averaged 9.02 million barrels per day for the 4-week period ending August 8, while inventories climbed to their highest levels since March at 218.2 million barrels. With the "official" end to the summer driving season, less than 2 weeks away, Gasoline prices will need some outside catalysts to generate some support for prices and put a halt to the bearish trend.

Technical Notes

Looking at the daily chart for October RBOB, we notice prices have been in a steady downtrend since late June, with only a brief pause in mid-July. An unsuccessful test of the 200-day moving average, capped an attempted short-covering rally with prices now hovering near year to date lows. The 14-day RSI is skirting just above oversold levels with a current reading of 37.28. Monday's low of 2.5186 is seen as near-term support for the October futures, with resistance found at the August 8 high of 2.6634.

Mike Zarembski, Senior Commodity Analyst


August 22, 2014

Chinese Manufacturing Data to Set Tone for Copper Prices

Friday, August 22, 2014

While Copper prices have turned choppy, at least in the short-term, many of the other base metals are currently still in a bullish trend. Aluminum prices are near 18-month highs as LME warehouse stock have fallen sharply the past several months and demand has increased, especially for use in the automotive sector. Zinc prices are at their highest levels since 2011 as mine closures and an increase in global demand has buoyed prices.

Fundamentals

Copper futures prices are facing some headwinds in the guise of a stronger U.S. Dollar of late, which has cast a negative tone to commodities in general. The greenback recently made 8-month highs vs. the Euro as traders expect the U.S. to potentially hike short-term interest rates within the next 6 to 9 months as U.S. economic data has improved. One cannot overestimate the influence of a stronger dollar, which raises the costs of Dollar denominated commodities for non-dollar buyers, on commodity prices especially in today's global economic climate where economic strength varies greatly by country and region. While Copper prices failed to hold a rally tied to a stronger than expected U.S. housing data earlier this week, we saw prices rebound sharply to the upside on Wednesday as short-covering buying was seen ahead of a report on Chinese manufacturing.

Technical Notes

Looking at the daily continuation chart for Copper futures, we note the recent down-move was halted just above the uptrend line drawn from the major low back in March of this year. While prices rallied sharply on Wednesday, they remain below both the 20 and 200-day moving averages. The 14-day RSI has turned upward from near oversold levels to a more neutral reading of 50.43. The low of 3.0825 made on the recent down-move now looks to be support for Sep Copper, with resistance seen at the "spike" high of 3.2470 made back on August 11th.

Mike Zarembski, Senior Commodity Analyst

August 25, 2014

Dollar Strengthens vs. Euro after Yellen Speech

Monday, August 25, 2014

Fed watchers and traders are seeing an increase in the probability of a Fed rate hike at the June 2015 Fed meeting. Fed funds futures are currently pricing a 46% chance of a rate hike at the June Federal Open Market Committee ("FOMC") meeting, vs. a 26% chance at the April 2015 meeting. The Fed target rate has a 37.6% probability of being at 0.25% and a 31.48% chance of a 0.50% target rate by the end of June 2015 according the current Fed Funds futures prices.

Fundamentals

The U.S. Dollar is back in the bullish spotlight, as traders are beginning to factor in higher U.S. short-term rates and a less "dovish" Fed. The "greenback" reached 1-year highs vs. the Euro and 7-month highs against the Yen following comments from Federal Reserve Chairwoman Janet Yellen on the U.S. labor market. Speaking at the annual central banking symposium held in Jackson Hole, Wyoming, Chairwoman Yellen acknowledged improvement in the U.S. economy, but noted there was still a lag in the labor market. Although Yellen acknowledged that the Fed will likely continue to remain accommodative in its monetary policies -- signs that increasing consumer prices as well as labor wages could force the Fed to begin raising short-term interest rates sooner than current market expectations. Traders saw Chairwoman Yellen's comments in line with the recently released FOMC minutes in which several members were becoming comfortable with raising rates in the near future. While the U.S. appears to be nearing an end to extreme accommodative monetary policies, both the European Central Bank and the Bank of Japan continue to face economic headwinds that may keep these central banks in an accommodative stance for the foreseeable future.

Technical Notes

Looking at the daily continuation chart for the Euro FX futures, we note that the uptrend line drawn from the July 2012 lows has been broken, and what appears to be the start of a bearish trend for the Euro is emerging. 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 26.61. While the RSI is in oversold territory and a near-term short-covering rally would not be unthinkable, it should be noted that currencies tend to experience long-term trends and that a look at the longer-term chart shows the potential for a significant downside move before any major chart support is found. Near-term support is found at 1.3105, with major support not seen until 1.2775. Near-term resistance is seen at 1.3447, with major resistance seen at 1.3705.

Mike Zarembski, Senior Commodity Analyst


August 27, 2014

Traders Remain Bitter on Sugar Price Outlook

Wednesday, August 27, 2014

The current global surplus in Sugar is affecting calendar spreads in the futures market, as the front month to second month contango has widened to levels not seen since 2008. It appears that producers are having to pay higher prices to obtain storage for the 2013-14 harvest, as warehouses are filled with old-crop Sugar that still needs to be sold. Producers have been reluctant to sell Sugar from inventory due to current low prices, however with global demand remaining weak, we may see the contango widen even further to draw out marginal buyers willing to purchase Sugar for near-term delivery due to the current price discount vs. 2015 futures prices.

Fundamentals

Sugar futures prices remain depressed, as the nearly 4-year bear market shows no signs of ending. Weak global demand continues to weigh on prices, as the global market saw its 4th consecutive year of surplus. A slow start to the Indian monsoon season this year gave some bullish traders a reason for optimism, but recent rainfall appears to be ample to keep production on pace to meet expectations. India also raised their import duty to 25% from 15%, which is also seen as a negative factor for global Sugar prices. While some traders are showing concerns that Brazil's cane harvest may end early due to the severe drought experienced this season, other producers, most notably Thailand, are expected to see larger crops this year. Although it appears that the 2014-15 season will not see production totals meet consumption demand, the current Sugar surplus should prove more than ample to meet demand and keep any price rallies in check going into 2015.

Technical Notes

Looking at the daily chart for March Sugar, we notice the recent downtrend that started back in late June continues unabated, with prices remaining below both the 20- and 200-day moving averages (MA). A moderate short-covering rally last week failed to reach resistance at the 20-day MA before a sharp sell-off to end the week. The 14-day RSI remains weak, with a current reading of 39.53. The recent low of 17.29 remains support for the March futures, with resistance found at 18.02.

Mike Zarembski, Senior Commodity Analyst


August 28, 2014

Natural Gas Bulls Warming to Warm Weather Forecast

Thursday, August 28, 2014

Thursday is always a popular day for Natural Gas traders as the Energy Information Administration releases its weekly Gas storage report. Traders are looking for a 77 billion cubic feet (bcf) injection into storage last week. If accurate, it would surpass last year's 65 bcf increase, and be nearly 20 bcf above the 5-year average. While current storage levels remain nearly 16% below the 5-year average at nearly 2.6 trillion cubic feet, moderate temperatures this summer have allowed inventories to replenish following the brutal winter experienced this past season.

Fundamentals

Better late than never for warm summer temperatures to blanket the central and eastern parts of the U.S. just as the unofficial start of the fall season arrives as the Labor Day holiday approaches. Prices forecasters are calling for above normal temperatures stretching from the Southern Plains through the Atlantic coast in the next 2 weeks, which should lead to increased cooling demand for a large portion of the country. This raises the prospects for increased Natural Gas usage for electricity generation. Cash market traders note increased trading activity as physical buyers are attempting lock-in supplies in anticipation of increased short-term demand for Natural Gas. As the month of September approaches, we should note that this is historically the peak month for Hurricane activity in the Gulf of Mexico and a major storm threat could halt production. While the Gulf of Mexico only accounts for about 7% of U.S. Gas production, as the bulk of production has turned inland due to the huge production coming from shale formations, any extended outage would be bullish for futures prices. We may be seeing traders start to "price in" some minor risk premium as front month futures are seeing the price discount to the more deferred months start to narrow as any storm related damage would normally be more supportive for front month contracts.

Technical Notes

Looking at the daily chart for October Natural Gas, we notice the market is trading near the upper band of the current 30-cent wide consolidation pattern, although the market continues to struggle to hold above the 4.000 level. While prices are currently holding above the 20-day moving average (MA), prices still have some work ahead of them to reach the longer-term 200-day MA, which is currently near the 4.300 price area. The recent high of 4.041 is seen as near-term resistance for the October future, with support found at the July 28th low of 3.740.

Mike Zarembski, Senior Commodity Analyst

August 29, 2014

Ukraine Tensions Draw Buyers to U.S. Wheat Futures

Friday, August 29, 2014

U.S. Wheat export sales for the week ending August 21 totaled 411,900 metric tons, which was towards the middle of analysts' expectations of between 300,000 and 500,000 metric tons. Wheat exports are running at 47% of USDA commitments vs. the average of 38% for this week in the marketing season.

Fundamentals

The escalation of military actions between Russia and Ukraine has once again raised concerns about whether grain importers can count on the black sea region in the coming months to obtain supplies. This fear has the potential to shift additional grain export business to the U.S., especially for Wheat and Corn, while the political turmoil continues. All three U.S. Wheat futures classes were trading sharply higher on Thursday after reports that Russian forces seized a town inside the Ukraine border. While the current rally in Wheat prices seems to be more of a "risk premium" being added rather than actual increased demand, the current short positions being held by large speculators, especially in the Chicago Soft Red Winter futures, may be the catalyst for further short-covered buying should hostilities escalate.

Technical Notes

Looking at the daily chart for December Wheat futures we have what appears to be a rounded bottom formation with prices breaking out above the 20-day moving average on relatively high volume. We are seeing the 14-day RSI turn higher with a moderately strong reading of 56.22. We would need to see a close above resistance of 591.00 to add further confirmation that a potentially major bottom is in place. Support is seen at the recent low of 542.25 made back on July 29th.

Mike Zarembski, Senior Commodity Analyst