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February 2015 Archives

February 2, 2015

Double Whammy Hits Gold Bulls

Monday, February 2, 2015

Gold prices received a modest boost on Friday as U.S. Q4 GDP estimate was below expectations. The Commerce Department reported that the U.S. economy expanded by 2.4% in the last 3 months of 2014, which was well below the 5.0% growth reported for Q3. While consumer spending increased to end 2014, businesses are still reluctant to open the checkbook. The apparent slowdown in U.S. growth may encourage the Fed to remain patient with a move towards raising interest rates this year, which would be viewed as a positive development for holders of Gold.

Fundamentals

Few would argue January was not kind to commodity bulls as markets from Corn to Zinc have been mired in a bearish trend. Gold appeared to be among the few "outliers", as prices were trading over $100 per ounce higher than we saw at the end of 2014. Gold prices have gained over 9% this month as some investors and traders moved assets towards Gold as an alternative to the volatility seen of late in both the equity and currency markets. However, the bullish trend has started to run into some headwinds with the surging U.S. Dollar making gold purchases more expensive for non-dollar buyers and secondly, a moderately "hawkish" stance by the Federal Reserve following the January Federal Open Market Committee (FOMC) seems to imply that the Fed is still on track to at least move towards a "token" interest rate increase starting sometime in the second half of the year, despite the economic headwinds seen in a large chunk of the global economy. That appears to leave both high quality government bonds and the U.S. Dollar as the remaining "safe havens" that traders are currently moving towards as financial market volatility remains elevated.

Technical Notes

Looking at the weekly continuation chart for Gold futures, we notice prices forming a base following the steep price decline from all-time highs back in 2011. Near-term momentum favors Gold bulls, as prices have moved above the 20-week moving average (MA). The 14-week RSI has turned positive with a current reading of 55.10. Any major upside movement would have to overcome some major obstacles such as the 200-week MA and the downtrend line drawn from the 2011 highs. It would take a weekly close above 1500.00 to confirm the bearish trend has ended. The next resistance level is seen at 1392.60, with support found at 1130.40.

Mike Zarembski, Senior Commodity Analyst

February 4, 2015

So Much for Cheap Gas

Wednesday, February 4, 2015

While a refinery strike would be a bullish factor towards both Gasoline and Diesel, one would have to believe that this would be a generally bearish influence on Crude Oil prices, as lower refining demand could in the short-term greatly increase the supply glut of Crude in the U.S. However, it appears that traders are turning their focus towards the lower rig counts, with the latest report by oil field services company Baker Hughes showing U.S. oil rig counts have fallen to their lowest levels in 3 years. The upshot being that the current low prices seen in crude may have finally done the trick to force U.S. producers to curtail drilling in an attempt to help alleviate the current oil surplus seen here in the U.S.

Fundamentals

While most of the U.S. received a belated holiday gift of sub-two dollars per gallon Gasoline to start the year, it seems like this "gift" for motorists was too good to last as prices rallied sharply to 4-week highs, as worker strikes at several major U.S. refineries has triggered concerns on refining capacity. February usually sees a rise in gasoline prices as refineries tend to perform maintenance during this time frame ahead of the summer driving season. In addition, the sharp drop in Gasoline prices has triggered increased demand with usage of averaging over 9 million barrels per day. To put this into perspective, we do not normally see gasoline demand rise above 9 million barrels per day until April, when spring break vacations begin. While U.S. Gasoline inventories remain ample, we should note that middle distillate inventories are tight and if increased motorist demand for fuel runs into prolonged refinery strikes, we may see the market begin to price in a "risk premium" for both RBOB Gasoline and Diesel prices as we move into spring.

Technical Notes

Looking at the daily continuation chart for RBOB Gasoline futures, we notice the chart gap generated by the sharp price rise following the expiration of the February RBOB futures. Prices are now trading well-above above the 20-day moving average (MA) for the first time since June of 2014, as prices appear to be attempting to form a major bottom. The 14-day RSI have rebounded sharply from well-oversold levels to a relatively strong reading of 62.41. 1.6250 is the next significant resistance level for the March contract, with support seen at the 20-day MA currently near the 1.3565 price level.

Mike Zarembski, Senior Commodity Analyst


February 3, 2015

Aussie Hits 6-Year Low on RBA

Tuesday, February 3, 2015

Traders are wondering when the pain will end for the Australian Dollar, after the currency suffers yet another setback. The Reserve Bank of Australia, or RBA, decided to slash interest rates overnight to 2.25%, a record low for the benchmark rate. This sent the Aussie Dollar plummeting well in excess of 100 ticks. The currency has already been battered as the result of weak base and precious metal prices, so the lack of favorable interest rates could be seen as extremely bad news for the currency.

Fundamentals

The Australian economy has been the beneficiary of a close export relationship with China. For over a decade, Australia has done a bit better economically than Europe and the US as a result of being a raw resource based economy and China's insatiable demand for raw materials. Now that China and other Southeast Asian trade partners are experiencing slowdowns, Australia has been struggling to find its footing. Despite this, the Aussie had been able to hold steady in the low to mid 0.90's for some time before beginning to falter due to favorable interest rates. However, the state of the Australian economy could bring about additional rate cuts. The RBA has, historically, cut rates in bunches and the current situation could give the bank every reason to do so. Growth prospects are currently bleak and stimulus may be needed. The FOMC is also expected to be raising rates by mid-year, which could put more downward pressure on the currency versus the US Dollar.

Technical Notes

Turning to the chart, we see the March Australian Dollar trending sharply lower since September of last year. The Aussie is at a six year low, and prices are coming up on support at the 0.7699 level. If prices fail to hold here, the next significant support level for the currency comes in around the 0.7285 mark. The RSI indicator is showing oversold levels, which could be seen as supportive in the near-term. Given the ferocity of the sell-off traders may be looking for consolidation rather than a reversal.

Rob Kurzatkowski, Senior Commodity Analyst

February 5, 2015

Crude Coming Back Up? Not So Fast

Crude Coming Back Up? Not So Fast

Crude Oil futures fell sharply to fall below $50 a barrel after the EIA reported a large build in Oil stockpiles. Oil rallied as much as 20% since Friday on thoughts that the extreme sell-off may have been overdone. While the sell-off has been very large, it has come on solid fundamental reasoning, rather than following where big money is going. The Oil market is extremely saturated, and there is no eye-popping economic data that would suggest global supplies will be worked down in the immediate future.

Fundamentals

According to the US Energy Information Administration, Crude Oil inventories increased by 6.3 million barrels last week. US inventory levels sit at 413.06 million barrels, which is the highest level since the EIA began tabulating days in 1982. More importantly, at least from a domestic perspective, is that Cushing, OK stocks rose by 2.5 million barrels on the week. Considering there is no disruption to transportation from the hub, the build would suggest lower refinery demand on the Gulf Coast. The US Dollar did suffer a minor setback, having its worst day in more than a year, which certainly emboldened the bull camp. The currency is, however, expected to stabilize, which may suggest that Oil may also grind sideways. There seems to be a large contingent of market observers who believe Oil could stabilize in the 50's for a period of time. There is no shortage of Oil anywhere, but traders have been reluctant to push Crude prices even lower, which very well could set up a grinding market.
Technical Notes

Turning to the chart, we see the March Crude Oil contract bouncing back above 49.25, which had been the upper end of the trading range for Oil. Prices also traded above the 20-day moving average, suggesting that a near-term low may be in place. The market flirted with the 54.10 near-term resistance before backing off yesterday. The Oil contract may gain a bit of momentum if prices manage to hold gains above the 50-day moving average. The RSI indicator bottomed out prior to prices reversing course, which could be a signal of possible medium-term reversal.

Rob Kurzatkowski, Senior Commodity Analyst

February 6, 2015

Pork Prices Plunge

Friday, February 6, 2015

U.S. Pork production is expected to reach record levels in 2015, as U.S. consumers now prefer the "other white meat" over beef for the first time in over 60 years. Most of the U.S. Pork production will be consumed here in the U.S., as a strong U.S. Dollar may hamper exports as non-U.S. buyers may "squeal" at the cost of U.S. Pork products.

Fundamentals

Consumers should get ready to stock their freezers with ham and bacon soon, as a sharp increase in Hog production, mainly due to cheap feed prices, should help to keep wholesale pork prices on the defensive. Front month futures continue to trade near 4-year lows following cash market prices, which continue to trend lower due to lackluster exports and moderate retail demand. The recent snow storm that moved through the heart of the U.S. has caused packer demand to wane the past several days, which has kept market-ready Hog demand low and cash prices weak. On the product side, pork cut-out values continue to slide, reaching their lowest levels since the end of the 3rd quarter of 2012. Ironically, this was the same time period where Lean Hog futures prices made their last major low, which ultimately cumulated in prices nearly doubling in a 2-year time span. While we must exclaim that past performance is not a predictor of future results, we would be remiss not to note that Ground Hogs Day was just this past Monday....

Technical Notes

Looking at the daily chart for April Lean Hogs, we notice prices continuing to make new contract lows, as previous support at 70.000 has given way. Prices are starting to pull away from the 20-day moving average, as price weakness appears to be accelerating. The 14-day RSI has moved back into oversold territory, with a current reading of 26.37. One has to go back to the November 2010 lows of 65.15 to find the next support level for the April futures, with resistance seen at the January 29 high of 75.325.

Mike Zarembski, Senior Commodity Analyst

February 9, 2015

Is Choppy Oil Trade a Sign of a Near-term Bottom?

Monday, February 9, 2015

Here are the latest inventory figures for energy products from the Energy Information Administration (in million barrels):
Current Weekly 5-Year Ave.
Crude Oil: 413.06 +6.33 349.10
Distillates: 134.48 +1.79 142.10
Gasoline: 240.67 +2.34 234.42

Fundamentals

Oil futures traders might be suffering from a case of whiplash as market volatility has increased with large daily percentage price swings becoming the norm the past several sessions. Fundamentals are telling a mixed story with U.S. oil drilling rig counts falling sharply, as Oil producers are starting to curtail spending to deal with current low Crude prices. On the other side of the equation, we have U.S. Oil inventories rising sharply with the Energy Information Administration (EIA) reporting Oil inventories rose by 6.3 million barrels to 413.1 million barrels which is the largest inventory levels seen since EIA weekly data began in 1982. February is anomalous month in the Oil industry as it is typically the start of the refinery maintenance season as companies gear up to produce more gasoline as well as specialty grades required to meet regional EPA guidelines. So Oil demand usually wanes in February, which has added additional pressure to mounting Crude inventories. Large speculators continue to remain net-long Crude Oil, with the most recent Commitment of Traders report showing non-commercial traders holding a net-long position totaling just over 324,000 contracts as of January 27. While this is well short of the nearly 500,000 net-long position we saw several months ago, it is still a very formidable long position to be holding in a market that has fallen over 50% the past 6 months.

Technical Notes

One sign that traders may wish to watch to help determine if Oil prices have reached a near-term bottom is to follow the price action on the term structure for the Crude Futures. Let's look at a chart of the March 2015 Crude Oil contract versus the December 2015 contract. In January 2014, Mar 15 futures were trading at a $10.50 premium to the Dec 15 contract. However, this spread has collapsed along with the overall price of Crude and is now trading near an $8.50 March discount to the December futures as more deferred months have moved to a sharp premium to the nearby months in order to encourage the movement on Oil into storage. A narrowing of the March discount to the December futures could be a signal of improving Crude demand, which would be significant catalyst in Oil prices finally starting to form a near-term bottom. -9.33 looks to be support for the Mar/Dec 15 spread with resistance seen at a -6.20.

Mike Zarembski, Senior Commodity Analyst

February 10, 2015

Gold Traders Playing Defense

Tuesday, February 10, 2015

Gold futures got a small bounce yesterday, driven by defensive buying. Greek bonds fell for the fourth consecutive trading day on fears that the nation may begin distancing itself from the EU. Greece has been rolling back or considering rolling back some of its austerity measures, such as restoring the income tax-free threshold. Greek Premier Tsipras also pledged to increase the minimum wage and put the brakes on infrastructure privatization, which was viewed negatively by bond holders. The new Greek government is considerably more nationalistic and socialist compared to the prior regime and there are indications that the government will not accept additional aid to continue paying loans.

Fundamentals

In addition to safe haven buying due to the Greek situation, traders were playing defense due to the escalation in military action in Ukraine. President Obama called out Russia for violating essentially every provision of the ceasefire. The US is leaving every option on the table, including providing weaponry to the Ukrainian government. While Gold can be viewed as a defensive instrument, Greece leaving the EU could cause further declines in the Euro, which could be seen as negative for Gold. Some of yesterday's gains can be attributed to profit taking. In addition to the geopolitical queues, Gold has had a positive tone due to seasonal demand trends. However, Indian demand has been somewhat subdued, which has caused local prices to trade below benchmark levels. India imported a substantial amount of Gold last year, which could curb further imports this year, given the lackluster demand.

Technical Notes

Turning to the chart, we see the April Gold contract pull back after hitting 1300 in mid-January. Prices have fallen below the 20-day moving average, suggesting that a near-term high may be in place. Prices have held the 50-day average thus far. April Gold has also held near-term support near the 1231.50 level so far. Failure to hold 1231.50 could result in prices testing the 1175.00 mark on the downside. Recent selling may be overdone, as the RSI indicator is now reaching oversold levels, which may be seen as supportive in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst


February 11, 2015

U.S. Treasuries: Start of a Bearish Trend or Bull Flag?

Wednesday, February 11, 2015

Bond traders have several economic reports on their calendar that could help shed light on the strength of U.S. growth. Thursday, we start the morning with initial jobless claims; analysts expect a slight rise to 285,000 new claims vs. 278,000 reported last week. Also on Thursday, the market will get the results of retail sales for January.

Fundamentals

The historic bull market for U.S. Treasury Bonds, which can arguably trace its beginnings back to 1981, has once again run into some headwinds following a much better than anticipated non-farm payrolls report for January, as well as some headway into dealing with the Greece debt crisis. The biggest catalyst for the recent weakness in Treasuries was the strong January payroll figures which seem to show the U.S. labor market continues to strengthen. Market participants greeted the jobs data by selling U.S. debt instruments, with Fed Fund futures pricing in an increased chance that the Federal Reserve will finally begin raising short-term interest rates by mid-year. In addition, bond traders are focusing on this week's Treasury auctions which include the sale of $24 billion of 10-year Notes, as well as $16 billion of 30-year Bonds. With rates starting to tick up from recent lows, the market will be particularly focused on the participation of foreign buyers who might be tempted to by 10-year rates hovering near 2%. While on the surface this does not sound like much return for a 10-year time frame, we should remember that we must compare this yield to what is available outside the U.S. and especially Europe, where the 10-year bond yields for countries such as Spain and Italy do not approach that of the U.S. It is this comparison of U.S. rates compared to that of the rest of the world where the U.S. government debt market still looks attractive and may be the ultimate reason why the Bond "bull" may still have some legs left.

Technical Notes

Looking at the daily continuation chart for Treasury Bond futures, if we start at the most recent major low which was made during the final days of 2013 and draw a trend line connecting the next significant low made back in September 2014, we notice Bond prices still trading over 6 points above the this trend line, which would need to be tested before we could really put credence in calling an end to the bull market. The near-term trend is in the bear camp as prices have fallen below the 20-day moving average. The 14-day RSI has moved from overbought levels to a more neutral reading of 45.90. 145-13 appears to be the next support point for the lead-month March contract, with resistance seen at 149-15.

Michael Zarembski, Senior Commodity Analyst


February 12, 2015

Euro Pops on Possible Greek Deal

Thursday, February 12, 2015

The Euro is slightly higher versus the US Dollar this morning, after CNBC reported that EU leaders and Greece have agreed to a restructuring of Greece's bailout, in principal. Other news agencies have downplayed the CNBC report. While the country is far from being a symbol of economic health, Greece leaving the Euro currency and, possibly, the Eurozone would have had extremely negative consequences for all parties. There seems to be no choice for European leaders but to bend to Greece's demands, as the Eurozone seemingly has more to lose. The question is how far will they bend?

Fundamentals

Greece aside, Europe continues to have growth concerns, which could result in additional weakness versus the greenback. Eurozone industrial production stalled in December after three months of gains. This is not as negative as it may seem on the surface, as a steep decline in Ireland wiped out production gains in Germany, France and Italy, the Euro bloc's largest economies. Friday's GDP data may provide a clearer picture for traders. Many are expecting the EU to maintain the paltry 0.2% growth rate from the third quarter. Regardless of the outcome from the Greek talks, many are expecting parity between the US Dollar and the Euro at some point this year. The US economy had plenty of flaws, but they are overshadowed by Europe's shortcomings. The geopolitical situation, especially with regard to Russia and Ukraine, suggest investors may also flock to the greenback as a defensive play. Time will tell whether or not this comes to fruition.

Technical Notes

Turning to the continuous Euro chart, we see the front month March contract consolidating between the 1.1000 and 1.1500 levels. Prices have tested and failed to break the 20-day moving average on the upside. Prices have been tightening in what appears to be a triangle/pennant formation, hinting at a possible continuation of the downtrend. If the Euro does see a downside breakout, the next support area comes in around the 1.0500 level. Looking at the RSI, we see the indicator moving back into neutral territory. It is interesting to note that the RSI had bottomed in early January, before the recent relative low. This could be a signal that the market may be set to reverse.

Rob Kurzatkowski, Senior Commodity Analyst

February 13, 2015

Will Spring Planting Estimates Awaken Sleepy Cotton Market?

Friday, February 13, 2015

It appears that subdued price levels for new-crop Cotton futures may cause producers to curtail acreage this year, according to a survey by the National Cotton Council (NCC). In its annual planting estimate, the NCC projects 9.43 million acres will be planted this spring, which if accurate, would be a 15% decline from 2014. Traders will await the "official" estimate by the USDA in the Prospective Plantings report set for release on March 31st, which is considered the "unofficial" start to the spring planting season by many traders.

Fundamentals

Cotton futures seem to have been a bit of a" forgotten" market for many traders the past several months, as prices moved into a consolidation phase following a steep price decline since mid-2014. However, we have started to see a bit of a bullish turn to old-crop Cotton prices the past couple of weeks, as U.S. export sales have been running ahead of expectations, which has analysts beginning to lower their estimates for old-crop ending stocks due to increased usage. However, most of the attention by the trade has turned to the 2015 marketing year and what will occur with global supply and demand. Early estimates are for a reduction in U.S. Cotton production this season, as new-crop Cotton prices in the low to mid 60-cent range could see swing producers turn to more profitable crops this spring. However, it is the demand side of the equation that remains fluid, especially from China, which is the world's largest consumer of Cotton. Here the early prospects for increased Chinese demand are not encouraging, as the USDA recently lowered Chinese mill usage for the 2014-15 season by 1 million bales. Potentially more discouraging was the increased estimates for Chinese ending stocks, which makes one wonder if Chinese import levels will continue apace.

Technical Notes

Looking at the daily chart for new-crop December Cotton, we notice prices starting to recover from contract lows near 61 cents, but still lagging the price rally seen in old-crop months. Prices did move above the 20-day moving average (MA), but need to rise above 70 cents to break through the 200-day MA. The 14-day RSI has rebounded from a test of oversold levels to a more neutral reading of 52.45. The high made on 12/30 of 66.04 looks to be the next major resistance level, with support continuing at the contract low of 61.28.

Mike Zarembski, Senior Commodity Analyst

February 17, 2015

Worst Case Already Priced into Silver?

Tuesday, February 17, 2015

Silver futures are sharply lower this morning, as there is little progress in the Greek debt talks. The precious metals markets have largely priced in the nuclear option - Greece leaving the currency group. The market is reacting to the possible negative growth implications as a result of Greece leaving. Silver and other precious metals have gotten a bit of a boost recently as investors have been ditching Greek debt in favor of safer investments. Traders have priced in potential unrest on the upside, which may suggest the downside in metals could be where the market is vulnerable.
Fundamentals

Silver futures start off the week on a negative note due to the Chinese Lunar New Year, which will keep physical buyers away until Tuesday of next week. The lack of these physical buys takes away this buffer from the market, making the downside a bit more risky. German consumer confidence rose to a 13-year high, which can be seen as a positive for metal prices. The huge drop in energy prices could account for a great deal of the enthusiasm for German consumers. The markets have failed to cooperate with the data this morning, as equities and metals have started the session off on a negative note. Overall, industrial production seems to be softening, as evidenced by weak numbers from China and the US, which could pose a problem for Silver bulls. Due to the metal's more industrial nature, it may need an extra push from industrial demand if it is going to keep pace with Gold.

Technical Notes

Turning to the chart, we see the March Silver contract pulling back a bit after hitting multi-month highs in mid-January. Prices failed to break through the 200-day moving average on the upside. Prices have broken the 20 and 50-day moving averages, suggesting that a near-term high may be in place. The RSI is now near oversold territory, which could provide some support for Silver prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst


February 20, 2015

Commodity Bears Celebrating "Golden Week"

Friday, February 20, 2015

Now that the Chinese New Year's celebrations have begun, precious metals traders should anticipate increased market volatility and thin trading conditions for the next several sessions while many Asian trading desks are on holiday. Gold, in particular, could see some continued price weakness, as uncertainty regarding a continuation of a financial bail-out for Greece and a rather "dovish" take on the FOMC meeting minutes released on Wednesday have, so far, failed to generate much bullish enthusiasm for the "yellow metal". While last week's sell-off in Gold prices may have been tied to market participants squaring positions ahead of the Chinese New Year's holiday, this week's rather poor performance for Gold prices could be tied to a lack of physical Gold buying out of Asia. China trails only India in annual physical Gold consumption, so the lack of a major global Gold buyer in the market this week appears to be weighing rather heavily on cash market activity.

Technical Notes

Looking at the daily chart for April Gold, we notice the recent price sell-off began to accelerate once prices fell below the 200-day moving average (MA) on February 6th. In addition, the 20-day MA is in the process of crossing below the 200-day MA, which is viewed as a bearish signal by many technical traders. Since that time, we have seen the market fall by nearly $50 per ounce, with the market preparing to test support at 1200.00 per ounce. The 14-day RSI has turned weak, but has yet to move to oversold levels, with a current reading of 40.00. The recent low of 1197.20 is now seen as near-tem support for the April futures, with resistance found at the 200-day MA, currently near the 1252.00 price area.

Mike Zarembski, Senior Commodity Analyst


February 19, 2015

Can Cocoa's Hot Streak Continue?

Thursday, February 19, 2015

Cocoa futures have started the month of February on a hot streak, posting gains in 10 of the first 11 trading sessions this month. Improved demand expectations, coupled with lower supply outlook has helped propel the Cocoa market. There is optimism that demand from emerging market countries and China will continue to climb with wage inflation. After starting the month at such a fast pace, can Cocoa keep this pace up? The fundamental outlook certainly offers traders hope that prices may continue to climb, however technically overbought conditions could slow Cocoa's ascent.

Fundamentals

Traders are expecting the main crop, which runs October through March, to equal last year's crop. This will fall short of the average estimate, which was looking for increased output. The crop main crop started the season on a sour note, as heavy rains in August and September caused an outbreak of black pod disease. The rains accelerated the spread of the disease by splashing spores from tree to tree. The rains also contributed to an insect infestation, which also did damage to Cocoa trees. Despite this slow start, farmers were counting on a strong finish in the second half of the growing season to more than offset the dismal start. The Harmattan desert winds were much harsher than expected, leading to extremely dry conditions. Despite these difficulties, traders were still holding out hope that the main crop would exceed last year's 1.2 million tonne harvest. This year's mid crop, which runs April through September, is expected to fall short of last year's figure, resulting of a smaller output for the crop year. However, hot weather and rains in most of the Soubre region of the Ivory Coast are offering farmers hope that the mid-crop could be better than previously hoped. This is the dry season for the Ivory Coast and farmers are hoping for at least one good rain a week through March to encourage a healthy flowering.

Technical Notes

Turning to the chart, we see the March Cocoa contract closing in on a possible test of the 3000 resistance level. Prices have already moved above the 20-, 50- and 100-day moving averages, which can be seen as bullish. The next moving average of significance is the 200-day average ,which is near the 3000 level. Prices are in an area of heavy chart congestion. This, coupled with overbought technical conditions, could result in sluggish price action moving forward. The RSI indicator is currently giving a 86.7 percent reading, which can be viewed as significantly overbought.
Rob Kurzatkowski, Senior Commodity Analyst


February 23, 2015

Strong Dollar Hurts U.S. Wheat Sales

Monday, February 23 2015

A sharp decline in grain prices this year may cause U.S. producers to cut overall planted acreage for major cash crops. At the Agricultural Outlook Forum, the USDA has projected that planted acreage will fall by 3.3 million acres to 254.6 million acres. If accurate, it would be the lowest total planted acreage in 4 years. Traders will get the first estimate of planted acreage based on producer surveys when the USDA releases its Prospected Plantings report on March 31.

Fundamentals

2015 is shaping up as a difficult year for U.S Wheat producers as the continued strength in the value of the U.S. Dollar (USD) has significantly hurt Wheat exports. Since the start of the 2014-15 marketing year on June 1, U.S. Wheat export sales have totaled about 20.7 million tons. This is down nearly 25% from the same period last season. One of our biggest U.S. Wheat buyers in the past ;Egypt, has moved elsewhere for its Wheat purchases of late, with only just over 96,000 tons sold so far this season, which is nearly 57% below last year's totals. In fact, Egypt recently cancelled a U.S. Wheat tender, despite receiving a rather large line of credit to purchase U.S. Wheat. Instead, it appears that they will turn towards Europe for their most recent Wheat purchase as the overall cost per ton is much less than that from the U.S. Going forward, with the U.S. on the verge of seeing an interest rate hike for the first time since 2006, and Europe seemingly stuck in a slow to no growth economic environment, continued strength in the USD shows few signs of slowing, which may contribute to more international Wheat buyers turning to Europe and away from the U.S. and Russia for their imports.

Technical Notes

Looking at the daily chart for March Wheat, we notice prices closing sharply lower on Friday closing near the lows for the week. It appears that selling pressure accelerated once the market moved below the 20-day moving average. The 14-day RSI was only able to reach a neutral 50 reading on the recent rally, before ending the week at a rather weak 38.40. Support is seen at the recent low of 492.25, with resistance seen at the 2/17 high of 548.00.

Mike Zarembski, Senior Commodity Analyst


February 24, 2015

Gold Traders Focus on Yellen's Testimony

Tuesday, February 24 2015

Gold traders are anxiously awaiting to hear Fed Chairwoman Janet Yellen's testimony in front of the Senate Banking Committee. Market observers are looking for hints as to when the FOMC will raise interest rates. It is doubtful she will show the Fed's hand, but she may be painted into a corner by the Senators and reveal something. Gold has been under pressure in recent weeks due to speculation that the Fed will begin raising interest rates mid-year, which would likely curb inflationary pressures and could adversely impact growth. Dovish testimony from the Fed Chairwoman could give bulls a reprieve.

Fundamentals

Physical demand for Gold has been lackluster and has failed to inspire the bull camp. In China, the real savings rate (bank interest minus inflation) is steadily climbing, giving Chinese households less motivation to invest in Gold. China has been a major player in the Gold market in recent years and indications that household investment could be stalling is not good news for bulls. Now that an agreement has been reached on Greek debt, that cushion has disappeared for Gold traders. The Russian/Ukrainian situation had failed to offer a downside buffer to the precious metals market. The same can be said for President Obama's pledge to step up military action versus ISIS. Investors have been saturated with news on both fronts, so traders may be a bit indifferent to fresh news, barring a major escalation. In the near-term, Gold may be more sensitive to currency fluctuations and interest rate speculation rather than geopolitical events.
Technical Notes

Turning to the chart, we see the April Gold contract trading near the 1200 mark over the past several sessions. Given the preceding down move in the market over the past month to month and a half, the bias seems to be to the downside out of this consolidation. Prices could test 1175 on the downside or, possibly, even the 1150 level. The recent breakdown below the major moving averages sets a negative tone for the market. The result of recent price declines has been oversold conditions on the RSI indicator, which may offer some support for prices.

Rob Kurzatkowski, Senior Commodity Analyst

February 25, 2015

Brazilian Rains Soak Sugar Prices

Wednesday, February 25, 2015

Sugar traders may want to keep an eye peeled on a price chart of the Brazilian real, as continued weakness in this currency could trigger increased supplies of Sugar entering the world market. Brazilian Sugar producers have an incentive to sell Sugar as the real weakens, as producers receive foreign currency for their Sugar exports. The conversion of dollars, euros and pounds that are received, for example, can then be converted into increasing amounts of reals as the Brazilian currency falls in value vs. these major currencies.

Fundamentals

Sugar prices have been mired in a nearly 4-year bear market, as a global Sugar surplus continues to weigh on prices. The news continues to get worse for Sugar bulls looking to find a price bottom, with India announcing last week that it would begin to subsidize Sugar exports in an effort to help domestic Sugar mills increase sales and help to alleviate difficulties generating sufficient cash flow to pay cane producers. On top of the prospects of increased Indian exports in an already saturated market, weather forecasts are calling for much needed rainfall in the Sugar producing regions of Brazil, which is the global leader in Sugar Cane production. While the near-term outlook for Sugar prices remains negative, there are some signs that prices may find some support from the outlook for potentially lower production out of the European Union and India this coming season. The potential for improving margins for Ethanol production in Brazil could see increasing amounts of cane being used for fuel production, which could help to tighten Sugar supplies in the coming months.

Technical Notes

Looking at the daily chart for May Sugar, we notice prices falling to a new contract low on Monday, on follow-through selling from the weak close the previous week. Some of the weakness seen in the May futures could stem from the rollover of the soon-to-expire March contract. The 14-day RSI is weak, with a current reading of 34.31. 14.00 looks to be the next support level for the May futures, with resistance found at the February 17th high of 15.19.

Mike Zarembski, Senior Commodity Analyst

February 27, 2015

Supply Glut Continues

Friday, February 27, 2015

Crude Oil futures continue to consolidate, despite large supply increases. Some of the supply glut can be attributed to refinery outages and poor weather conditions affecting transport. This can also at least partially be attributed to statements from Feed Chairwoman Janet Yellen. In her testimony in front the Senate Banking Committee, she had indicated that, while the FOMC is leaning toward a rate hike in the next few meetings, the committee will not force through higher rates if economic conditions do not warrant doing it. In all, Yellen's wording in front of the committee proved to be carefully chosen to not jolt the markets.

Fundamentals

For the seventh week in a row, Crude Oil supplies had a large increase. According to the EIA, Oil inventors had climbed 8.43 million barrels on the week to 434 million barrels. Production also increased to 9.72 million barrels a day, which is the highest production level since 1972. The increases in production, however, have been slowing, which traders viewed bullishly. As previously alluded, the supply glut in Crude Oil is very real, but has been somewhat artificially inflated in recent weeks due to weather conditions. Saudi Arabia's Oil Minister indicated that he believes that demand for Oil will ramp up naturally. Kuwait's oil minister said this month that the surplus in global crude supply is less than the 1.8 million barrels a day. For this reason, he believes that Oil will recoup its losses. Demand has been steadily increasing and rose by 2.2 million barrels a day in December.

Technical Notes

Turning to the chart, we see the April Crude Oil contract showing some possible bullish signs. The RSI indicator bottomed before prices made the most recent relevant low, which hints that prices could reverse trend. Also, the 20 and 50- day moving averages may be on the verge of crossing over to the upside. The chart shows prices consolidating and, possibly, could be in the midst of forming a rounded bottom..

Rob Kurzatkowski, Senior Commodity Analyst