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May 2017 Archives

May 3, 2017

Grain Prices Rally on Spring Weather Concerns

Wednesday, May 3, 2017

Today's Spotlight Market

A spring storm that brought cold and snow to parts of the Plains, could cause analysts to lower their estimates for Hard Red Winter (HRW) Wheat production this season. Some early estimates are looking for potential production losses of near 100 million bushels although actual production losses will not be known until harvest. Traders will be paying particular attention to reports from the Wheat Quality Council's Kansas crop tour which starts this week for on the ground reports on how the Wheat crop is fairing in the largest HRW Wheat production state.

Fundamentals

Grain prices got a boost to start the week, as below normal spring temperatures combined with strong weekend storms in the Plains and Corn Belt are expected to slow Corn and Soybean plantings. In addition, a spring snow storm in the Central Plains with heavy snow and strong winds may have caused irreversible damage to a small portion of the Winter Wheat crop. While it is still too early to know the extent of any damage to the Wheat crop and there is still plenty of time for producers to get back in the fields to continue their Corn and Soybean plantings should we see drier weather conditions in the next several days, the market's reaction to any potential issues may be magnified by the large net-short positions being held by large commodity funds. The short position in Chicago Wheat futures is particularly large, standing at a net-short 143,292 contracts as of the most recent Commitment of Trader's report. While commodity funds are also largely net-short both Corn (net-short 123,048 contracts) and Soybeans (net-short 38,371 contracts), Wheat futures have the best potential to see an increase in price volatility should conditions warrant the covering of this historically large speculative short position.

Technical Notes

Looking at the daily chart for July Chicago Wheat futures, we see prices running into resistance near the 455.00 to 460.00 price area following a nearly 30-cent rally from last weeks close due to crop damage concerns following strong storms over the weekend. Prices were already holding above the 20-day moving average but have just recently moved above the longer-term 200-day moving average for the first time since early March. The 14-day RSI has strengthened but remains below overbought levels with a current reading of 63.29. Tuesday's high of 461.50 looks to be the next resistance level for the July futures, with support seen at the 20-day moving average, currently near the 436.50 price level.

Mike Zarembski, Senior Commodity Analyst



May 5, 2017

Slow but Steady Jobs Growth Expected in April

Friday, May 5, 2017

Today's Spotlight Market

The following are the pre-report estimates for this morning's release of the Non-farm Payrolls and Unemployment data for April:

Non-farm Payrolls: 185,000 estimate vs. 98,000 March

Unemployment Rate: 4.6% estimate vs. 4.5% March

Ave. Hourly Earnings: +0.3% estimate vs. +0.2% March

Average Workweek: 34.4 hours estimate vs. 34.3 hours March

Fundamentals

Traders and analysts are expecting a rebound for U.S. employment in April following a very disappointing 98,000 jobs created in March. Current estimates are for 185,000 jobs being created last month which is more in line with the average monthly job growth the past 12 months. Several economists believe March's jobs figure was an anomaly, caused by weather issues in many parts of the country. While there is some concerns about the slowing economic growth seen in the first quarter of the year, it appears that the Federal Reserve is not overly concerned that this is the start of slowing growth trend and in fact appeared poised resume raising interest rates as possibly as early as the June Federal Open Market Committee Meeting that ends on June 14. The private employment report issued by payrolls processer ADP showed that 177,000 private sector jobs were created in April with the service providing sector accounting for 165,000 on the newly created jobs last month. While the Professional and Business service sector led last month's jobs increase at +72,000, even the widely watched manufacturing sector showed a gain of 11,000 jobs in April. While there can be significant differences in the ADP jobs data when compared to the U.S. Government's data on a month to month basis, the overall trend does tend to correlate over the long term, so it appears that the U.S. economy is continuing to produce jobs in a slow but steady growth pace.

Technical Notes

Looking at the daily continuation chart for Ultra Bond futures, which are futures based on U.S. Treasury Bonds with remaining terms to maturity of no less than 25 years, we notice prices have been trading in an approximate 10-point range since mid-November of last year. The lead month June futures briefly traded above 165-00 in April, in what now appears to be nothing more than a "bull trap" as prices quickly retreated and are now back within the recent trading range. Prices are now currently trading below both the 20 and 200-day moving averages and the 14-day RSI has weakened and is now at a more neutral level of 44.97 as of this writing. Chart support is seen at the March 31 low of 159-24, with resistance seen at the April 18 high of 166-18.

Mike Zarembski, Senior Commodity Analyst



May 10, 2017

Grain Market's Quiet Ahead of USDA Report

Wednesday, May 10, 2017

Today's Spotlight Market

Here are the pre-report estimates for the May USDA Crop Production & Supply/Demand report:

U.S. Corn Stocks: 2.320 billion bu. (2016-17) 2.100 billion bu. (2017-18)

U.S. Soybean Stocks: 440 million bu. (2016-17) 572 million bu. (2017-18)

U.S. Wheat Stocks: 1.160 billion bu. (2016-17) 974 million bu. (2017-18)

World Corn Stocks: 223.5 mmt. (2016-17) 208.5 mmt. (2017-18)

World Soybean Stocks: 87.6 mmt. (2016-17) 87.2 mmt. (2017-18)

World Wheat Stocks: 252.0 mmt. (2016-17) 244.0 mmt. (2017-18)

U.S. Winter Wheat Production: 1.325 billion bu. (2017-18) vs. 1.672 billion bushels (2016-17)


Fundamentals

Grain traders have been in a selling mode since the surprise up-move in prices on May 1, following a weekend when strong storms occurred over much of the Midwest and Great Plains causing some crop damage to the Winter Wheat Crop as well as caused a delay in plantings for both Corn and Soybeans. The main reason for the negativity for both Grains and Soybeans is mainly due to ample global supplies. Traders and analysts will get an update later this morning from the USDA on both U.S. and World grain supplies when the USDA releases data from its May crop production and Supply/Demand report. While the USDA is expecting lower global Corn, Wheat and Soybean stockpiles for the upcoming 2017-18 crop season, large global old-crop inventories, particularly for Wheat and Corn, are keeping any price rally attempts in check, despite what looks like lower U.S. Corn and Wheat production this coming season. While world Soybean inventories are tighter than that for Corn or Wheat, the prospects for potentially record Soybean production out of South American as well as expectations for a record amount of Soybean acreage to be planted by U.S. producers this spring is sparking a negative bias for Soybean prices. While we did see some short-covering by large speculative accounts and commodity funds the past week, especially in Chicago and Kansas City Wheat, according to the most recent Commitment of Trader's report, non-commercial traders are still heavily short Corn, Soybeans and Chicago Wheat futures, so any "bullish" surprises in the USDA data could potentially trigger an out-sized price reaction if additional short-covering buying emerges.

Technical Notes

Looking at the daily chart for Hard Red Winter or K.C. Wheat futures, we notice that the chart gap created from the sharp price rally on May 1 has finally been closed during Tuesday's trading session. Non-commercial traders actually turned net-long in both K.C. and Minneapolis Wheat the past week, but this small net-long position may have been liquidated this week as last week's rally appears to have been a "bull trap". Prices have fallen below the 200-day moving average (MA) once again but have, so-far, held above the 20-day MA. The 14-day RSI has weakened the past week but is still reading a neutral 48.72 as of this writing. We see major chart support at the April 21 low of 411.25, with major chart resistance seen at the May 2 high of 474.75.

Mike Zarembski, Senior Commodity Analyst



May 12, 2017

Is Oil Price Rally Sustainable or Short-covering?

Friday, May 12, 2017

Today's Spotlight Market

On Wednesday, Energy Information Administration's weekly stocks report showed U.S. Oil inventories fell by 5.247 million barrels during the week ending May 5. This brings U.S. Oil inventories down to 522.525 million barrels. While this was the 6th consecutive weekly decline for Oil inventories, U.S. Crude stocks remain over 14 million barrels above last year's levels and a whopping 112 million barrels above the 5-year average. Crude products such as Gasoline and Distillates are seeing tighter inventories, with Gasoline inventories only a bit over 500,000 barrels above last year's total and Distillates inventories down over 6.5 million barrels from last year.


Fundamentals

After a brief decline below $44 per barrel last week, the lead month June Crude Oil futures have rallied over $4 per barrel during the past 5 trading sessions, as signs that OPEC production cuts may actually be occurring along with a lower than expected draw in U.S. Crude inventories last week provided traders evidence that a global Oil glut may be dissipating. To be fair, we do note that Oil prices appeared to have become oversold by looking at the daily chart as well as momentum indicators such as the 14-day relative strength index (RSI), so the recent pop in prices may end up being nothing more than a short-covering bounce. However, we have seen U.S. refining rates running over 2 % above the 5-year average for this time of year, and with the "official" start to the summer driving season during the Memorial Day weekend a little over 2-weeks away, we may see refiners continue to ramp-up oil demand to assure adequate supplies of fuel going into the summer.

Technical Notes

Looking at the daily chart for the lead month June Crude Oil futures, we notice the market making a strong reversal following a move to new 5 ½ month lows on May 5. Since that time, the June futures rallied from a low of $43.76 to $48.22 in 5 trading sessions in what appears to be a bout of short-covering buying. We do note that trading volume has started to trend lower during the recent rally, and a look at the daily chart shows some significant resistance between the $49 and $50 price levels, including the 20-day moving average which is hovering at 49.06 as of this writing. The 14-day RSI has rebounded from oversold levels and is approaching neutral territory with a current reading of 44.16. Major chart support is seen at the May 5 low of 43.76, with chart resistance found at the April 24 high at 50.22.

Mike Zarembski, Senior Commodity Analyst



May 19, 2017

"Nothing to See Here Folks"

Friday, May 19, 2017

Today's Spotlight Market

Treasury Bond futures rallied sharply in contrast to the sell-off on Wall Street on Wednesday, as potential political issues in the U.S. as well as Brazil were given as catalysts for investors moving assets from Equities to Bonds. However, some solid economic data on the labor front, with weekly jobless claims declining and data from the Philadelphia Fed that the manufacturing sector in the region was strengthening, could convince the Fed that another interest rate hike at the June Federal Open Market Committee Meeting may be justifiable. A look at the daily chart for Treasury Bond futures shows the market in a consolidation phase similar to that for the S&P 500, so while the Bond market rally on Wednesday was the largest in nearly a year, no overall change in technical picture for the market occurred.

Fundamentals

While the financial news media was in a frenzy on Wednesday as the U.S. equity market finally had a up-move in volatility, with the S&P 500 down over 40 points for the session, a look at the "big picture" shows the market continuing to trade in a rather narrow price band that began back in February of this year. Whether continuing concerns regarding Russia's involvement in the U.S. Presidential elections or fears that the business-friendly agenda from the Trump administration will face difficulties being implemented due to the wide divide between Republicans and Democrats on Capitol Hill were behind the sell-off on Wednesday or not, ultimately the equity markets will look towards how corporate earnings are faring as well as the trajectory for economic growth. What is more likely the case for Wednesday's sell-off is that the market was in need of a long overdue correction, which happened to occur on the day following a move to new all-time highs for the S&P on a rather light volume trading day. So until we see prices trade below some key technical levels, such as the 200-day moving average or the uptrend line drawn from the 2009 lows, there is still scant evidence that the over 9-year bull-market run is ready to call it quits.

Technical Notes

Looking at the daily continuation chart for the E-mini S&P 500 futures, we note that Wednesday's sell-off took the market below the 20-day moving average for the first time in nearly a month and prices closed the chart gap that occurred on April 24 following the first round of the French election. The price decline took the 14-day RSI from readings above 60 to a much weaker 43.01 as of this writing. The next major support level is seen at the March 27 low of 2317.75, with major resistance found at the contract high of 2404.50 made on May 16.

Mike Zarembski, Senior Commodity Analyst



May 23, 2017

OPEC Set for Production Cut Extension, but Will it Be Enough?

Tuesday, May 23, 2017

Today's Spotlight Market

Crude Oil futures started the week after it appears OPEC will agree to extend production cuts for another nine months. Iraq was viewed as a dissenter to the extension, but now seems on board with the rest of the Oil group after meeting with the Saudi Oil minister. Getting Iraq to agree to extend the 1.2 million barrel a day reduction was viewed as a hard sell by many, as the country has invested a great deal to restore production. The fact that it appears to have agreed to a nine-month extension instead of the six months OPEC was looking for seems to have gotten the attention of Oil traders. OPEC members will vote on the deal on Thursday.

Fundamentals

Many view the extension of OPEC production cuts as necessary to support Crude Oil prices. The question remains whether or not removing 1.2 million barrels a day from the market is enough to maintain stronger Oil prices. Baker Hughes reported that US Oil rigs rose by 8 to 720 for the week ended May 19th. The US Crude Oil rig count has risen 43 times in the last 46 weeks, with rigs reaching their highest level since April 17, 2015. If the rig count continues to rise at its current pace, the OPEC production cuts may not matter in the grand scheme of things.

Technical Notes

Turning to the chart, we see the July Crude Oil contract continuing to rebound after briefly trading below the 45.00 level. Yesterday's price action could be viewed as a shooting star doji. If this is the case, price could potentially be in store for a reversal. If prices do, in fact turn lower, it could be a bearish turn of events for the Oil market, as it would mark a lower low and lower high. The RSI indicator is nearing overbought territory, which could be seen bearish, near-term.

Rob Kurzatkowski, Senior Commodity Analyst



May 24, 2017

Back to Where We Started

Wednesday, May 24, 2017

Today's Spotlight Market

Right now it appears that the Cotton market is in a battle between speculative bulls and commercial bears, as both parties added to their existing positions the past week. According to the most recent Commitment of Traders (COT) report, for the period ending May 16, non-commercial and non-re-portable traders added over 11,000 new net-long positions during the reporting period. Commercial traders were on the other side of the trade, adding over 11,000 new net short positions during the same period. Because of price declines seen this past week, we would expect to see the overall net-positions of all participants contract somewhat, but we will not know the full extent until this Friday afternoon when the next COT report is released.

Fundamentals

Cotton prices soared following the USDA May Crop production report on May 10, with the market making several limit price moves, only to see the rally crumble late last week. The reason cited for Cotton's initial price surge was strong U.S. export the past several months, which could see U.S. old-crop Cotton inventories becoming very tight ahead of this season's harvest. It does appear that the strong price rally caused some large Cotton bears to cover positions and, in turn, trigger additional buying by momentum based trend following systems which may have exaggerated the extent of the price move, as the July contract jumped over 10-cents per pound in only three trading sessions. However, once the short-covering/systems buying ran its course, many traders looked at the rally as a selling opportunity, with the prospects for large new-crop production this season, which may discourage Cotton buyers from purchases in the coming weeks in hopes that large new-crop supplies will result in lower prices later this year. In fact, we have started to see some cancelled purchases from both China and India the past week, so we could already be starting to see some signs that buyers are willing to be patient for lower prices before committing to purchases. As we prepare for the growing season to commence in earnest, we note that U.S. Cotton plantings are running in line with the 10-year average of 53% completion and are slightly ahead of last year 45% planted. Of course any major shifts in weather conditions can spark a renewed surge in price volatility in either direction, so last week's large price moves could be a hint of things to come this growing season.

Technical Notes

Looking at the daily chart for July Cotton futures, we notice how quickly the parabolic price move was extinguished, and now prices are back in line with where the market was trading prior to the USDA May crop report. While the recent price rally did not hold, the Cotton market is still in an overall bullish trend, with prices currently above both the 200-day moving average as well as the uptrend line drawn from the major low created back in September of last year. Near-term momentum, however, favors Cotton bears, as prices are below the short-term 20-day moving average and momentum as measured by the 14-day RSI has weakened from overbought levels and now reads a rather neutral 44.85 as of this writing. The next major support level is seen at the May 11 low of 76.17, with chart resistance seen at the May 15 "spike" high at 87.18.

Mike Zarembski, Senior Commodity Analyst



May 25, 2017

Will Demand Weigh on Gold?

Thursday, May 25, 2017

Today's Spotlight Market

Gold futures have edged higher in early trading, supported by a weaker Dollar Index and geopolitical cues. The greenback has had a rough go of late due to the fact that the Trump administration has had a difficult time getting economic initiatives through. Traders have moved away from the Dollar on concerns that the proposed tax reform, deregulation and infrastructure spending plans could be derailed. There are also uncertainty over whether or not the administration's Russian ties, along with the firing of FBI Director James Comey, could lead to further issues for the administration have bolstered Gold prices.

Fundamentals

Gold continues to receive bullish news from outside markets and geopolitical events. OPEC has agreed to extend production cuts for another 9 months, the Macron election victory in France (bolstering the Euro) and the North Korean standoff have made the case for Gold as a safe haven investment. However, the 800 lb. gorilla in the room is physical demand for the metal. Demand dropped by 18% in Q1 2017 from the same period last year, according to the World Gold Council (WGC). The WGC did note that this could be skewed by the "strongest ever first quarter in 2016." Indian demand was very strong in Q1, rising 15% over the year earlier. Many analysts, though, expect the country's overall demand to be in line with last year, which could mean a letdown in the second half of the year.

Technical Notes

Turning to the chart, we see the June Gold contract trading around the 1250 level, which is the midpoint for the recent trading range and previous resistance. Prices could remain in the 1200-1300 range over the near-term. The RSI indicator has moved to overbought territory, which could put some pressure on Gold prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst



May 26, 2017

OPEC Announces Production Cuts, but Oil Prices Fall

Friday, May 26, 2017

Today's Spotlight Market

While not affected directly by the OPEC production agreement, Natural Gas futures prices fell to 2-week lows on Thursday, as unseasonably cool temperatures led to higher than anticipated Gas storage injections the past week. The Energy Information Administration reported on Thursday that 75 billion cubic feet (bcf) of Gas was put into storage last week, which was on the high side of pre-report estimates. While gas storage levels are 371bcf below the totals seen this time last year, we are still nearly 11% above the 5-year average, and it appears that supplies are more than ample as we head into the summer cooling season.

Fundamentals

It appears that energy traders were not impressed with an agreement between OPEC members and several non-OPEC Oil exporting nations to extend Crude production cuts for 9 additional months. Oil prices had already rallied nearly $8 per barrel from early-May lows on the anticipation that OPEC would continue to try to support Oil prices by controlling Crude output by cartel members. However, it appears that market participants were hoping for additional cuts to production levels and not just extending current production levels into the future. The lead month July Crude Oil futures contract saw price declines over 4.5% following the announcement, on what may have been an exaggerated price move due to the market having already rallied sharply the past couple of weeks. Oil products also sold-off on Thursday, but the declines were more muted, as U.S. fuel demand should increase as we head into the start of the peak summer driving season over the Memorial Day Holiday weekend. Longer-term, it appears that OPEC may need to cut-production even further to help curb global Oil supplies, as production from U.S. shale producers is showing no signs of slowing, especially as technological improvements in drilling are lowering the overall costs of production, which could keep U.S. Oil production at high levels even if futures prices continue to drift lower.

Technical Notes

Looking at the daily chart for June RBOB Gasoline futures, we notice the 200-day moving average acting as resistance, as prices failed in two consecutive tests of this long-term indicator. We also notice how trading volume declined as prices rose from the early May lows, which is a potential indicator that the recent rally primarily was due to short-covering buying and not as much new long positions being established. Momentum as measured by the 14-day RSI has weakened somewhat but is still reading a neutral 50.25. Wednesday's high of 1.6750 appears to be the next chart resistance level for the June futures, with chart support found at the May 18 low of 1.5597.

Mike Zarembski, Senior Commodity Analyst