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Wheat Market Commentary – 2009.06.22

by on June 22, 2009

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NEAR-TERM MARKET FUNDAMENTALS: Wheat continues in its sharp downtrend with traders indicating that a variety of fundamental and technical factors are lining up to push prices lower. Generally favorable harvest weather and soft export sales come at a time of improving crop prospects in Australia and a slight improvement moisture levels in some areas of drought-stricken Argentina over the weekend. A setback in crude oil and a slight firming trend in the dollar are also having a spillover negative effect from corn according to one trader. The Commitments of Traders Report for the week ending June 16th showed that funds were net sellers overall in wheat. Index funds were net buyers of 2,877 contracts while trend-followers were net sellers of 7,207. This increased the trend-followers’ net short position to nearly 22,000 contracts which is halfway back to their recent record large net short position of over 44,000 contracts. The winter wheat harvest advanced well into Kansas last week with some disappointing yields reported along with favorable test weights. Most hard red and soft red winter wheat harvest areas are expected to remain dry for the remainder of the week. Wheat prices were down again last week in Russia as importers appear to be awaiting the start of harvest according local sources. Harvest is expected to start in southern Russia in a few days. India is expected to allow the export of near 650,000 tonnes soon as the government buffer stocks reached a record 24.4 million tonnes as of mid-June. An Israeli group is tendering for 35,000 tonnes of feed wheat.

CASH NEWS AND TENDERS: An Israeli group is tendering for 35,000 tonnes of feed wheat.

WEATHER: Rain continued through the weekend from the NW corn and soybean belt into the north central Midwest. The next three days are expected to bring added rain with the heaviest amounts centered on northern Iowa and southern Minnesota and more moderate amounts blanketing the rest of Iowa, all of Wisconsin and the NW corn and soybean belts as well as much of Illinois and Indiana and on into parts of Kentucky and Tennessee. Ninety degree temperatures are expected today in all of the western Corn Belt and most of the NW as well as most of Illinois and the mid south and all of the Delta. The hot weather is expected to shift gradually east tomorrow and cover all of the Midwest by Wednesday. Longer term forecasts have largely eliminated the possibility of a hot weather “dome” over major growing areas. Most harvest areas are expected to be dry and warm to hot this week for both the hard and soft red wheat belts.

TODAY’S GUIDANCE: The sharp downtrend was extended into the overnight session with soft export sales and harvest progress keeping the pressure on from a fundamental standpoint. Trend-following funds seem to be signaling their intent to move back to a large net short position, and there is nothing in the fundamentals at this point to stop them. Tentative support is at 600 in the December contract today with added support at 595 and 575. Resistance is at 611 3/4 and near 624 and 630.

TODAY’S MARKET IDEAS: The market is still due for a short term bounce, but if funds remain sellers, we can push all the way down to the March-April lows without one.

Soybean Market Commentary – 2009.06.22

by on June 22, 2009

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NEAR-TERM MARKET FUNDAMENTALS: Traders said that outside markets and generally favorable crop weather sent the complex lower overnight. A shift in the longer term weather forecast has taken out the hot air dome that some had expected to settle over the corn and soybean belt during the last week of June and early July. Instead, forecasts call for normal to slightly above normal temperatures with continued rain over the shorter term centering on NW growing areas. The Commitments of Traders Report for the week ending June 16th featured very heavy net selling by trend following funds in soybeans and soy oil which added to the negative tone. In Soybeans, index funds were net buyers of 1,680 contracts while trend-followers were net sellers of 10,652. In soybean oil, index funds were net buyers of 3,594 contracts while trend-following funds were net sellers of a whopping 20,433 contracts. This pushed the trend followers over to a net short position of 13,510. In meal, large non-commercial traders were net sellers of just 163 contracts to maintain their large net long position at over 54,000 contracts. China plans to scrap export taxes on soybeans, wheat and rice after July 1st. This is part of a general loosening policy that has been discussed in recent weeks by various officials and think tanks. It has included the idea that China might begin to sell some of its strategic reserve of corn, possibly by July and more likely by August. Malaysian palm oil exports for June 1-20 fell 4.1% from a similar period in May. Ideas that producers might have planted 2-4 million “extra” acres above the March intensions report, weakness in outside markets and China demand uncertainties are factors which helped pressure.

WEATHER: Rain continued through the weekend from the NW corn and soybean belt into the north central Midwest. The next three days are expected to bring added rain with the heaviest amounts centered on northern Iowa and southern Minnesota and more moderate amounts blanketing the rest of Iowa, all of Wisconsin and the NW corn and soybean belts as well as much of Illinois and Indiana and on into parts of Kentucky and Tennessee. Ninety degree temperatures are expected today in all of the western Corn Belt and most of the NW as well as most of Illinois and the mid south and all of the Delta. The hot weather is expected to shift gradually east tomorrow and cover all of the Midwest by Wednesday. Longer term forecasts have largely eliminated the possibility of a hot weather “dome” over major growing areas.

TODAY’S GUIDANCE: Outside markets and a sharp sell off in corn overnight helped to push the November soybean contract below last week’s lows and extend the break in meal and old crop soybeans. However, weakness in the complex is somewhat minimal to start the week compared to corn and wheat, and this is due to the tight supply situation in old crop soybeans. It may also be due to the fact that the spring rally in soybeans was based almost entirely on the tight supply outlook and not on a weather premium as was the case in corn. Near term support in the November contract is at 979 1/2 with next support at 970 1/2 and 960. Near term resistance is at 1004 1/2 and at 1020.

TODAY’S MARKET IDEAS: A combination of increased planted area and a good start to the growing season could spark long liquidation selling ahead for new crop soybeans. Selling resistance for November soybeans moves down to 1008 and 1020 1/2 with 979 and 941 3/4 as next objectives. Consider selling futures on a minor bounce. Option traders can look to sell November soybeans, sell the November 940 put near 63 cents and buy the Nov 1000 call at 84 cents. December meal downside projections are at 299.20 and 286.00.

Corn Market Commentary – 2009.06.22

by on June 22, 2009

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NEAR-TERM MARKET FUNDAMENTALS: Outside markets and favorable crop weather pushed the corn market substantially lower overnight according to traders. Although some analysts are predicting an acreage number below the USDA’s current total of 85.0 million acres on the June 30th Acreage Report, one analyst noted that improving weather could also potentially result in a boost in the USDA’s projected yield per acre on their subsequent July Supply/Demand Report. Excess rain continues to be a problem in parts of the central and north central Corn Belt with moderate unwelcome rains forecast in the area over the next three days. However, warmer temperatures are boosting crop prospects and weather forecasts are largely eliminating last week’s expectations of a dome of very hot air settling in over the Midwest during the last week of June and into early July. The Commitments of Traders Report for the week ending June 16th showed that funds were large-scale sellers overall. Index funds were net buyers of 7,301 contracts while trend-following funds were sellers of a whopping 40,590 contracts to decrease their net long position to just under 92,000 contracts. South Africa reports that its corn stocks at the end of its 2008/09 marketing year stood at 1.585 million tonnes, up from 1.049 million at the end of the 2007/08 marketing year.

WEATHER: Rain continued through the weekend from the NW corn and soybean belt into the north central Midwest. The next three days are expected to bring added rain with the heaviest amounts centered on northern Iowa and southern Minnesota and more moderate amounts blanketing the rest of Iowa, all of Wisconsin and the NW corn and soybean belts as well as much of Illinois and Indiana and on into parts of Kentucky and Tennessee. Ninety degree temperatures are expected today in all of the western Corn Belt and most of the NW as well as most of Illinois and the mid south and all of the Delta. The hot weather is expected to shift gradually east tomorrow and cover all of the Midwest by Wednesday. Longer term forecasts have largely eliminated the possibility of a hot weather “dome” over major growing areas.

TODAY’S GUIDANCE: The corn market and crop weather are largely following the pattern seen during last year’s planting and growing season. Both years saw a run up in prices into May and June based on wet weather and late planting. This was followed last year by a sharp setback once the crop was finally planted and it became clear that growing conditions were very favorable. The major differences this year has been that the wet weather was farther east and the setback started earlier in the year and at a much lower level. Of course, last year the weather-related downtrend during summer was greatly extended by an economic panic in late summer and into the fall, and we do not expect a repeat of that part of the pattern. In fact, given the continued strong export sales in corn this year, and the fact that the recession is already priced into the market, we do not expect the sort of extended downtrend seen during the last half of 2008. The next support level is down near 390 in the December contract which is just below the lows of late April. Resistance is near 418 and then at 427 1/2.

TODAY’S MARKET IDEAS: The market is in the process of shedding the weather premium built up over the course of a wet spring. The possibility that trend-following funds might reverse course and become consistent net sellers in corn in coming weeks is a potentially major problem that could result in a test of the December lows. However, we expect to stop short of those lows and remain in a broad range between 396 on the low end, and 450 to 460 on the high end in the December contract.

Gold Market Commentary – 2009.06.18

by on June 18, 2009

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OUTSIDE MARKET DEVELOPMENTS: With the Dollar a touch higher this morning, it is not surprising to see a bit of early divergence between gold and silver prices. With global equity markets not giving off definitive direction overnight and UK retail sales data somewhat soft overnight, physical commodities in general seem to be facing some minor macro economic adversity. With the US initial claims figures expected to forge a minimal rise later this morning, the fear of slowing looks to remain in the headlines in a number of markets. However, as the US data flow progresses today, it is possible that the outlook for the US might improve slightly, as the trade generally expects to see a positive leaders figure and an improvement in the Philly Fed readings. While the US Treasury Secretary is also scheduled to testify on financial reform this morning, there doesn’t seem to be expectations of a definitive link between the House testimony today and precious metals price action.

GOLD MARKET FUNDAMENTALS: The bull camp might be stirred by the early attempt to run above this week’s consolidation high zone of $940.6, but the bear camp will suggest that the market was unable to sustain that strength. Perhaps the initial strength was the result of favorable Indian demand talk overnight or perhaps even off favorable press coverage of solid gold bar sales through vending machines in Europe! Apparently the gold trade remains mostly uninterested in the status of talks between South African miners and the South African gold mining companies, but seeing the unions press for quicker results could be seen by some as a bullish development, as that could point to impatience and perhaps eventual conflict between the parties. However, the gold market has recently seemed to be somewhat focused on the ebb and flow of the economic outlook, which of late, seems to be tending more toward slowing than toward growth. It is also possible that gold is deriving a minimum amount of support this morning, from news that weekly Russian gold and currency reserves declined. However, with inflationary expectations seemingly tamped down in the wake of US inflation readings and general weakness in oil prices, it would seem like the inflation hawks are being undermined from a number of angles. Therefore, the action in the equity market and the action in the US Dollar both look to be dominating forces for the gold market today.

Silver Market Commentary – 2009.06.18

by on June 18, 2009

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OUTSIDE MARKET DEVELOPMENTS: With the Dollar a touch higher this morning, it is not surprising to see a bit of early divergence between gold and silver prices. With global equity markets not giving off definitive direction overnight and UK retail sales data somewhat soft overnight, physical commodities in general seem to be facing some minor macro economic adversity. With the US initial claims figures expected to forge a minimal rise later this morning, the fear of slowing looks to remain in the headlines in a number of markets. However, as the US data flow progresses today, it is possible that the outlook for the US might improve slightly, as the trade generally expects to see a positive leaders figure and an improvement in the Philly Fed readings. While the US Treasury Secretary is also scheduled to testify on financial reform this morning, there doesn’t seem to be expectations of a definitive link between the House testimony today and precious metals price action.

SILVER MARKET FUNDAMENTALS: Like the gold market, September silver did manage an upside thrust in the early morning action today, but the market was unable to sustain that pulse up move. It would seem as if lackluster sentiment toward the economy is undermining silver and a host of physical commodity markets this week, especially with headlines this week seemingly tamping down inflationary prospects. It also seems as if early strength in the US Dollar today served to deflate the initial attempt to rally in silver overnight. In the end, silver seems to be concerned that further evidence of slowing, or even ongoing weakness in equity prices will serve to downgrade the environment for silver. It also seems as if the final spin from the US monthly inflation report cycle has tamped down near term expectations for inflation and that in turn might be discouraging some silver bulls. With an ongoing pattern of fresh record holdings of silver held in trust, one might have expected the press to be carrying more stories about strong residual investment demand for silver, but instead the pattern of inflows toward silver derivatives is being given little attention.

Energy Market Commentary – 2009.06.18

by on June 18, 2009

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CRUDE OIL MARKET FUNDAMENTALS: Crude oil has seen a two sided trade overnight, at times trading higher with some light price support coming from bullish industry news, signs of rising global fuel demand and geopolitical supply side risk. However, the upside in crude oil is being limited by the outside market action including a firmer Dollar and generally weak trade in global equity markets which is starting to pressure crude oil ahead of the US session. If the currency action stays bearish and US equities slump, we suspect the bear camp in oil will gain more control. Aug crude oil has seen a recovery from a break below the $70 per barrel level yesterday as the bearish implications of a jump in gasoline stocks is being somewhat offset by the EIA report showing a much larger than expected 3.8 million barrel drop in crude oil supplies and a rise in gasoline demand. But the bullish oil stock data hasn’t been enough to provide lasting price support. Oil prices also seemed to get some tentative support overnight from news of rising fuel demand in China. Seeing the World Bank raise its estimate for China’s economic growth along with another attack by Nigerian militants disrupting oil flows also lent some early support to oil prices. But macro economic doubts have surfaced this week which is calling into question whether crude oil can sustain these higher price levels which seem to some traders to be out of line with the market’s current fundamentals. We suspect the oil market may need a fresh dose of macro economic optimism along with a further slide in the Dollar to support the next leg higher in oil. Although the oil market has shown remarkable resiliency to negative news, today’s report on jobless claims, regional manufacturing and leading indicators could certainly provide a fresh incentive for traders to book profits. Also, the market’s technical overbought condition still leaves Aug crude oil vulnerable to a downside break. Support for Aug crude oil comes in at $70.85 then near $69.91 with resistance at $72.43 then $72.93.

GASOLINE: August gasoline has slipped back after an earlier attempt to move higher. The EIA report showing a much larger than expected 3.3 million barrel jump in gasoline stocks due in part to higher imports, has dampened bullish sentiment a bit since it reduces some of the recent concern over tightening supplies. On the other hand, seeing US gasoline demand up 1.1% over the past four weeks compared to year ago does suggest summer driving demand is picking up despite the rise in retail pump prices and that may limit the selling interest in gasoline to a certain extent. But in order for Aug gasoline to move into a higher price zone above the $2.10 per gallon level, we suspect a strong revival in macro economic optimism will need to take hold to improve the supply/demand outlook for the fuel. In the short-run, Aug gasoline may also be constrained by the market’s overbought condition leaving gasoline vulnerable to more profit taking, especially if today’s economic data comes in weaker than expected. Close in support levels for Aug gasoline comes in at $1.9944 then at $1.9666 with resistance at $2.0378 then at $2.0450.

HEATING OIL: Trading in Aug heating oil overnight has been choppy and two sided with the market running into overhead resistance above the $1.90 price level. Early overnight gains seemed to be tied to reports that China’s May diesel exports fell over 23% from April due to rising domestic sales and tighter inventories. The market may also be getting some lingering support from yesterday’s EIA report showing a smaller than expected 308,000 barrel rise in distillate stocks. But with macro economic doubts dampening the prospects for a recovery in fuel demand and with outside market influences turning bearish, we suspect heating oil will be vulnerable to a more extensive price correction, especially since the market remains technically overbought. Unless today’s economic reports can provide a fresh dose of optimism or the Dollar reverses course, we suspect the path of least resistance for heating oil will be down.

TODAY’S ENERGY MARKET GUIDANCE: Unless today’s data can restore strong macro economic optimism and also sink the Dollar, there is a good chance for a more extensive pullback in oil markets this session as markets continue to correct from technically overbought levels.

Hog Market Commentary – 2009.06.17

by on June 17, 2009

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The pork market showed some signs of life yesterday and cash hogs are called steady to higher today but besides the possibility of a short-covering bounce, the upside seems limited. A liquidation of herds by producers is ongoing and weekly slaughter is likely to continue to come in above trade expectations from the last quarterly Hogs and Pigs report. July hogs closed slightly lower on the session yesterday in a tight range while August hogs and some of the deferred contracts pushed lower and into new contract lows for the second day in a row. Ideas that the premium of the deferred contracts will be pulled out of the market until producers reduce the size of their herds helped to pressure. Weakness in the stock market helped keep the demand tone bearish. Selling pressure was limited by news that Russia lifted a ban on meat imports from the state of Washington and softened their ban on Texas. However, Russian banned imports from New Jersey due to H1N1 virus. Slaughter was slightly higher than expected at 414,000 head. The estimated hog slaughter came in at 414,000 head yesterday. This brings the total for the week so far to 824,000 head, up from 819,000 last week at this time and up from 797,000 a year ago. Pork cut out values, released after the close yesterday, came in at $57.64, up 79 cents from Monday and up from $56.63 the previous week. Ribs were higher again and loins were up $2.15 to $73.11. The CME Lean Hog Index as of June 12 came in at 57.14, down 3 cents from the previous session and down from 58.79 the week before. Packer margins improved some with the bounce in loins and ribs this week but the upside seems limited by continued demand concerns and the fears of higher supply just ahead.

TODAY’S GUIDANCE: Another up day for pork cut-out values and a firm tone to the cash market today could give the market a short-term bounce but there seems to be plenty of reasons to see increasing supply ahead with uncertain demand. While oversold, slaughter is running higher than expected, weights are also too high and there is still no sign of a recovery in exports. Producers and packers are also losing money. August hog resistance comes in at 59.85 with 56.77 as next objective.

Cattle Market Commentary – 2009.06.17

by on June 17, 2009

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Another jump in beef prices yesterday failed to spark much in the way of new buying as cattle fund traders are quite negative and the market sees the upside as very limited. Cash cattle bids emerged this week at $79.00 with offers at $84-$85 after cash traded at $82.00 last week. The jump in beef prices with packer profit margins already in the black could support demand for cash cattle but traders are nervous with news that the showlist this week is higher than last week. Cash dealers believe that cash may not trade until after the Cattle-on-Feed report on Friday. The lowest close for August cattle since December yesterday leaves the market technical picture negative but the June lows managed to hold. The market saw some early strength with talk of a slight improvement in beef demand and ideas that we could see a few more week’s of good retail clearance for beef but weakness in the stock market and talk that the showlist is a little higher this week helped to pressure the market. Traders also believe that outside market forces will stay negative into the end of the week. The estimated cattle slaughter came in at 129,000 head yesterday. This brings the total for the week so far to 259,000 head, up from 255,000 last week at this time and up from 249,000 a year ago. Boxed beef cutout values were up 79 cents at mid-session yesterday and closed $1.03 higher at $140.55. This was down from $140.69 a week ago. Beef prices are still down 11% from last year even though beef production last week was down 2.8% from last year. Heat moving up from Texas may slow weight gains and help ease beef production totals just ahead. Trend-following funds still hold a near record high net short position which leaves futures vulnerable to a bounce if resistance points are violated.

TODAY’S GUIDANCE: A bounce in the beef market should help provide some support to the market but demand fears persist and funds continue to aggressively sell the market. The technical action is weak and the market may not see much support at the June lows with 79.65 as next support for August Cattle. We would think the market has the short-term news to bounce from support.

Cocoa Market Commentary – 2009.06.15

by on June 15, 2009

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Cocoa has fallen back overnight as a stronger Dollar and the market’s overbought condition seems to be inspiring more extensive profit taking. The fund buying in cocoa seen over the past few weeks could ebb for now, especially if the Dollar continues to gain on ideas that recent macro economic sentiment may have been too optimistic. The selling in the cocoa market last Friday seemed to be part of a broad based selling wave seen in a number of physical commodity markets that may continue into the early part of this week. The recovery bounce in the Dollar is encouraging some traders to book profits since a currency action diminishes the need to own commodities as an inflation hedge. The pull back in the Pound is also adding some arbitrage related selling pressure into the mix. Some of the selling in cocoa may be tied to the sharp decline in Euro-zone industrial production raising macro economic doubts and perhaps undermining the prospects for a recovery in chocolate demand. News that an Ivory Coast port strike ended late last week and Nigerian farmers predicting a 30% increase in the mid-season crop may be other factors to encourage some traders to take profits.

TODAY’S GUIDANCE: Friday’s price break in September cocoa did little to correct the market’s extreme over done condition leaving the market vulnerable to a more extensive profit taking break. In fact, cocoa’s overbought condition was reflected in the June 9th COT report with options for cocoa showing the combined spec and fund net long position rising nearly 8,000 contracts on the week to 26,106 contracts. With September cocoa pushing below support at $2,745 in the overnight trade, a more short-term selling looks possible. The first retracement of May low to June high range is back at $2,640 which may be reached if the currency action keeps the market under pressure and since support at $2,700 didn’t hold.

Coffee Market Commentary – 2009.06.15

by on June 15, 2009

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Given weakness in outside market forces and a fairly hefty speculative net long position, the coffee market is likely to see further downside potential over the near-term. September coffee closed moderately lower on the session on Friday and to the lowest close since mid-May. A lack of threatening weather in Brazil and ideas that the supply on the world market will gradually build in the second half of the year helped to pressure. The USDA on Friday pegged world coffee production for the 2009/2010 season at 127.4 million bags, down 7.3 million (5%) from this past year. Brazil production is in the off year of their cycle and is expected to be down 8 million bags to 43.5 million. Vietnam production is expected to fall 1.3 million bags to 18.4 million. India production is expected to be higher and Colombia is expected to see production increase by 1.7 million bags to 12.2 million. Outside markets have helped provide underlying support to the market in recent weeks and clear negative tone from outside markets on Friday and again today help to add to the bearish tone. A sharp rally in the dollar and weakness in metals and energy markets helped pressure overnight and helped spark additional long liquidation selling late last week. Costa Rica is expected to produce 1.725 million bags for the 2009/10 season, up 6.1%. The Commitment-of-Traders reports on Friday showed a slight long liquidation trend from speculators. Trend-following funds reduced their net long position by 2,634 contracts to 29,389 contracts. Index funds were also sellers reducing their net long position by 455 contracts to 35,439 contracts. The selling trend from funds is considered a bearish short-term force. US exchange stocks were down 7,490 bags to 3.676 million with 36,595 bags pending review.

TODAY’S GUIDANCE: The market looks set for further long liquidation selling from speculators with a warmer and drier forecast in Brazil into the end of the week.

TODAY’S MARKET IDEAS: Close-in resistance comes in at 131.10 for September coffee with 126.90 and 122.70 as key support levels and targets on the downside.

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