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Archive | July, 2009

Cotton Market Commentary – 2009.07.24

by Terry Roggensack on July 24, 2009

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With only a minor bounce yesterday on a session when outside markets were bullish, a shift to more negative outside forces would seem to leave cotton as vulnerable to more long liquidation selling. The market is still operating under the negative technical influence of the reversal-type action on Tuesday, and the weak recovery bounce yesterday along with the outlook for less threatening weather and improving crops in Texas could spark another round of long liquidation soon. December cotton closed modestly higher on the session yesterday as the early test of Wednesday’s lows failed to attract new selling interest and the market bounced nearly 125 points off of the early lows. After holding support, the market received a boost from fund buying across a wide spectrum of commodity markets and from a surge in the stock market based on a more promising economic outlook. Weekly export sales for cotton came in with net cancellations of 1,500 running bales for the current marketing year and net sales of 51,200 for the next marketing year for an overall net of 49,700. As of July 16, cumulative cotton sales stood at 106.7% of the USDA forecast for 2008/09 (current) marketing year versus a 5 year average of 111.1%. Sales came in below trade expectations, but this news was offset by strength in outside markets. Export shipments were slightly above trade expectations at 244,700 bales. US Texas weather appears good enough to see further improvements in crop conditions. While there was a significant scare with early monsoon rains being slow in India, cotton areas there have received good rains recently. Monsoon rains were 15% above normal for the week ending July 22nd. China’s imports for the first half of the year were just 735,355 tonnes, down 40.7% from last year.

TODAY’S GUIDANCE: Weather seems better than expected for both Texas and India, and weaker outside markets could spark another round of long liquidation selling.

Coffee Market Commentary – 2009.07.24

by Terry Roggensack on July 24, 2009

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There seems to have been a shift in the tone for the market over the past week with more positive news beginning to seep into the marketplace, at least temporarily. Last week, relentless producer selling from the Brazilian harvest and supply concerns, especially for next year’s Brazil crop, were seen as bearish forces. Now the market is trying to absorb news of less selling pressure from Brazilian producers and a possible weather development that could impact next year’s (2010/11) production. Traders had been nervous about a massive 50-52 million bag crop for next year from Brazil, up from 41-43 million tonnes this year. However, traders now see the possibility that that early rains, which are currently disrupting this year’s harvest, could actually spark a pre-mature flowering of the trees and that would not set. Under this scenario, production estimates for next year would drop. While the likelihood of this happening is small, the oversold condition of the market and ideas that prices are already too cheap helped spark aggressive buying and short-covering this week. Coffee pushed sharply higher on the session yesterday and moved to the highest level since June 16th, as fund traders turned active buyers in coffee and many other commodity markets. Talk of the oversold technical condition of the market along with early weakness in the dollar and strength in energy and stock markets helped to support. News from Brazilian officials that the government is considering additional purchases of coffee to support the market beyond the Coffee Put Purchase Program for producers was seen as a positive force. The more coffee that is pulled off of the market through put programs (3 million bags) or even direct purchases from the government could help support cash markets. US exchange stocks were up 974 bags to 3.55 million with 23,661 bags pending review.

TODAY’S GUIDANCE: While the bullish news has a lot of “what if” factors that have yet to turn into real support, open interest is low and the market is oversold. Key resistance for September coffee comes in at 125.35 and then 129.10, a 50% correction of the June-July break. Support is at 122.55 and 120.85.

Cocoa Market Commentary – 2009.07.24

by Terry Roggensack on July 24, 2009

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The cocoa market sharply reversed course yesterday, pushing to a new high for the year to its highest price level since August 2008. It was backed by bullish outside market influences and economic euphoria. Another round of bullish corporate earnings reports and news of a rise in existing home sales seems to be reviving optimism that economic conditions are improving. Investors appeared to be buying cocoa on the notion that commodity demand is set to improve. A better than expected earnings report from Hershey may have provided an additional buying incentive for the bull camp by igniting more demand hopes, even though the 5.9% jump in 2nd quarter sales were due to product price hikes while product volume declined. Yesterday’s cocoa rally certainly seemed to be part of a speculative buying wave that was seen across a wide variety of physical commodity markets. That wave was tied to a push lower in the Dollar, which raised investor risk appetite and the appeal of alternative investments such as cocoa as an inflation hedge. After a move like yesterday’s, it isn’t surprising to see some type of pre-weekend profit taking, and we have already seen cocoa price retreat a bit in the overnight trade. However, if the equity and Dollar action remains bullish, we also can’t rule out further gains in cocoa, as both trend following and Index Funds were thought to be active buyers yesterday. Taking out the February high points to $3,023 as potentially the next upside target for September cocoa. But as cocoa prices are pushed higher, we still believe the market is moving further beyond its fundamental value. A move in September cocoa back up towards $3,000 would put the market back in the vicinity of the highs reached last July, prior to the financial crisis. We hardly think economic conditions have improved enough to justify cocoa at these price levels. On the other hand, Index Funds were net long only 17,655 contracts of cocoa as of July 14th, according to the latest COT report, compared to a record net long position near 31,000 contracts reached last June. This could give the market additional buying capacity, especially if economic optimism continues to build.

TODAY’S GUIDANCE: Given the Fed’s assessment of the economy we do think the economic optimism is becoming overblown, and that leaves cocoa looking fundamentally expensive. Cocoa has pulled back in the early overnight trade, which leaves the market a bit technically weak if prices don’t follow through higher. But there may not be too much downside follow through yet if equities build on overnight gains and if the Dollar weakens further.

TODAY’S MARKET IDEAS: Cocoa is looking fundamentally expensive, and we think the market is setting up for an extensive correction. But given the potential for wide price swings, traders looking to get short cocoa should consider option plays.

Sugar Market Commentary – 2009.07.24

by Terry Roggensack on July 24, 2009

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The market saw an impressive run higher yesterday, and the upside break-out leaves the October futures at contract highs with 18.60 as the next upside swing target. The impressive technical action has been supported with positive supply news from India and hopes for better import demand from Russia and China for the season just ahead. Nearby sugar futures closed sharply higher on the session yesterday and managed to move to their highest level in three years. Overnight, October sugar extended its rally by trading to fresh contract highs. There are not many new technical targets overhead except for the 2006 highs at 19.73. A move above this level, if it occurs, would mark the highest price for nearby futures in 28 years. News of tight stocks and lower production for India and a surge of positive influences from outside market forces including strength in crude oil and active buying in a wide range of commodity markets from fund traders, are helping to support the market. Indian officials from the northern state of Uttar Pradesh (which represents nearly 40% of the nations total cane crop) indicated that production is likely to fall by at least 500,000 tonnes due to the poor rains. India’s sugar stocks on July 1st were 7.6 million tonnes, down 55.6% from last year. Traders see ending stocks for the 2008/09 season near 4 million tonnes, down from 10 million last year. Ideas that rain could slow the harvest in Brazil for next week was also seen as supportive. After another beet test, Russia’s Sugar Producers Union lowered its production forest to 3.0 million tonnes for the coming season, down from a previous estimate of 3.1 million and down from 3.5 million this past season. Open interest jumped to 736,159 contracts, up from 730,464 the previous session and a new high for the month, a positive technical development.

TODAY’S GUIDANCE: The market remains in a solid uptrend with the next key technical target at 18.60 for October futures and then 19.73 for the nearby futures. Short term support comes in at the 18.09-18.02 level.

Export Sales Summary – 2009.07.23

by Research on July 23, 2009

CORN:

Net weekly export sales for corn, came in at 757,600 metric tonnes for the current marketing year and 577,100 for the next marketing year for a total of 1,334,700.

Cumulative corn sales stand at 101.6% of the USDA forecast for 2008/2009 (current) marketing year versus a 5 year average of 98.3%.

WHEAT:

Net weekly export sales for wheat, came in at 342,300 metric tonnes for the current marketing year and none for the next marketing year for a total of 342,300.

For wheat, cumulative sales stand at 22.7% of the USDA forecast for 2009/2010 (current) marketing year versus a 5 year average of 31.0%. Sales of 426,000 metric tonnes are needed each week to reach the USDA forecast.

SOY COMPLEX:

Net weekly export sales for soybeans came in at 320,000 metric tonnes for the current marketing year and 382,000 for the next marketing year for a total of 702,000.

As of July 16, cumulative soybean sales stand at 101.4% of the USDA forecast for 2008/2009 (current) marketing year versus a 5 year average of 99.9%.

Meal sales came in at 157,600 metric tonnes for the current marketing year and 35,100 for the next marketing year for a total of 192,700.

Cumulative soybean meal sales stand at 85.2% of the USDA forecast for 2008/2009 (current) marketing year versus a 5 year average of 82.9%. Sales of 110,000 metric tonnes are needed each week to reach the USDA forecast.

Soybean oil sales came in at 17,500 metric tonnes for the current marketing year and -6,000 for the next marketing year for a total of 11,500.

Cumulative soybean oil sales stand at 79.7% of the USDA forecast for 2008/2009 (current) marketing year versus a 5 year average of 94.4%. Sales of 19,000 metric tonnes are needed each week to reach the USDA forecast.

COTTON:

Net weekly export sales for cotton, came in at -1,500 running bales for the current marketing year and 51,200 for the next marketing year for a total of 49,700.

Cumulative cotton sales stand at 106.7% of the USDA forecast for 2008/2009 (current) marketing year versus a 5 year average of 111.1%.

BEEF:

Weekly US beef export sales for the week ending July 16 came in at 9,000 metric tonnes making it 292,500 metric tonnes for the year. This compares to year ago weekly sales of 21,900 metric tonnes and 346,900 for the year. Before Mad Cow (2003) cumulative sales as of this week were 540,700 metric tonnes.

Silver Market Commentary – 2009.07.23

by Dave Hightower on July 23, 2009

OUTSIDE MARKET DEVELOPMENTS: While the US Dollar is showing some minor gains this morning, the Dollar remains within striking distance of its recent lows and that probably gives some gold and silver bulls hope in the early action today. However, with a slightly positive global equity market bias overnight and the global economic attitude this week mostly up beat, that seems to be lending ongoing support to both gold and silver prices. With a series of corporate earnings reports scheduled for release again this morning, the markets might have an offset to an anticipated rise in US initial unemployment claims figures early today. Later in the trading session, the markets will also be presented with existing home sales readings that are also expected to show a minor improvement. While the US government will release details of upcoming debt supply flow, the markets might not give that information much credence today. In general, the tone of the day could be set again by the direction in equities, which in turn might be dictated by the flow of quarterly earnings.

SILVER MARKET FUNDAMENTALS: The silver market did manage another new high for the move overnight on the charts and that has allowed silver to show early gains in the face of weakness in gold and copper prices. It would appear as if the silver market is outperforming the gold market this week and that silver is benefiting from favorable economic expectations and residual Dollar weakness. However, it is also possible that favorable news coverage, of a new silver trust launch, is fanning the talk of rising investment demand for silver. As in the gold market, silver did see some news of increased silver production from a minor silver producer in the last 24 hours, but it also seems as if the silver trade is content to take a large measure of its guidance from the US equity markets and from the action in the US Dollar.

Gold Market Commentary – 2009.07.23

by Dave Hightower on July 23, 2009

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GOLD MARKET FUNDAMENTALS: Once again the gold market was presented with potentially undermining physical gold production news from a number of gold miners, but that news didn’t seem to be of much interest to the overnight trade. While US gold prices were showing a bit of negative divergence with silver prices in the early action today, it is possible that gold prices were gleaning some support from higher global equity prices and an ongoing up beat assessment of the economy from the UK Financial Services Authority Chairman. In a potentially negative development the gold trade in India seemed to balk at fresh purchases overnight as the currency adjusted price of gold approached a critical even number level on the charts. Some traders have suggested that the October gold contract has carved out resistance around the $956.5 level and that the market continues to need a definitive fresh low in the Dollar, or another upside extension in the equity markets to regain bullish momentum.

Energy Market Commentary – 2009.07.23

by Dave Hightower on July 23, 2009

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CRUDE OIL MARKET FUNDAMENTALS: While trading in crude oil has been choppy and two sided at times overnight, a downward price bias seems to be taking hold. In fact, if it wasn’t for the gains in global equity markets including early indications of stronger US stocks indexes, we suspect the oil market would be trading a lot lower. The rally in crude oil off the July low has been based on a revival in macroeconomic optimism and expectations for a recovery in oil demand tied to equity market gains, but the market’s internal fundamentals don’t support this view. In fact, yesterday’s EIA report showed total product demand was still down 4.8% over the past four weeks compared to year ago. The EIA report also gave other clear warning signs for crude oil demand with the sharp drop in the refinery operating rate pointing to lower industry oil demand. With several major US refiners either idling production or closing down facilities due to poor profit margins, the outlook for oil feedstock demand certainly looks bearish. Although crude oil stocks have been steadily falling since mid-May, total oil supplies remain 47.2 million barrels above year ago levels. Also, the rate of decline in oil stocks continues to slow, and with refiners reducing operations, we suspect crude oil supplies could start to build again. A report showing Japan’s oil imports fell over 19% in June compared to year ago with refinery rates at a low 70% is another clear indication that oil demand in major consuming countries remains weak. If equities continue to push higher, it may be enough to temporarily prevent a significant slide in crude oil and may even inspire some additional gains. But once the earnings euphoria is priced in and equities turn lower, we suspect there is the potential for September crude oil to head back towards the $60 price level. Given the outlook for a weak economic recovery and the production cutbacks being done by refiners, the bearish fundamental setup for crude oil would seem to leave more downside than upside price risk in place.

GASOLINE: After yesterday’s strong close and the early attempt to push gasoline higher overnight, it is clear that the trade initially saw yesterday’s EIA report as positive. The trade seemed to be taking the view that the 813,000 barrel rise in gasoline stocks was in line with expectations and that the sharp drop in refinery operations could lead to a tightening in supplies. But we see the rise in gasoline stocks as a significant bearish signal given the 2% drop in refinery operations since it clearly indicates that demand at the height of the summer driving season remains anemic. With the tail end of summer approaching, gasoline demand will be peaking soon and if gasoline imports stay high, there is even the potential for gasoline stocks to still build despite lower refinery operations. Macro economic optimism tied to equity market gains along with the generally weak trade in the Dollar is providing a measure of support to gasoline prices. But if these outside markets turn less supportive or the trade begins to focus on the market’s bearish supply/demand setup, we think there is a good chance for September gasoline to head back to the $1.74 to $1.70 price range. Key resistance for September gasoline comes in at $1.8273 then at $1.8585 with support near $1.7971 and then $1.7830.

HEATING OIL: It certainly seems as if the majority of price support for heating oil is stemming from the macro economic optimism tied to gains in global equity markets. But even that support seems to be fading with September heating oil beginning to back away from overnight highs. In fact, with distillate stocks continuing to build and supplies at 25 year highs, the heating oil market is looking a bit expensive up at these price levels. We think it was particularly bearish to see a 1.2 million barrel jump in distillate stocks when refinery operations fell by 2% and that clearly shows industrial and transportation demand for the fuel remains weak. And the trend in fuel demand shows no improvement with the EIA reporting an 11% decline in distillate demand over the past four weeks compared to year ago. Now that September heating oil has corrected from a technically oversold condition from the July lows, we suspect the market’s bearish fundamental setup will eventually pull September heating oil back towards the $1.65 price level. Look for more aggressive chart based selling if September heating oil fails to hold support at $1.7229 and $1.6963 (the 200 day moving average) with key resistance at $1.7696.

TODAY’S ENERGY MARKET GUIDANCE: This week’s inventory reports clearly showed the supply/demand situation of energies remains bearish. Therefore, with oil markets looking a bit expensive up at these price levels it certainly raises the risk for a significant downside correction. If equity markets begin to weaken and the Dollar recovers to turn outside market influences bearish, rising investor risk aversion could weigh heavily on oil.

Hog Market Commentary – 2009.07.20

by Terry Roggensack on July 20, 2009

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October hogs moved to the highest level since June 9th on Friday and a positive tilt to the cash market this week could help support the uptrend. August hogs are holding a premium to the cash so the upside for this contract may be limited. A shift in packer profit margins from deep in the red to profitable is expected to support the cash market this week. Futures are in a temporary overbought condition after the recent rally but the surge in pork cut-out values suggests that the worst of the slow pork exports are now behind and the market should find good support on technical corrections. In fact, pork values are up 22.8% off of the late June lows so the futures rally is actually lagging the pork rally significantly. October hogs rallied slightly on Friday before speculative long liquidation selling emerged to spark a sell-off in the nearby August. The overbought technical condition of the market and ideas that futures have moved too far, too fast helped to pressure. In addition, the August contract led the weakness as the premium of futures to the cash market kept new buyers on the sidelines. Cash hogs were steady at most locations but the surge in pork values recently is expected to support an uptrend in cash next week. Pork cut out values, released after the close Friday, came in at $65.63, up $1.71 from Thursday and up from $58.18 the previous week. The Commitment-of-traders reports on Friday showed a surge in buying from trend-following fund traders for the week ending July 14th who reduced their net short position by 7,556 contracts to a net short of 22,361 contracts. The previous week was a record net short. Index funds were net sellers of 1,477 contracts to reduce their net long in hogs to 60,870. The buying trend from trend-following funds is a short-term positive force. The CME Lean Hog Index as of July 15 came in at 58.51, down 16 cents from the previous session and down from 58.97 the week before. The estimated hogs slaughter came in at 385,000 head Friday and 2,000 head for Saturday. This brings the total for last week to 1.954 million head, down from 1.957 million last week at this time and down 8.6% from last year. Feeder Pig imports from Canada for the year have reached 2.79 million head, down 24.0% from last year.

TODAY’S GUIDANCE: A tightening short-term supply and ideas that the export market is recovering has helped support the market. Cash hogs should push higher this week with improved packer margins.

TODAY’S MARKET IDEAS: October hog buying support comes in at 59.90 and 58.92 with 61.97 and 63.17 as resistance.

Cattle Market Commentary – 2009.07.20

by Dave Hightower on July 20, 2009

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The upside break-out on Friday leaves 87.17 as the next technical target for August cattle but the market may need better confirmation of improved demand before seeing the premium of futures to the cash market expand further. Funds have been active buyers recently and the technical action is positive but beef prices have moved little off of the lows. In fact, beef prices are at the lowest level since April 3rd but the trade remains optimistic that tighter supply will support beef prices soon. Traders remain optimistic that the longer-term trend will be up as well and that the Cattle-on-Feed report from the USDA on Friday will support. Traders expect the report to show on-feed supply near a 10 year low and that placements for the month of June may have been the lowest in 13 years. August cattle inched higher with quiet and two-sided trade early in the session on Friday and then closed strong with a burst of fund buying. The lack of leadership from the cash market last week and the premium of futures to the cash market (last week at $82.00) helped to limit the buying support. Cash cattle traded at $84.00 on Friday, up $2.00 from the previous week but still 250 points below the August futures. Boxed beef cutout values were down 17 cents at mid-session Friday and closed 10 cents lower at $136.54. This was down from $137.36 a week ago. The Commitment-of-traders reports on Friday showed a surge in buying from trend-following fund traders for the week ending July 14th increasing their net long position by a whopping 13,784 contracts to a net long of 20,521 contracts. Index funds were also light buyers. Non-reportable traders increased their net short position by 2,017 contracts to 22,809 contracts. The buying trend of fund traders is a short-term positive force and helps explain the run-up over the past few weeks. The estimated cattle slaughter came in at just 117,000 head on Friday and 16,000 head for Saturday. Both of these numbers were well below expectations and could be a sign of weakening demand from packers. For the week slaughter was 627,000 head, down from 628,000 last week at this time and down from 687,000 a year ago. Cumulative US beef export sales for the year have reached 285,500 tonnes, down 12.8% from last year even though we did not have any sales to South Korea last year. Milder weather with scattered rains this week in the southern plains could ease performance concerns and might be considered a negative today.

TODAY’S GUIDANCE: The slowdown in slaughter and weak beef prices leaves the market vulnerable to a set-back once the fund buying slows. The stiff premium of futures to the cash market could limit a further advance for now. August cattle resistance is at 87.17 with 84.77 and 84.35 as key support. Close-in support is near 85.62.

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