Generally positive tone off the holiday weekend. This is attributable to a weaker US Dollar and favorable international equity market action. Forward look at improving Japanese manufacturing is supportive as well. US weather is still questionable. The short-term benefit to planting of a hot-and-dry forecast may turn into a problem for the crop if it settles in for a longer term.
Archive | May, 2011
Energy: Bulls Have Edge from Internal and External Developments
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Energy prices were up sharply overnight primarily on the weaker Dollar, but also because of reports of fresh tensions in Yemen and perhaps because of improved global macro economic psychology. Apparently global equity markets were lifted sharply off ideas that some Japanese manufacturing might be restarted soon and that might in turn alleviate some of the knock on slowing seen in the rest of the world, as a result of the Japanese disaster. On the other hand, the Dollar was lower against the Euro after on improved prospects for a Greece bailout, or perhaps even from news that Greece might be allowed to cut its value added tax in an effort to stimulate its troubled economy. In the end, news that Al Queda had captured a town in Yemen has raised concerns over a rise in overall Middle East tensions. On another front, up to 120 Libyan military officers have defected in recent days and that could increase uncertainty toward the Libyan oil situation. In the end, a favorable macro economic track and a weaker Dollar would seem to give the bull camp an edge, especially if there is a small measure of Middle East supply uncertainty off events in Yemen and Libya mixed into the equation. Perhaps the most supportive news overnight is the prospect that favorable Japanese manufacturing talk was joined by oil market talk, that the Chinese were set to expand energy import activity again. The Commitments of Traders Futures and Options report as of May 24th for Crude Oil showed Non-Commercial traders were net long 254,314 contracts, a decrease of 991 contracts. The Commercial traders were net short 282,615 contracts, a decrease of 2,721 contracts. The Non-reportable traders were net long 28,302 contracts, a decrease of 1,729 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 282,616 contracts. This represents a decrease of 2,720 contracts in the net long position held by these traders. With the highest level in July crude oil since May 11th, it is possible that some of the initial buying this morning is technically related buying.
GASOLINE: The gasoline market was able to extend last week’s rally through the holiday weekend, although prices are almost sure to end May with their first monthly loss since August of last year. While the traditional start of the US summer “driving” season may be lending some support to prices this morning, a weaker Dollar coming out of the holiday weekend and an improved overall macro economic outlook may be the main focal point of this morning’s gasoline trade. On the other hand, it may take several weeks to see if US drivers are going to respond to the May pullback in retail prices with improved demand. The Commitments of Traders Futures and Options report as of May 24th for Gasoline (RBOB) showed Non-Commercial traders were net long 49,288 contracts, a decrease of 3,515 contracts. The Commercial traders were net short 53,172 contracts, a decrease of 4,946 contracts. The Non-reportable traders were net long 3,885 contracts, a decrease of 1,430 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 53,173 contracts. This represents a decrease of 4,945 contracts in the net long position held by these traders. With the highest level in July RBOB since May 12th seen overnight it is possible that the market is seeing some technically related buying interest, especially if a down trend channel line from a series of May highs is taken out.
HEATING OIL: The heating oil market has also found benefit from a weaker Dollar this morning and was able to reach the highest prices levels since May 5th. A pipeline closure out of Alberta has added to the recent transportation issues on the Mississippi river and in general that has kept some concern of tight US product supplies in the headlines. With heating oil stocks already at very low levels, the talk of improved demand and lingering supply chain problems in the US would seem to give the bull camp an internal and external edge. The Commitments of Traders Futures and Options report as of May 24th for Heating Oil showed Non-Commercial traders were net long 19,190 contracts, a decrease of 795 contracts. The Commercial traders were net short 30,568 contracts, a decrease of 2,411 contracts. The Non-reportable traders were net long 11,378 contracts, a decrease of 1,616 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 30,568 contracts. This represents a decrease of 2,411 contracts in the net long position held by these traders. Perhaps the July heating oil contract is poised to return to the 50 day moving average, which today is pegged up at $3.1020.
TODAY’S ENERGY MARKET GUIDANCE: The bulls have the edge from both internal and external developments. With the energy complex fresh off a sustained May correction on its charts, an improvement in macro economic views and a weaker Dollar could give rise to some rather impressive short covering buying. In fact, if there is an improved demand track that could in turn result in a series of noted gains in energy prices into the US Friday payroll readings.
Weak US Numbers Continue; More Unrest in Egypt
Mixed bag for commodities overnight. US Dollar is lower. Shanghai copper stocks were down which may indicate continued demand. A second round of protests in Egypt. An announcement from the G8 stated the world seems to be entering a self-sustaining growth pattern. The comes during a week of less-than great US numbers. US weather may be going from a bad cold-and-wet pattern to a potentially worse sustained hot-and-dry pattern.
Coffee: Recoverting from Over-Sold; Support Building
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July coffee has outside market support to start this morning, with a weaker US Dollar and general strength across most commodity markets. The market appears to be in the process of relieving the extremely oversold condition from the May, having registered an inside day yesterday. Roasters appear to have been active cash buyers in recent sessions, but it is possible that their short term needs have been satisfied. This may leave the market in search of another catalyst to move higher. Perhaps strong cash markets for Vietnamese coffee, as producers there hold back from selling on expectations of increased demand ahead, and prospects that a large portion of their output has already been committed might lend some support. A smaller than expected Columbian mid-crop could be seen as a positive for New York coffee. However, the latest estimates from Cecafe forecasted total coffee output in Brazil slightly higher than government forecasts. The 2011 harvest is expected to be largest ever for an off-year in Brazil’s coffee harvest cycle. This comes on the heels of ideal growing conditions and higher prices providing added incentive for farmers to properly care for crops. Reports yesterday from the Council of Green Coffee Exporters indicated that coffee exports out of Brazil were forecasted below April levels and expected to slip further in June. A recent report suggested that private stocks of coffee in Brazil may have fallen to record low levels in March, in the range of 6 to 7 million bags. ICE Certified coffee stocks declined 959 bags to 1,662,812 as of May 26th, with 42,936 pending review.
TODAY’S GUIDANCE: July coffee continues to build a short term base and could get a measure of support this morning from favorable outside market factors. It has an upside pivot level above at 269.45 that it needs to overcome for any meaningful rally to develop. Short term support comes in at 261.65.
TODAY’S MARKET IDEAS: July coffee has resistance at this week’s high of 269.45, and clearance above this level would set the stage for a further push toward $274.50.
Cocoa: Reports of Larger Than Expected Supply
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The cocoa market appears to be in the process of correcting a short term oversold condition. Outside market forces are positive this morning, with a breakout in the British Pound to a fresh 12-day high, higher global equity markets and positive track across most commodity markets. July cocoa enters today’s trade on a 3-day winning streak that has taken prices up nearly 200 points from Tuesday’s low. Prices appeared to struggle with the 200-day moving average yesterday, and that should provide another testing area for the bulls this morning. There was talk that yesterday’s rally above 3000 tripped off a wave of buy stops, which might suggest that the gains were more technical than fundamental. This action also served to bolster trade in the options market and prompt some traders to buy futures to hedge short call option exposure, which provides another clue of an artificial rally. However, a supportive feature that resurfaced was an uptick in Ivory Coast turmoil and threat that it could further delay the upcoming harvest. Reports from the International Cocoa Organization forecasted supplies to outpace demand in the current marketing year. The boost in supplies was fueled in large part by an increase in African cocoa production, which was quite a bit higher than the February estimate. The agency forecasts production levels in Ghana to jump more than 50% from last year’s level. These numbers come ahead of next week’s crop estimates. As of May 26th, ICE cocoa warehouse stocks totaled 3,348,535 bags, down 8,869 bags from the previous session.
TODAY’S GUIDANCE: Reports of larger than expected world supplies and ideas that yesterday’s gains could be the result of short-covering provide a negative headwind for the market. After this week’s 200-point rally from fresh 6 month lows, it is possible that the July cocoa will encounters a wave of profit-taking today as we head into the 3-day holiday weekend.
TODAY’S MARKET IDEAS: The short term trend in July cocoa has turned friendly, but the market remains inside of a downtrend pattern on the charts. Cocoa could be building a base for a more sustainable upside recovery, but it will probably take a close above the May 12th gap to flip the daily charts positive.
Cotton: Bad Start to US; Other Countries May Make Up Loses; US Focus For Now
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Cotton futures in China rallied almost 1% overnight. The market should not see much resistance from outside markets this morning, and a weak dollar could provide some light support. The 6-10 and 8-14 day forecast models show a hot and dry trend for the West Texas region, and this is also supportive to prices. Traders remain very uncertain over the world production outlook for the new crop, with increased output a strong possibility for India and Pakistan and maybe even China. Cotton prices in India hit a record high in late March, and this may have sparked a sharp rise in planted acreage, up as much as 15% from last year. India is the world’s second largest producer. It has capped exports at 5.5 million bales this year, but if the new crop season shows signs of record-type production, India could be a tough competitor in the exports market for the coming season. July cotton closed moderately higher on the session yesterday, while December cotton closed sharply higher on the day with the contract up as much as 11.47 from Tuesday’s lows. The shift to a hot and dry weather pattern for West Texas has raised concerns over early growing conditions. On top of the Texas issues, traders see lost acres along the Mississippi as a threat to production this year and drought conditions are also on the rise in Georgia. Certified cotton stocks deliverable against the exchange totaled 183,533 bales as of May 24th, up from 181,056 bales the previous session.
TODAY’S GUIDANCE: The new crop season is off to a poor start in the US, while other countries appear to be in a position to make up for some of the losses. However, the focus might remain on the US for a while, and the weather outlook is still threatening. There is a slight chance for some thunderstorms in Lubbock on May 31st, but this looks to be the only chance in the next ten days, and temperatures are expected to hit 101 Friday and 105 Saturday. Look for support for December cotton near 129.22 with resistance at 132.86. A close over resistance would leave 144.66 as the next target.
Sugar: Big Increases Forecast for World Surplus for 2011/12
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The sugar market remains in a minor uptrend, with the rally yesterday challenging the 1-months highs. A positive tilt to the outside markets this morning might provide some underlying support, but sugar seems to have corrected its oversold condition and may turn down at any time. Bullish traders seem to be hoping for wet weather in Brazil or increased demand from China or increased import needs from the EU to help boost prices, but these would be short term influences, and the big picture supply fundamentals remain mostly negative. Weather in Brazil is dry and this might be seen as negative. The EU is expected to decide soon on additional duty-free import tariffs for near 200,000 tonnes. While China demand appears strong this year, there are strong rumors that the government may sell near 300,000 tonnes from reserves near the end of May or early June. July sugar closed sharply higher on the session yesterday and to the highest close since May 18th. A bullish tone for energy markets and surging silver and gold values helped support. Ideas that China’s demand could be strong coupled with some short-covering added to the positive tone. Mexico approved a sugar import quota of 150,000 tonnes until the end of this year. Production has reached 4.98 million tonnes so far this season, up 11.5% from last year. Brazil’s 2nd largest sugar port is believed to have expanded capacity this year, which could mean shorter loading lines. Bangladesh is expected to buy 50,000 tonnes of white sugar on the world market.
TODAY’S GUIDANCE: The International Sugar Organization believes there will be a world production surplus of 3 million tonnes for the 2011/12 season, which would be up from a surplus of 800,000 tonnes for the 2010/11 season. Many private companies have even larger surpluses in their forecast models. Resistance for July sugar comes in at 23.17 and 23.83 with some light support at 22.52 today. Better support is at 21.98.
TODAY’S MARKET IDEAS: Position traders might wait to see the extent of the recovery bounce. We see an eventual move back down to 19.43 but would not rule out a bounce to 23.17 or higher first.
Little More of a “Risk On” Mentality; Softer Energy Complex
More positive tone to the markets over night. Energy markets are trying to determine where demand is headed. There is still some concern about tightening in the product markets, but a sharp rise in US refinery operating rate shows some effort to build into the driving season. Weather problems still plagues the US planting season, and a sudden shift from cold and wet to hot and dry could either help or hurt the crop.
Corn Special Update – 2011.05.25
A potential shift in the weather pattern from cold and wet to hot and dry for the Midwest could present an opportunity to position for a potential solid uptrend once the market absorbs good planting weather.
Traders are trying to absorb the weather outlook and the potential impact on grain markets today. The 6-10 day and 8-14 day forecast models for much of the central part of the US call for above normal temperatures and below normal precipitation. There is talk of a shift from a pattern extremely wet and cool weather to one that is hot and dry. It is rare to see such a sudden change in the dominant weather pattern, but when one occurs at this time of year, there is a tendency for it to stick around.
The forecast could change at any time, but a hot and dry ridge over the central plains and the western Corn Belt would be seen as a mixed blessing by grain producers. This would cause a poor start to the crops that have already been planted, but it would also allow corn and soybeans to finish getting planted. This change in pattern may have helped pressure corn and support soybeans yesterday. The new pattern would also keep the northern plains and Canada wet and could also keep parts of the northern and eastern Corn Belt wet as well as systems move over the top of a ridge. Of course, IF this is just a temporary dry spell and we revert to a cool and wet pattern into June and July, all of the crop would have a chance to get planted and the yield outlook could be enhanced. Still, there is just no room in the supply/demand balance for below-trend yields.
Planting progress was in line with expectations this week, but there were still 7.57 million acres left to plant for Ohio, Indiana and North Dakota alone. Overall planted area reached 79% complete by Sunday, compared with 63% last week, 92% last year and 88% as the 10 year average for this time of year. A hot and dry trend starting next week for the states which are farthest behind (except North Dakota) is seen as a short-term bearish factor, but the sudden shift in the weather pattern is an underlying concern for the yield outlook.
Weather uncertainties in China and Europe do not support the bear case for grains either. Wheat and new crop soybean prices are responding positively to the weather shift so far and rightfully so.
Keep in mind, we are likely to see 3.29 million acres of corn planted next week in Ohio, and the market may also be forced to deal with replanting some acres in the southern Midwest that got too much rain this week. Crusting and emergence issues are possible, and the first crop conditions report for the season for corn, which is due out Monday, should indicate a poor start.
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Metals: June Gold Highest Since May 4th; Silver Higher
by Dave Hightower on May 31, 2011
Below is a sample of The Hightower Report’s Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
Global equity markets were generally higher during the overnight and early morning hours, with indications that US equity markets would open with sizable gains this morning. The US Dollar is generally weaker against most of the major currencies, although posting a strong gain versus the Yen. News reports indicate that Germany may drop their attempts to have Greece have an early rescheduling of their debt as a condition for any new aid package. A major credit rating agency put Japan on a sovereign debt watch for a possible ratings downgrade. Japanese Industrial Production during April was up 1.0%, lower than market forecasts. German Unemployment during May was 7.0%, in-line with expectations. Euro zone Inflation during May was up 2.7% year-on-year, lower than projections. Major US economic numbers this morning will include a private survey of US Home Prices at 8:00 AM, a private survey of Chicago area Purchasing Managers at 8:45 AM, and a private survey of US Consumer Confidence at 9:00 AM.
GOLD MARKET FUNDAMENTALS: The gold market managed another new high for the move overnight, with the June gold contract reaching the highest level since May 4th in the early Tuesday US trade. Apparently a slightly improved outlook for Japanese manufacturing and decent Euro zone economic readings have provided a somewhat positive macro economic backdrop this morning, which might be accentuated by renewed strength in energy prices. With the Dollar also falling to the lowest level since May 6th, the gold market is probably benefiting from the overnight currency market action. Unfortunately, for the bull camp in gold, US gold prices this morning might be somewhat restrained by weakness in Indian gold prices overnight. Some traders are suggesting that the prospect of weak US scheduled numbers later this morning could kick up the currency related support for gold, but that line of reasoning would seem to conflict with the positive initial reaction in gold prices last night to the hope that some idled Japanese manufacturing was poised to get back on its feet. Comex Gold Stocks were 10.875 million ounces down 271,824. Comex Gold Stocks are at the lowest levels since 09/27/2010. Comex Gold stocks are at the lowest in the past 10 readings. The Commitments of Traders Futures and Options report as of May 24th for Gold showed Non-Commercial traders were net long 213,515 contracts, an increase of 18,535 contracts. The Commercial traders were net short 259,797 contracts, an increase of 20,177 contracts. The Non-reportable traders were net long 46,282 contracts, an increase of 1,641 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 259,797 contracts in gold. This represents an increase of 20,176 contracts in the net long position held by these traders.
SILVER MARKET FUNDAMENTALS: The silver market appears to be caught up in a positive early wave that has also served to lift gold, equities and energy prices. A weaker Dollar is also serving to lift silver prices, which are probably garnering some positive vibes from hopes of improved physical demand for some commodities in the face of more positive Japanese manufacturing talk overnight. Some players even think that gold and silver are deriving some lift from talk of a possible deal that would allow Greece to cut its value added tax, which in turn is thought to be a stimulus to that troubled economy. Comex Silver Stocks were 101.428 million ounces down 383,025. Stocks have declined 12 of the last 20 days. The Commitments of Traders Futures and Options report as of May 24th for Silver showed Non-Commercial traders were net long 24,246 contracts, an increase of 180 contracts. The Commercial traders were net short 43,120 contracts, an increase of 883 contracts. The Non-reportable traders were net long 18,875 contracts, an increase of 705 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 43,121 contracts. This represents an increase of 885 contracts in the net long position held by these traders.
PLATINUM: The platinum market managed a distinct range up extension this morning and in the process the July contract reached the highest level since May 5th. Apparently the market is benefiting from hope that some Japanese manufacturing might be set to restart and that in turn is seen as a direct benefit to platinum demand expectations. Keep in mind, the platinum market has tracked tightly with global auto sector developments and therefore it is possible that some fresh buyers are stepping into platinum off hopes of increased physical demand ahead. There was a minor supply side setback overnight in platinum, but this morning’s attention seems to be fixated on the demand side of the equation. The Commitments of Traders Futures and Options report as of May 24th for Platinum showed Non-Commercial traders were net long 21,961 contracts, a decrease of 1,159 contracts. The Commercial traders were net short 25,095 contracts, a decrease of 1,264 contracts. The Non-reportable traders were net long 3,134 contracts, a decrease of 104 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 25,095 contracts. This represents a decrease of 1,263 contracts in the net long position held by these traders.