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Interest Rates: Due for a Pullback?

by on January 21, 2012

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While March 30-Year Bond prices climbed to a new 4-week high recently, we feel they are richly priced and vulnerable to a temporary setback. The recent trend of US economic data has shown continued improvement, suggesting that the US recovery could be gaining some momentum. While the US Treasury market will continue to ebb and flow with developments surrounding the European debt debacle, it is possible that the worst of that situation has already been priced into the market. So far in 2012, European debt auctions have gone generally better than expected, and that has helped to thaw short term lending markets in the region. Also, interest rates yields in Italy and Spain have eased from their recent extremes. Those governments have come to the market with new issuance, but so far the market doesn’t appear to be extracting a high cost for their borrowings. One of the market’s primary fears became a reality back on Friday January 13th when Standard and Poor’s downgraded credit ratings on eight European countries, but even that didn’t seem to prompt a typical anxiety event. While that negative headlines generated some safety bids and in turn served to push March Notes above their December highs, March bonds were not able to take out their December highs. Europe’s ability to successfully tap the capital markets could extract some of the fear premium out of the US Treasury market in the coming weeks.

The recent trend of US economic data has provided some hope that the US recovery will begin to stand on its own. The US labor market saw continuing jobless claims fall precipitously from their June 2009 peak of 6.398 million to the lowest level in 13 quarters at 3.657 million as of December 10th. More recently, US June Consumer Confidence climbed to its best level in eight months to 64.5 in December, and manufacturing activity has shown signs of leaving its 2011 summer trough. Additionally, the US housing market has also shown signs of improvement, evidenced by a surge in building permits and construction spending and US housing starts reaching 685,000 in November, their highest level since April 2010. Meanwhile, inflation is beginning to increase, with the December Producer Price Index (excluding food and energy) coming in at an annualized rate of 3.0%, the highest level since June 2009. Coincidentally, there has been a growing chorus of Fed officials that are leaning toward a pro-inflationary stance, as indicated by the continued commitment to extremely low interest rates even in the face of modest inflationary pressures.

While the latest string of US Treasury auctions showed very active participation at extremely low interest rates, there is growing competition from other nations (particularly the Euro zone) as well as from the private sector seeking capital. This could present a challenge in the weeks ahead. If the situation in Europe shows any sign of progress, that could help drive up rates on US Treasuries as they try to attract demand.

March Bonds have traded within a trading of 146-12 to 134-22 over the past four months. The market’s inability to rally to new highs in the wake of the latest European debt downgrade and in the face of recent promises of more easy monetary policy from the US Fed suggests that prices are a bit rich at 145-00.

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Energy: Lower Track This Morning; Looking Outside For Direction

by on January 20, 2012

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!

CRUDE OIL MARKET FUNDAMENTALS: March crude oil prices traded down to a new 3-session low during the initial morning hours, which leaves this week’s high of $102.24 as resistance. Early weakness in the crude oil market comes from a rally in the US dollar and slight weakening trend in US equity markets. There appears to be fresh concerns regarding European demand following reports that Swiss refiner Petroplus was putting one of its 5 refineries up for sale, with the prospect of selling two more. The market also appears to have an interest in debt swap talks in Greece, which so far has been a slow and tedious process especially since bondholders are expected to take more than a 60% loss on their investment. Meanwhile, weakness this morning could be tempered by expectations that EU leaders will reach an agreement on an embargo of Iranian oil as early Monday. Recent price action in March crude oil could be seen as a bearish victory in the wake of yesterday’s unexpected crude inventory draw. EIA crude stocks fell 3.438 million barrels, quite different than expectations for a 2.0 million barrel build. While some traders viewed the large 3.7 million barrel gasoline build and fall in demand seemed to offset the large crude inventory decline. EIA crude stocks are 4.52 million barrels below year ago levels but stand 9.09 million barrels above the five year average. One of the key factors behind the surprisingly large draw came from a sharp fall in crude oil imports for the week, down to 8.265 million barrels per day from 9.907 million barrels the previous week. The refinery operating rate was down 1.9% to 83.7%, which compares to 83.0% last year and the five year average of 83.7%. The drop in the refinery rate was partially seasonal as operations begin to prepare for seasonal maintenance. The intermediate price trend continues to favor the bear camp, with downside targeting $98.50. Swing high resistance stands at $103.19.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: March RBOB prices trended lower throughout the overnight and early morning hours as they remained inside of yesterday’s range. It appears that the market is digesting yesterday’s unexpectedly large inventory build in the face of the Hovensa refinery closure. Prices took yesterday’s EIA data that showed a 3.717 million barrels decline in gasoline stocks hard. Current inventory levels are 150,000 barrels below last year but 4.274 million above the five year average. The other negative factor in yesterday’s report was the fall in average total gasoline demand for the past four weeks, which was down 6.1% compared to last year. Gasoline imports came in at 553,000 barrels per day compared to 444,000 barrels the previous week. This week’s price action and advance to the highest level since August 2nd keeps the bull camp in charge. However, further weakness this morning below $2.8097 would be a negative.

HEATING OIL: March heating oil continued to hover around the 200 day moving average during the overnight session ($3.0372), and it also remains trapped inside of yesterday’s range. Prices broke down yesterday in response to EIA inventory data that showed continued weakness in distillate demand. While the weekly stocks figures showed a smaller than expected build of 438,000 barrels, demand from an abnormally warm winter hangs over the market. EIA distillate stocks stand 17.796 million barrels below last year but 189,000 above the five year average. Distillate imports came in at 219,000 barrels per day compared to 163,000 barrels the previous week. Average total distillate demand for the past four weeks was down 4.43% compared to last year. EIA Heating oil stocks fell 2.263 million barrels last week, but the 33.308 million barrel reading is the lowest for this week since 2008. The breakdown in March heating oil prices from last week’s high of $3.1286 continues to respect downtrend channel resistance at $3.0445. The short term price trend favors the bear camp, with targeting below at $2.9580.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex has taken a lower track this morning and continues to look to the outside market for direction. The fundamental backdrop is a slight negative for the complex, but geopolitical risks (Iran) and recent boost in risk appetites offer support. February crude oil expires today, and that could be a factor injects an added level of volatility.

Interest Rates: Seems To Discount Credit Rating Downgrades

by on January 17, 2012

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!

Apparently the markets have mostly discounted the end of week credit ratings downgrade from Europe, as global equity markets are showing overnight gains. In fact, with Euro zone inflation readings overnight also prompting talk of easing from the ECB, the trade has found a number of issues to distract attention from last week’s downgrades. Even results from a Spanish debt auction overnight appear to have provided some fresh optimism for the equation this morning, as falling yields in the Euro zone go a long way in reversing the anxiety that was put in place late last week by the S&P. Sentiment might be drawing an additional lift from favorable Chinese data overnight, as portions of the trade have come to the conclusion that a downtick in Chinese inflation and signs of weakness in the Chinese GDP figures, have opened up the potential for Chinese easing. However, the slowing in China was limited and that in turn could tamp down fears that China might be flirting with a hard landing. With German ZEW economic expectations overnight showing a massive improvement to a reading of -21.6 from -53.8 in the prior reading, it isn’t surprising to see a quasi risk on tilt in place to start the US holiday shortened week. In the US action today, the market will have a somewhat thin scheduled report slate, with the Empire State Manufacturing report the only report due out. Expectations call for a modest increase in the Empire State figures and that might serve to embolden the bears in Treasuries further, especially if equities see additional lift in the wake of the data. There will be some key financial sector earnings released this morning and in the wake of somewhat disappointing JP Morgan results last week it is possible that bank earnings could damped the initial bullish tilt in equities and physical commodity markets. In looking forward, the markets will see a relatively light US scheduled data slate this week, with Industrial Production and PPI reports due out later this week but those reports aren’t expected to markedly alter existing sentiment.

The Commitments of Traders Futures and Options report as of January 10th for U.S. Treasury Bonds showed Non-Commercial traders were net short 34,694 contracts, an increase of 5,966 contracts. The Commercial traders were net long 15,942 contracts, an increase of 3,503 contracts. The Non-reportable traders were net long 18,752 contracts, an increase of 2,463 contracts. Non-Commercial and Non-reportable combined traders held a net short position of 15,942 contracts. This represents an increase of 3,503 contracts in the net short position held by these traders.

US Treasury 10 Year Notes showed Non-Commercial traders were net long 25,067 contracts, an increase of 15,921 contracts. The Commercial traders were net long 11,164 contracts, an increase of 4,497 contracts. The Non-reportable traders were net short 36,232 contracts, an increase of 20,419 contracts. Non-Commercial and Non-reportable combined traders held a net short position of 11,165 contracts. This represents an increase of 4,498 contracts in the net short position held by these traders.

Stocks: Equity Markets Sharply Higher During the Overnight Hours

by on January 17, 2012

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 traded sharply higher during the overnight hours, fueled by stronger than expected Chinese Q4 GDP data. While China GDP came in at the slowest rate in 10 quarters, it was better than expected and was taken as more evidence that their economy was avoiding a “hard-landing”. The positive growth data helped take the focus away from a series of European credit downgrades from Standard and Poor’s last Friday. The bulls gained more upside momentum this morning following a well-subscribed Spanish bill auction and strong German ZEW sentiment readings. The major European indices broke out to their best levels in more than 5 months. The strong overnight and early morning reports fueled gains in the major US indices of nearly 1.0% and that pushed some prices into new highs for their respective moves. US economic data this morning presents January Empire State Manufacturing, which is expected to show a minor improvement and its 3rd month in positive territory.

S&P 500: The March S&P 500 rallied more than 2.25% from the Friday morning low and has broken out into new high ground for the move. Robust Chinese growth data and favorable news out of Europe this morning have more than offset S&P credit downgrades from over the holiday weekend. The positive growth data has offered a lift in mining shares within the index. Looking ahead, the index will get the latest earnings reports from Wells Fargo and Citigroup before the Wall Street open, both of which are expected to show significant improvement from the year ago quarter. The Commitments of Traders Futures and Options report as of January 10th for S&P 500 Stock Index showed non-commercial traders were net short 8,816 contracts, an increase of 21,699, which represents a change from a net long to net short position. Non-commercial and non-reportable traders combined held a net long position of 10,628 contracts, a decrease of 6,469 in their net long position. The spec selling is seen as a negative short term force. Further upside in the index early this week could force new shorts to cover positions. The advance from the mid-December low has reached overbought territory, and that could make it more difficult for the index to continue its upward track. Upside targeting this morning comes in at 1305.00. Swing low support stands at 1272.70.

DOW: The March E-mini Dow forged an upside breakout on the charts and has climbed to its highest level since July 21st. This marks a 250 point rebound from Friday’s low and puts the bull camp back in control. Shares of Alcoa were up around 2.0% in pre-market trade, supported by gains in commodity-related shares. Meanwhile, price momentum indicators have become overbought and that could leave the market vulnerable for a near term correction. The Commitments of Traders Futures and Options report as of January 10th for Dow Jones Index $5 showed non-commercial traders were net long 20,085 contracts, a decrease of 816. Non-commercial and non-reportable traders combined held a net long position of 26,442 contracts, an increase of 749 in their net long position. The short term charts for the March E-mini Dow continue to favor the bulls, with swing low support standing at 12,253. The next resistance level stands at the July high of 12,554.

NASDAQ: The March NASDAQ punched through its October high (2396.50) in early morning action, which leaves 2418.25 as the next upside resistance level. Better than expected GDP data out of China is seen supporting technology shares in the NASDAQ, like Apple which was up more than 1.0% in early German trade. The Commitments of Traders Futures and Options report as of January 10th for NASDAQ Mini showed non-commercial traders were net long 44,339 contracts, an increase of 17,287. Non-commercial and non-reportable traders combined held a net long position of 66,128 contracts, an increase of 19,913 contracts in their net long position. It is possible that net spec long positioning has increased after prices rallied 1.5% since that report window closed. The early edge goes to the bulls, with uptrend channel resistance seen at 2408.00.

TODAY’S MARKET IDEAS: The bull camp has the edge to start this morning, helped by robust Chinese GDP data and upbeat news out of Europe. However, the index has made the upside charge with severely overbought momentum indicators, and that leaves them susceptible to a downside correction. The latest sentiment readings have reached their most optimistic levels since early May, and that is another force reflecting a level of complacency in the market. We see a little more upside in the March S&P 500 toward 1305.00, 12,554 in the March E-mini Dow. Earnings this morning from Wells Fargo and Citigroup that falls short of estimates could serve this overbought market a negative blow.

Currencies: Good China Data Pressures Dollar

by on January 17, 2012

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!

DOLLAR: The Dollar has come under significant pressure this morning as well received Chinese economic data helped to lift macro-economic sentiment. In addition, global markets appear to have taken the negative impact of recent credit rating downgrades in Europe in stride. While this has eroded a large portion of the Dollar’s recent safe-haven support, a further pullback beyond last week’s lows may require clearer signs of progress from Greek debt negotiations. With few US economic numbers this morning that could diminish broad-market optimism, however, the Dollar should remain squarely on the defensive during the balance of today’s session. The Dollar may find support around the 80.95 level and may need another European risk flare-up to recover any sizable portion of this morning’s losses. The Commitments of Traders Futures and Options report as of January 10th for US Dollar showed Non-Commercial traders were net long 44,730 contracts, an increase of 2,337 contracts. The Commercial traders were net short 53,206 contracts, an increase of 3,266 contracts. The Non-reportable traders were net long 8,476 contracts, an increase of 929 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 53,206 contracts. This represents an increase of 3,266 contracts in the net long position held by these traders.

EURO: The March Euro took a large step away from Friday’s lows as the market appears to have gotten past the recent series of credit rating downgrades. A private survey of German economic sentiment also saw the largest one-month increase in history, providing further strength to this morning’s Euro rebound. The wild card remains Greek debt, as a total collapse in current negotiations could derail this week’s rally. The March Euro may find resistance around the 128.20 level and should hold onto a large portion of this week’s recovery by the close. *The “combined” spec and fund Net Short position in the Euro has hit a new record level at 182,037 contracts. *The Non-Commercial Net Short position in the Euro has hit a new record level at 153,142 contracts. The Commitments of Traders Futures and Options report as of January 10th for Euro showed Non-Commercial traders were net short 153,142 contracts, an increase of 15,396 contracts. The Commercial traders were net long 182,037 contracts, an increase of 14,454 contracts. The Non-reportable traders were net short 28,895 contracts, a decrease of 943 contracts. Non-Commercial and Non-reportable combined traders held a net short position of 182,037 contracts. This represents an increase of 14,453 contracts in the net short position held by these traders.

YEN: The March Yen was briefly able to post a new 2-month high before sliding back into the recent trading range. Strong Chinese data has provided some additional support for the March Yen but the upside may be limited given the ongoing threat of central bank intervention. The March Yen may test resistance near the 130.90 level and should hold onto moderate support throughout the session.

SWISS: The March Swiss received a boost from improved Euro zone sentiment, which may have put the brakes on a move towards new low ground. Uncertainty with Swiss National Bank leadership may increase market talk for a removal of their current peg with the Euro, but Swiss economic data needs to improve dramatically to take monetary easing measures fully off the table. The March Swiss may find resistance again near the 105.95 level and should continue to benefit from rising market sentiment in Europe.

POUND: The March Pound has been able to maintain early strength this morning as
improving sentiment from the Euro zone helped to lift prices well clear of Friday’s lows for the move. A sharp drop in UK inflation this morning may have increased chances for fresh quantitative easing later this year but strong equity markets on both sides of the Atlantic will help to underpin this morning’s gains. The March Pound may find resistance near the 154.00 level and would be a major beneficiary of any further broad market rally in equities.

CANADIAN DOLLAR: The March Canadian found considerable support from overnight Chinese economic data as well as from stronger energy and metals prices that lifted to a 2-week high this morning. With the Bank of Canada unlikely to show any sign of easier Canadian monetary policy at today’s meeting, the March Canadian should be able to extend this morning’s early rally. The March Canadian may find resistance near the 98.80 area and could post a new high for 2012 if equity and commodity markets put together a strong up move later in the session.

TODAY’S MARKET IDEAS: The Dollar is likely to remain under pressure thorough the rest of today’s trading and would need another risk flare-up to see any substantial recovery from these current price levels. The March Canadian could make a strong move above the 99.00 level if broad-market optimism fuels a rally in global equity and commodity markets.

Wheat: Lower Prices May be Necessary to Attract Demand.

by on January 13, 2012

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NEAR-TERM MARKET FUNDAMENTALS: There was not much in the way of positive news from the USDA yesterday and the market gave back a large portion of the late December rally. March wheat closed sharply lower on the session yesterday as both wheat and corn data from the USDA was bearish enough to spark aggressive selling. US usage came in below trade expectations and wheat plantings for the 2012 crop came in well above trade expectations. The USDA pegged total winter wheat planted acreage for 2012 at 41.947 million acres as compared with trade expectations for near 40.933 million. Hard red winter wheat acreage was up 662,000 above trade expectations to over 30 million and soft red was up nearly 600,000 above expectations at 8.37 million. Ending stocks for the 2011/12 season were pegged at 870 million bushels, about 30 million above trade expectations. While exports were revised higher (as expected) feed usage was revised lower by 15 million bushels to 145 million which was bearish as traders expected a boost in wheat feeding. Wheat stocks as of December 1st were pegged at 1.656 billion bushels as compared with trade expectations at 1.695 billion. For the world report, 2011/12 ending stocks were pegged at 210.02 million tonnes, up more than 2 million from trade expectations and up from 199.9 last year and 202 million for the 2009/10 season. Weekly export sales for wheat came in at 365,200 metric tonnes for the current marketing year and 73,000 for the next marketing year for a total of 438,200. Cumulative wheat sales stand at 77.2% of the USDA forecast for 2011/2012 (current) marketing year versus a 5 year average of 75.2%. Sales of 279,000 metric tonnes are needed each week to reach the USDA forecast. On top of the weekly sales, Algeria bought 300,000 tonnes of optional origin milling wheat. Traders believe the origin is likely France or Argentina. The EU granted export licenses this week for 168,000 tonnes which pushed cumulative exports since the start of the 2011/12 season to 7.5 million tonnes as compared with 11.9 million last year at this time. March wheat is now down as much as 78 3/4 cents or 11.7% from the 2012 peak. Japan bought 139,000 tonnes of US wheat for March shipment. Egypt is tendering for optional origin wheat overnight with results expected this morning.

TODAY’S GUIDANCE: The technical action turned very weak with yesterday’s collapse and the build-up in open interest in the last few weeks suggest that the trade could stay volatile. Lower prices may be necessary to attract demand.

TODAY’S MARKET IDEAS: March wheat resistance comes in at 622 with 588 as next support.

Soybeans: South American Rain in 6-10Day Key.

by on January 13, 2012

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!

NEAR-TERM MARKET FUNDAMENTALS: Outside market forces are looking slightly negative today. A weak demand tone for the USDA clashed with short-term positive demand news to helped the market see a strong recovery off of the early lows yesterday. March soybeans were down 53 cents early in the session yesterday but managed to rally 37 1/4 cents off of the early lows to late session highs. The USDA data was mostly bearish across the board but especially for the corn market and a limit-down move in corn helped to drive soybeans sharply lower. US soybean production came in at 3.056 billion bushels, up 10 million from previous estimate. Ending stocks, however, were pegged at 275 million bushels as compared with trade expectations looking for 233 million. Exports were revised lower by 25 million and crush down by 10 million. Without a serious drop in South America production, the USDA was in a position to drop usage and the increase in production and lower usage fell directly to the bottom line. World ending stocks for the 2011/12 season came in at 63.43 million tonnes as compared with 64.54 million last month. December 1st soybean stocks came in at 2.366 billion bushels, up 42 million from trade expectations. Weekly export sales for soybeans came in at 434,200 tonnes. Sales of 296,000 metric tonnes are needed each week to reach the USDA forecast. Net meal sales came in at 47,600 tonnes which was below trade expectations and compares with sales of 99,000 tonnes needed each week to reach the USDA forecast. Net oil sales came in at just 1,100 metric tonnes which was also lower than expected. As of January 5th, cumulative soybean oil sales stand at 31.7% of the USDA forecast for 2011/2012 (current) marketing year versus a 5 year average of 42.0%. Sales of 10,000 metric tonnes are needed each week to reach the USDA forecast. On top of the weekly sales, private exporters reported to the USDA export sales of 414,000 tonnes of US soybeans to unknown destination. The USDA news was negative but traders believe that the market would not be down as much as it was except for the outlook for improving weather in South America in another 8-9 days after heavy rains in the past few days. Traders will be closely monitoring weather forecasts in South America for direction as a return to a hotter and drier condition could cause further production losses while a shift to a wetter pattern would hold down losses. South Korea bought 55,000 tonnes of South America meal. India vegetable oil imports for December totaled 669,000 tonnes, down 22%. China officials want to raise self sufficiency in edible oils with an output target for domestic production at 24.4 million tonnes by 2015 from 20.1 million tonnes this season.

TODAY’S GUIDANCE: The South America crop conditions improved with the soaking rains this week and there is follow-up rains in the forecast for late in the 6-10 day period. This rain window will be important and could mean the difference between continued weak demand for US soybeans or a jump in demand as buyers shift away from South America if production concerns pick-up.

TODAY’S MARKET IDEAS: The technical action is weak. March soybean resistance is at 1191 1/4 with 1174 3/4 and 1158 as support. Look for 1158 to 1191 range for now.

Corn: Will Take Positive Weather to Avoid More Selling Pressure

by on January 13, 2012

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NEAR-TERM MARKET FUNDAMENTALS: The USDA data showed a larger than expected supply of corn in the US and with lofty expectations going into the report and a hefty speculative net long position, a long liquidation trend is feared over the near-term “if” South America weather forecasts turn more normal. Big rains this week will stabilize crop losses but it will be important to see more rains by late next week and into next weekend in order to avoid further losses. March corn traded for just a few minutes yesterday before locking down the 40 cent limit. The market stayed limit down for the first two hours of trade and then saw a 2 1/2 cent trading range near the mid-session. The USDA data was very negative for grain stocks and production data and this helped spark aggressive selling from speculators and producers early in the day. The USDA pegged ending stocks for the 2011/12 season at 846 million bushels which was down two million from last month but near 100 million bushels above expectations. Final production was pegged at 12.358 billion bushels, up 48 million bushels from their previous forecast and up near 95 million from expectations. Yield was 147.2 vs. 146.7 previous. Exports were revised higher by 50 million bushels which was one of the few bright spots for the report. World ending stocks were pegged at 128.14 million tonnes from 127.19 million last month and trade expectations near 123.5 million tonnes. Argentina production was revised down by 3 million tonnes to 26 million and Brazil was left unchanged. Some traders believe South America production is down at least 10 million tonnes from December expectations and not the 3 million from the report. December 1st corn stocks were pegged at 9.642 billion bushels which was up 250 million from trade expectations. Weekly export sales for corn came in at 321,500 metric tonnes for the current marketing year and cancellations of 23,000 for the next marketing year for a total of 298,500 tonnes which was well below trade expectations. Cumulative corn sales stand at 59.6% of the USDA forecast for 2011/2012 (current) marketing year versus a 5 year average of 53.9%. Sales of 493,000 metric tonnes are needed each week to reach the USDA forecast. Demand news is mixed but there appears to be increased interest in Australia feed wheat. The Philippines bought 55,000 tonnes of Australia feed wheat for May shipment.

TODAY’S GUIDANCE: With the large spec net long going into the report and perceptions that US producers have not sold a lot of old crop or new crop corn, selling pressures could resume next week “if” the January 21st to 26th rain event in Argentina looks fruitful. In other words, it will take positive weather news to avoid further selling pressures next week.

TODAY’S MARKET IDEAS: Short-term resistance for March corn comes in at 627 with 609 3/4 as a near-term pivot price. Support emerges at 600 and 586.

Special Report: Corn Volatility Alert!

by on January 11, 2012

Below is an excerpt from The Hightower Report’s most recent Special Report. To receive access to this report, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

Wide ranges of estimates for ending stocks and production for the upcoming USDA reports and continued weather uncertainties for late January and early February leaves the corn market in a potentially volatile trade setup into and beyond the Thursday, January 12th report window.
In January every year, the USDA Supply/Demand, Crop Production and Quarterly Grains Stocks reports are released on the same day, and for the last five years, the corn market has made limit moves on each of those days. In 2011, the market hit the 30 cent limit-up move and closed 24 higher on the day. In 2009 and 2010, the market closed down the 30 cent limit. In 2007 and 2008, the market closed up the 20 cent limit. With the wide range of estimates this year, prices look very volatile for later this week.

On top of that, extremely high temperatures after weeks of below normal precipitation has producers in Argentina nervous over the possibility that the crop had already experienced an extreme loss in yield ahead of significant rains that are due to start today. Most growing areas were well above 100 degrees over the weekend into Monday ahead of the rain, and losses are mounting. The expected lack of a shift in the weather pattern in spite of a good rain event this week leaves the market vulnerable to significant upside potential if the soils dry up again into late this month. Traders are concerned that after receiving 1/2 to 1 1/2 inches of rain this week, crops will be back into a stressful condition in another week. Temperatures are expected to move higher into the coming weekend, and there currently is no other organized rain event in the forecast.

Traders expect corn production in the US to be revised lower by about 45 million bushels for the USDA production report on Thursday morning, due to a revision lower in yield or even harvested acreage. However, there is a 210 million bushel range for the report. US Ending stocks are expected to be revised down by about 100 million bushels in Thursday’s report from the 848 million that was estimated in December. However, there is a 433 million bushel range of estimates. Traders are looking for December 1st corn stocks to be down about 660 million bushels from the previous year. Stocks last year were 10.057 billion bushels. However, there is a 500 million bushel range of estimates for that number.

Global ending stocks for the 2011/12 season are expected to be around 123.5 million tonnes, down from 127.1 million estimated last month. However, with the damage done to the South American crop since January 1st, many traders see the ending stocks eventually falling well under 120 million. If we assume an ending estimate of 119 million, world ending stocks would fall to a 50-day supply, the lowest since 1973. This compares to 56 days last year and 64 days two years ago.

Some traders are looking for lower yield, lower harvested acreage, higher feed usage, better ethanol demand and higher exports due to the sharp drop in Argentina production. This could spark extreme tightness in the old crop ending stocks for the US and the world. However, with higher plantings and normal yield this coming season, traders are expecting a lesstight situation for 2012/13. And while we debate “how tight” U.S. and world ending stocks will be if we lose 8-12 million tonnes of corn in South America, a minor jump in US planted area and a 164 bushel per acre yield for the 2012 crop would result in an increase in US production of about 50 million tonnes.

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Sugar: Without Outside Help Market Looks Vulnerable

by on January 4, 2012

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The market seems to be in the process of absorbing a rebalancing period for index funds where index buyers could be buying 25,000 contracts of sugar this week. Sellers were hard to find yesterday as other fund traders appeared to also be active buyers with a shift in psychology to a more positive view on commodity markets. March sugar closed sharply higher on the session yesterday and managed to push to the highest level since November 16th. Outside market forces showed nothing but green lights for commodity bulls yesterday and sugar is sensitive to both the dollar and energy markets. The surge up in energy and equity markets and a sharp break in the US dollar helped to support the rally. Buyers were also active with sharply higher trade for metal and grain markets. China economic news was better than expected and this supported the market as well as traders see emerging market growth as a positive demand force. Outside market forces look more neutral for today but index fund buyers may still be active ahead. Commodity Index traders held a net long position of 191,187 contracts in the last COT report. For the two major index funds, traders believe that these funds will be buying near 25,000 contracts in the first week of the year. Traders believe new crop supply from Thailand will be hitting the global market by mid-January and that this could pressure the cash markets.

TODAY’S GUIDANCE: Without help from outside market forces, the sugar market looks vulnerable to a resumption of the downtrend but the buying may continue for at least the rest of the week.

TODAY’S MARKET IDEAS: March sugar resistance comes in at 24.81 with support back at 23.81. Use 22.09 as next target when the market resumes the downtrend.

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