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NEAR-TERM MARKET FUNDAMENTALS: Traders await USDA supply/demand report news for direction this morning. Traders believe US ending stocks could be revised slightly lower by a few million bushels from 870 million last month due to higher exports. World ending stocks are also expected to inch lower by about 1 million tonnes from 210 million last month which was a 12-year high. March wheat closed slightly lower on the session yesterday after a volatile two-sided 17-cent trading range. A turn from lower to higher for the US dollar and weakness in outside market forces helped drag the market from higher to lower on the day. The early rally challenged Tuesday’s highs and the mid-session break pushed March and July wheat to the lowest level since January 31st. A sharp break in corn and weakness in gold and the stock market helped to drive the market to the lows of the day. Talk of the overbought condition of the market and ideas that warmer weather in Europe will ease crop concerns soon helped to pressure. For the weekly export sales report, also released before the opening, traders expect sales near 550,000 tonnes from 554,100 last week. Spain bought 200,000 tonnes of US wheat. Tunisia bought 50,000 tonnes of optional origin wheat. Iraq bought 100,000 tonnes of Australian wheat. Bangladesh is tendering to buy 50,000 tonnes of optional origin wheat.

TODAY’S GUIDANCE: On bearish news this morning, March wheat support should emerge near 647 3/4 and then 636 3/4. On supportive news, a resumption of the uptrend leaves 695 1/2 and 705 1/4 as next upside targets.

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NEAR-TERM MARKET FUNDAMENTALS: The results of the USDA supply/demand report should help set the tone today. US ending stocks are expected to come down by just a few million bushels from 275 million posted in the January report. Traders see Brazil production near 71.3 million tonnes from 74 million in the last USDA update. Argentina production is expected near 48 million tonnes, down from 50.5 million in January. World ending stocks are expected near 61.4 million tonnes from 63.43 million last month. News of too much inflation in China is seen as a negative for many agricultural commodity markets. March soybeans closed slightly lower on the session yesterday after a 22 cent two-sided and volatile trading session. A weaker dollar and optimism for a Greek bailout package helped to support. However, a turn down in the US stock market, a rally in the US dollar and talk that better weather seems to be stabilizing crop estimates for South America helped to spark long liquidation selling pressures and a move lower on the day into the mid-session. Good rains in Argentina areas this week has many traders talking about improving crop conditions ahead. Southern Brazil looks to turn drier for much of next week and this is a slight concern but other areas seem to be improving. March oil pushed higher and to the highest level since January 5th while March meal pushed sharply lower into the mid-session and to a 4-session low. For the weekly export sales report, also released before the opening, traders expect sales for soybeans near 625,000 tonnes from 368,400 last week. Meal is expected near 125,000 and oil at 7,500 tonnes. The China National Grain and Oils Information Centre suggests that the import demand could be sluggish near-term as stocks at ports reached 7 million tonnes, up 200,000 from mid-January. They indicated that January imports will fall to 4.3 million tonnes from 5.42 million in December. However, the group went on to indicate that 1st quarter imports should reach 12.3 million tonnes, up 1 million from last year. Meal demand in the US could remain sluggish as the weekly broiler report showed that eggs set for the week were down 6% and chick placements were down 5% from last year. The Brazil government (Conab) reduced their production estimate to 69.23 million tonnes from 71.75 million in January. The USDA was at 74.00 million in January.

TODAY’S GUIDANCE: With a double top at 1244 3/4, a bearish report this morning could spark selling to push down to support levels for March soybeans at 1208 1/2 and 1197 1/2. On bullish news, a resumption of the uptrend leaves 1290 1/4 as next upside target on a move over yesterday’s highs.

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NEAR-TERM MARKET FUNDAMENTALS: The results of the USDA report should set the tone today. Traders see US ending stocks down about 50-75 million bushels due to expanding export demand. Ending stocks in January were pegged at 846 million bushels. Traders see Brazil production near 59.2 million tonnes from 61 million in the last USDA update. Argentina production is expected near 21.6 million tonnes, down from 26 million in January. March corn closed slightly higher on the session yesterday and December corn slightly lower. The early rally pushed the market up to a new high for the week but resistance at last week’s highs held and the market broke sharply lower on the day and down to the lowest level since January 31st. March had a 16 3/4 cent range with volatile, two-sided trade. Outside market forces shifted from positive to negative and back to slightly positive on the session and talk of poor ethanol plant profit margins helped to spark long liquidation selling. Ethanol production for the week ending February 3rd averaged 923,000 barrels per day. This is down 1.7% vs. last week and up 2.6% vs. last year. Total Ethanol production for the week was 6.461 million barrels. Corn used in last week’s production is estimated at 98.32 million bushels. Corn use needs to average 94.619 million bushels per week to meet this crop year’s USDA estimate of 5 billion bushels. Weekly production was down to the lowest level since the week of November 18th. Stocks were 21.063 million barrels. This is up 0.56% vs. last week and up 7.6% vs. last year and another new all-time high. For the weekly export sales report, also released before the opening, traders expect sales for corn sales near 975,000 tonnes from 974,900 last week. The Brazil government (Conab) believes that producers will increase plantings for the winter corn crop and that production could reach 60.83 million tonnes. The USDA was at 61 million in January.

TODAY’S GUIDANCE: Supportive news this morning could spark a resumption of the uptrend with 657 1/2 and 682 1/2 as next key resistance levels for March corn. Bearish news might spark a sell-off with 628 and 621 1/4 as next good support.

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The more positive tilt to the global economy and further short-covering plus the outlook for smaller planted area for the coming season are factors which have supported the recent uptrend. However, the market does not seem to have the fundamentals for much in the way of follow-through to the upside without help from outside market forces. The Australia flooding situation is expected to peak today along many key river spots and the region looks drier over the next few weeks. Industry experts believe that the crop could still be near a record high of 5 million bales as compared with last year’s record harvest of near 4 million bales. Australia is the third largest exporter of cotton and news that only 5% of the irrigated cotton had reached maturity may be seen as negative. China futures closed higher overnight which is a positive development as the market consolidated the 1.5% surge from yesterday. With a stronger US economy, traders see improving consumer confidence and better retail sales in apparel and home furnishings and this has helped support better investor interest in cotton. The COT reports as of January 31st showed Non-Commercial traders were net long 29,289 contracts, a decrease of 5,107 contracts for the week. The selling trend is seen as a short-term bearish force. The USDA supply/Demand update will be out on Thursday and there have been revisions lower in global demand in recent reports and bulls are hoping for some stability or even improvements in global demand. Traders also look ahead for the annual planting survey from the National Cotton Council on Friday.

TODAY’S GUIDANCE: Australia still looks for a record size crop this season and the flooding appears to have peaked. Traders seem hopeful for better news later this week but living up to this expectation may be difficult.

TODAY’S MARKET IDEAS: Close-in resistance for March cotton comes in at 96.88 with support at 95.28. A move out of this range may point to next direction. Keep 91.91 and 90.13 as next downside objectives.

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News that northern Australia should be drier than normal for the next few weeks plus reports that there has been no serious damage so far helped to pressure the sugar market overnight. In addition, traders see India allowing a further 1 million tonnes of exports after government meetings on the topic today. Talk that demand for Thailand sugar has picked up in the past week due to a premium structure helped to support the market in recent days. March sugar closed 56 higher on the session (up 2.3%) yesterday and moved to the highest level since January 27th. Fears of crop damage due to flooding in Australia plus strong buying from fund traders on ideas that sugar and many other commodity markets would trade higher this year with an expanding global demand base helped to support. The market now anticipates a 3-5 million tonne surplus for the 2012/13 season which is down significantly from this year but still a surplus. The real wild card could be China where it is possible that they re-stock strategic reserves which have been drawn down in recent years. China sugar production for the October to January time frame reached 5.22 million tonnes which is down 8% from a year earlier. The China Sugar Association belies that production will reach 12 million tonnes for the season, up 15% from the previous year. In addition to the sugar deficit in China, demand might increase this year as China attempts to use less corn for making high fructose corn syrup. Russia imported 2.332 million tonnes of sugar in 2011, up 11.8% from 2010 but with a record beet crop this past year, imports are expected to be very small or none at all for this year.

TODAY’S GUIDANCE: The March contract shows significant resistance at the 24.52 level and it will take another move and close above this level to turn the trend up. Support for March sugar comes in at 24.10 and then 23.91. A push and close through resistance leaves 25.89 as next upside target.

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OUTSIDE MARKET DEVELOPMENTS: Asian equity markets were generally stronger this morning, off mostly up beat data flows. However, European equities were mixed to slightly weaker overnight off some softer than expected guidance from a couple multinational heavyweights. In the early action today, US equities were showing mixed action, and it would appear that the US market is looking for some guidance from scheduled data or perhaps from a series of Fed speeches later today. From the US scheduled data front, the markets will be presented with a private layoff report early on and that will be followed by weekly claims figures, which are expected to post a minor decline. While the market will also see a US Productivity reading, the trade doesn’t think that today’s Productivity readings are likely to have a noted impact on Fed policy. It is also possible that a series of Fed speeches/testimony could have an impact on precious metals and physical commodity markets during the session today. A portion of the trade thinks the Fed will hint at more assistance for the US economy.

GOLD MARKET FUNDAMENTALS: At least to start today, the gold market appears to lack a definitive opinion, even though Asian stocks were higher and the S&P seemed to have somewhat positive views toward the potential track of the European economy. In fact, S&P suggested that the odds were tilted in favor of a mild European recession/slow recovery and that is certainly a better proposition than the hard landing or worse fears that dominated the European landscape off and on for the last 12 months. Gold might have been partially undermined by predictions of a slight decline in Indian gold imports for the month of January versus year ago levels, especially after the Indian gold price peg was lifted earlier this week. However, gold reportedly saw some improved demand in Asia overnight but that might have been catch up action to the gains forged in the US Wednesday gold trade. Some traders think the $1,750 level has become a pivot point in the April gold contract, but others think gold will need to see more gains in the Euro and or gains in US equities today just to put the bull camp in definitive control of gold prices. It would seem like gold prices have continued to mostly track physical commodity market fundamentals and therefore the claims figures today might serve to set the tone of prices for the Thursday morning US trade. Comex Gold Stocks were 11.493 million ounces down 964 ounces. Gold stocks have declined in 12 of the last 20 days.

SILVER MARKET FUNDAMENTALS: The March silver contract continued to consolidate in the overnight action and to the bear camp that hints at a loss of momentum. However, the bull camp might spin the consolidation action into a positive by suggesting the market is simply building a base above $33.00. Like gold, silver continues to track classic physical commodity market fundamentals and that means the bulls need a stronger Euro and something positive from US scheduled data and or from the US Fed. However, in the early action today silver seems to be lagging relative to gold and platinum prices and that might embolden some in the bear camp. In fact, silver seems to be tracking closely with copper and that could suggest the silver trade might be looking for direction from US claims and from the US equity markets. Some silver bulls are hopeful that dialogue from various Fed sources today will serve to provide some fresh lift to silver prices. Comex Silver Stocks were 128.983 million ounces up 312,407 ounces. Silver stocks have increased 14 of the last 20 days.

PLATINUM: The platinum market has also shown some consolidation action of late but prices enter the Thursday US trade within close proximity to this week’s highs. It would also seem like platinum is tracking with gold instead of silver and copper and that might mean platinum could be less dependant on the scheduled data than some might have expected. Platinum might be garnering some support from news that labor conflict has continued at Impala, with that company reportedly firing up to 13,000 workers who participated in what was ruled to be an illegal strike action. A critical pivot point might be seen in April platinum at $1,616 but the early action seems to hint at a possible return to the highest levels since November 15th on the charts.

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CRUDE OIL MARKET FUNDAMENTALS: March crude oil broke below the $97.00 handle this morning, falling to its lowest level since December 20th. It seems that yesterday’s larger than expected EIA inventory build and new 11-year low in gasoline demand has offset optimism from recent economic data points. The outside market tone is flat to fractionally lower this morning, with slight losses in equity markets and the Euro currency. EIA crude stocks rose 4.175 million barrels, which was about double market expectations. Some traders were concerned over total US product demand, which came in at 17.7 million barrels per day, and that might be indicative of a sluggish economy. Current inventory levels are 4.217 million barrels below year ago levels but 10.405 million barrels above the five year average. Crude oil imports for the week stood at 8.88 million barrels per day compared to 8.853 million barrels the previous week. The refinery operating rate slipped 0.4% to 81.8%, compared to 84.5% last year and the five year average of 83.47%. Some traders saw the drop in refinery capacity as a factor that might have inspired the large build in crude stocks last week. March crude oil has downside support below at its 200 day moving average at $96.22. This level also corresponds with downtrend channel support off of the January high, which adds a little more credence to the level. The early edge goes to the bear camp, with resistance at $98.40 and then $99.49.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: March RBOB prices extended their decline following yesterday’s bearish reversal. The market is growing more concerned over extremely weak US gasoline demand readings at the same time that supply concerns ease over recent refinery closures. Meanwhile, yesterday’s price decline and lower cash prices seemed to inspire modest buying interest. The test will be if that buying interest shows up again this morning. Yesterday’s EIA report showed a larger than expected increase in gasoline stocks of 3.017 million barrels. It is possible that some of that large build came on rising retail gasoline prices that might have weighed on demand. The build reduced the deficit compared to year ago levels to 6.081 million barrels. Average total gasoline demand for the past four weeks was down 7.29% compared to last year. Gasoline imports came in at 1.045 million barrels per day compared to 722,000 barrels the previous week. The early bias favors the bear camp, while the short-trend trend points up until the $2.8360 low comes out. It is possible that the March RBOB is setting up a double top pattern on the short term charts, with support at $2.8537. Confirmation below that support level targets a deeper break toward $2.7740.

HEATING OIL: March heating oil prices are on a slightly lower track during the overnight hours, pressured by weakness in the crude oil market. Yesterday’s price action fell short of Tuesday’s high of $3.0900, reversed and established a lower low. This suggests that the higher prices has encouraged more supply on to the market and caused the rejection in upward action. The negative reversal in heating oil prices came on the heels of a slight EIA distillate inventory decline of 135,000 barrels. EIA distillate stocks are 18.668 million barrels below last year but 7,000 above the five year average. Distillate imports came in at 192,000 barrels per day compared to 146,000 barrels the previous week. Average total distillate demand for the past four weeks was down 1.65% compared to last year. Heating oil stocks slipped 1.256 million barrels on the week and registered their lowest level for this week of the year since 2008. March heating oil prices have support below at $3.0340. Further weakness below this level would mark a breakdown out of recent congestion and point to a deeper break toward $2.97. Near term resistance comes in at $3.0700.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex is lower to start this morning, continuing to adjust to yesterday’s weak EIA readings. March crude oil has support below at its 200 day moving average this morning at $96.22. The price pattern off of this week’s high of $101.39 leaves the potential for a further break toward $95.40. March RBOB is closing in on short term support at $2.8537, and further weakness below this level targets a break toward $2.7740. The market appears to be pricing in the extremely weak demand readings and probably needs more refinery problems to tighten supplies and support the market.

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It may take some help from the export market and increased interest from fund traders but cattle appears to have the supply fundamentals to continue to attract speculative interest for the coming season. The inventory report showed the smallest herd in 60 years. The feeder supply outside of feedlots came in down 4% from last year. Total cattle and calves as of January 1st came in at 90.769 million head, which was 97.9% of last year. The calf crop was 35.313 million head, 98.9% of last year. Traders see tightening supply into the spring as a potential bullish force. Short-term, however, it will be important to see the beef demand show some improvement. Boxed beef cutout values were down 92 cents at mid-session yesterday and closed $1.25 lower at $182.88. This was down from $183.52 the prior week and is the lowest beef market since January 20th. April cattle closed moderately lower on the session yesterday and stayed in a fairly tight range for the last several hours of trade after volatile trade early in the day. The market pushed sharply lower on the session early to push down to the lowest level since January 19th. The market managed a 50 point bounce off of the early lows into the mid-session as the selling slowed. Cash cattle traded $2.00 lower on the week last week to $124.00 and the cattle inventory report confirmed the lowest herd in 60 years, but this news was not a surprise to traders. The surge up in the US dollar and a sharp break in the stock market were seen as bearish forces for the early weakness. The estimated cattle slaughter came in at 114,000 head yesterday, which was right as expected but down from 123,000 last week and down from 121,000 a year ago as this time. Trend-following fund traders (non-commercial less index funds) were net long just 50,907 contracts as of January 24th, and this is down from 116,518 contracts in September of 2010. Index fund are net long near 117,000 contracts and have been net long as much as 156,752 contracts.

TODAY’S GUIDANCE: The more positive tilt to outside markets appears to be helping cattle quickly recover from yesterday’s weakness. However, beef prices are still struggling to move to a higher level and feedlot operating margins are deep in the red. The short-term cash fundamentals look a bit sloppy while the longer-term outlook is for sharply higher prices into the spring.

TODAY’S MARKET IDEAS: With the short-term overbought condition, traders might consider buying 2-3 calls and selling 1 futures for the April or June contracts. On a 150 point break, lift the futures and hold the calls for a spring rally. April cattle may show some technical support near 127.75 and a move through resistance at 128.72 would suggest a swing up to 130.62.

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A recovery in loin prices late yesterday and ideas that supply will tighten ahead helped to support the strong action overnight. In addition, traders believe that livestock markets are likely to attract increased interest from fund traders this year as a weaker dollar and a firm global demand for protein remain a positive force. In addition, pork exports hit a record high in November (total and to China) and China buyers are back from holiday this week. Trend-following fund traders (non-commercial less index funds) were net long just 13,296 contracts as of January 24th and this is down from 57,697 contracts in late October. Index fund are net long near 85,000 contracts and have been net long as much as 127,379 contracts. April hogs closed slightly lower on the session yesterday but well up from the early lows, which came in right on the day session opening. The market pushed moderately lower on the session in early trade but held support above Friday’s lows. February hogs also pushed lower early yesterday but held above last week’s lows. Cash hogs traded mostly $1.00 lower as packers appear to be cutting back on the slaughter pace for hope of improving margins. However, the cut-back is a short-term negative demand force as packers are able to buy all the hogs they needed at lower prices due to the reduced slaughter pace. Packer margins are deep in the red after persistent weakness in pork product last week and a bounce in cash hog values. Loin prices were down to $91.41 late last week from $98.71 one week previous. The CME Lean Hog Index as of January 26th came in at 87.35, up 59 cents from the previous session and up from 85.27 the week before. The estimated hog slaughter came in at 406,000 head yesterday, which was below trade expectations. This was down from 427,000 last week but up from 381,000 a year ago as this time. Pork cutout values, released after the close yesterday, came in at $83.91, up 65 cents from Friday but down from $85.27 the previous week.

TODAY’S GUIDANCE: Perhaps pork product prices might show some recovery this week when China buyers are back from holiday. Loins jumped late yesterday to help spark a recovery. The downside looks limited for April futures and we would not rule out an export/fund led rally into the spring.

TODAY’S MARKET IDEAS: April hog support is at 87.25 and 86.90, with 88.10 and 89.37 as resistance. Watch for choppy to higher trade with 90.42 as objective.

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The coffee market remains firmly entrenched within the recent trading range as prices have found little benefit this morning from a weaker Dollar and early strength in global equities. Improving macro-economic sentiment due to positive developments in the Euro zone has provided limited support for the coffee market but has not been enough for prices to shed their recent negative tone. Many European trade houses are projecting the upcoming Brazilian coffee crop at 55 to 58 million bags, which if accurate could potentially offset supply shortfalls from several major producers this season. With the Lunar New Year holidays concluding, coffee supplies from Vietnam may increase during the next few weeks. There are reports of an outbreak of the “roya” fungus in the Antigua coffee production region of Guatemala. ICE exchange coffee stocks were up 5,802 bags at 1.529 million as of January 26th, with 45,239 pending review.

TODAY’S GUIDANCE: The Dollar and global equity market may not be making strong enough moves for the coffee market to receive significant support this morning. With the shadow of Brazil’s potential “bin-buster” crop hanging over the market this far ahead of harvest, March coffee may need to receive fresh news of supply problems in order to break out above this week’s trading range.

TODAY’S MARKET IDEAS: March coffee resistance will be at 221.90 this morning, with 216.80 as the next support level. A slide below this week’s lows could lead to a retest of the mid-December lows.

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