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Commodity Outlook – 2011.08.05
Below is an excerpt from The Hightower Report’s most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!
In our last issue we predicted a further slowing of the US economy before a transition to a better 2nd half of 2011. However, the stalled US debt ceiling debate that was eventually pushed out to the brink of the August 2nd deadline has probably left US consumer and investor sentiment injured for most of August. Given the ongoing political divide, it is even possible that sentiment will continue to be affected well into September. In looking back at a chart of US Consumer Confidence, it is clear that it was dramatically undermined by the Japanese natural disaster. While we don’t think the US debt crisis created as much raw fear and anxiety, we do think it added to the softening of the US economy. We might also suggest that the divided political arena in the US could ultimately cause US consumer confidence fall more than it did from the Japanese earthquake.
In looking at the historic rally in gold, it is clear that the most recent wave of anxiety was indeed very significant. This is another indicator of the collateral damage done to the US economy. Furthermore, with independent and foreign-based entities advising the US of the need to reduce US spending by $4 trillion and the initial effort from Washington failing to meet even half of that goal, the ability to protect the US from a something similar to the sub-prime crisis has been dramatically reduced. In fact, with both sides of the political battle in the US upset with the debt ceiling extension plan and the anti-spenders promising to battle even more aggressively in the future, it is clear that a major portion of the US populace, government and media have yet to grasp the reality that US government spending is going to come down.
With US economic numbers softening, the US Fed thought to be on hold and the US government “probably” limited in its ability to offer stimulus programs through the end of the year, it could be very difficult to throw off a generally bearish macroeconomic track for the weeks ahead. Expectations of slack US data points have recently had little impact on members of the Fed, with some members steadfastly holding against additional quantitative easing efforts. Certainly the US economy could somehow gather itself and temper macroeconomic fears, but we think that is unlikely until the negative environment of July and early August works through the closely watched US numbers. About the only thing that could alter our negative 3-4 week economic outlook would be a surprise “grand deal” from the super committee, if it were to find the necessary spending cuts from programs that don’t have broad political support.
Therefore we expect to see weakness prevail in US equities, energy prices, sugar, platinum, copper, cocoa and other physical commodity markets that lack the internal fundamental fortitude necessary to stand up against a quasi-deflationary environment ahead. Some markets like corn and hogs appear to have the fundamentals to stand up to some outside market pressure, but it is also possible that weakness in the US Dollar will provide some underpin for physical commodities in the weeks ahead. While Euro zone debt fears have seemingly become entrenched, the capacity to cushion the dollar against its own problems is limited. Therefore, it is possible that further economic weakness in the US economy and the still unresolved nature of the US debt battle will likely leave the dollar in a downward track. Some traders even suggest that interest rate differentials between the US and the euro zone are such that the dollar will remain under pressure from that angle, and that in turn could serve to support certain physical commodity markets.
Terry Roggensack on This Week In AgriBusiness
Orion Samuelson and Max Armstrong talk with Terry Roggensack, The Hightower Report, about market volatility and global issues.
Wheat: Likely to Follow Corn Short-Term
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: Strength in the other grain markets plus ideas that wheat consumption numbers will be strong if grain prices stay high relative to wheat has helped to support the run higher overnight. With the drought in the southern plains appearing to get more entrenched, there is now some growing concerns for next year’s winter wheat crop plantings plus increased concerns for the spring wheat crop if the weather remains hot and dry. For now, the crop is still improving. The Spring Wheat Conditions report showed that 73% of the crop was rated good/excellent compared to 73% last week and 82% last year. The 10 year average for this time of year is 64%. North Dakota conditions improved to 77% good to excellent. The winter wheat harvest report showed that 68% of the harvest is complete compared to 63% last week and 70% last year. The 10 year average for this time of year is 75%. The Farm Minister from India indicated that the 2011 crop harvest reached a record high 85.93 million tonnes, up from the previous estimate of 84.27 million. September wheat closed lower on the session yesterday but well up from the early lows. A recovery in corn and soybeans from the early lows plus a little less selling pressures than expected from the higher US dollar helped to support the solid recovery of more that 11 cents from the early lows. A jump in the US dollar along with weakness in other commodity markets helped to pressure futures early. The sharp set-back in the US dollar overnight plus the bounce in the other grains has helped support the more aggressive buying and a test of last week’s highs overnight. Talk that US wheat is still priced well above Russia wheat is seen as a limiting factor for the bulls. Weekly export inspections came in 18.73 million bushels which was lower than expected. Inspections need to average 22 million bushels per week for the rest of the season to reach the USDA projection. Jordon is tendering to buy 100,000 tonnes and Bangladesh is in the market for 50,000 tonnes.
TODAY’S GUIDANCE: For now, traders see the heat in the plains as beneficial to the spring wheat crop. Traders believe that breaks will attract increased interest from US livestock feeders. The market is likely to follow corn short-term.
TODAY’S MARKET IDEAS: Short-term support for September wheat is at 694 3/4 with resistance at 734 1/4 and 768.
USDA Grains Stocks and Planted Acreage Review – 2011.06.30
SOYBEANS
The USDA reports this morning were considered bearish old crop and bullish new crop with the market called 20-25 cents lower on the opening. The USDA pegged June 1st stocks at 619.08 million bushels which is about 23 million bushels above trade expectations. This may result in a similar revision higher of about 25 million bushels for the ending stocks for the 2010/11 season and will ease tightness concerns for late in the year. Soybean planted acreage was 
pegged at 75.2 million acres as compared with trade expectations at near 76.5 million. If we plug in the new plantings estimate and adjust beginning stocks higher by 25 million bushels and use a trendline yield of 43.4 bu/acre, ending stocks for the 2011/12 season come in at just 155 million bushels with a stocks/usage of 4.7%. This is relatively tight and suggests the need for a high yield.
PRICE OUTLOOK: A resumption of the recent downtrend due to bearish news for the corn market leaves 1274 3/4 as a longer-term objective with some closer-in support at 1309 3/4 for November soybeans.
CORN
The USDA reports this morning were considered bearish with the market called to open down the 30 cent limit. June 1st corn stocks were pegged at 3.67 billion bushels, which was about 370 million bushels above trade expectations and well above the range of estimates. This shows that the market has seen significant rationing of demand and will help ease old crop tightness. The USDA also pegged US corn planted acres at 92.282 million acres this year, up from trade expectations near 90.76 million acres. If we assume 900 million bushel beginning stocks instead of 730 in the last supply/demand update and use the new planted acreage estimates and the 158.7 trend yield, ending stocks come in near 865 million bushels which is up from 695 last month.
PRICE OUTLOOK: The stocks number confirms a slower demand pace due to high prices and suggests that the market has already seen enough price rationing for the old crop season. The higher than expected planted area plus higher beginning stocks should make it easier to avoid ending stock tightness for the 2011/12 season. A resumption of the recent downtrend leaves 600 1/2 as downside target with some close-in support at 629 3/4.
WHEAT
The USDA reports this morning are considered negative for wheat with the market called 15-20 lower. Traders were looking for spring wheat plantings to come in near 13.35 million acres but the report showed 13.627 million as compared with 14.427 as the March estimate. The USDA June 1st stocks report is also the ending stocks estimate for the 2010/11 season for the wheat market. Traders were looking for stocks to come in near 825 million bushels but the report came in at 860.78 million compared with 973 million last year and 809 million posted in last months supply/demand update.
PRICE OUTLOOK: A resumption of the recent downtrend leaves 620 3/4 as next target for September wheat.
Wheat: Oversold but No European Weather Threat
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: Higher than expected yields for the ongoing harvest, improving weather for Europe and expectations that Russia and Ukraine will be aggressive sellers of wheat on the world market for the new crop season are all seen as short-term negative forces. The market gave back all of yesterday’s gains with increased selling pressures overnight as the strong US dollar and another sharp break in European milling wheat helped to pressure. Before the Russia drought last year, nearby wheat was trading near 450 and while the market has already dropped from over 825 late last month, traders do not see 670 wheat as “cheap” and this is keeping commercial traders as more active sellers. July wheat closed moderately higher on the session yesterday and managed a late new high for the day despite a sell-off in Kansas City and Minneapolis wheat into the close. July KC wheat pushed to a new low for the move this morning to 788 3/4 as compared with yesterday’s high of 814. The sharp break in the US dollar and strength in the other grain markets helped to support the market early. Ideas that the harvest pressures will continue ahead with Kansas just 27% harvested helped to limit the advance and there is still talk of better than expected yields. Talk of heat for the northern plains for early July was seen as a mixed issue for recently planted spring wheat crops as the crops have seen a steady dose of rain which left to crop only 91% planted as of Sunday vs. the 10-year average of 100% complete. The crop is rated 72% good to excellent condition. Talk of the oversold condition of the market and ideas that wheat feeding will boost global usage this year helped provide some support yesterday. Better weather in Europe has been a factor to limit the advance. The head of the weather forecasting center in Ukraine believes the grain harvest this year is set to rise to 42.5-44.5 million tonnes as compared with 39.2 million last year. Wheat exports from Ukraine for the 2010/11 season (which ends June 30th) are expected near 3.7 million tonnes from 9.2 million the previous year. European milling wheat futures pushed to a new six-week low this morning as better weather and speculative long liquidation selling helped pressure. G-20 Agriculture ministers are meeting in Paris and discussing proposals from France to tackle the surge in global food prices. Ideas range from data base sharing to increased regulation of commodity trading. Tunisia is tendering to buy 75,000 tonnes of optional origin wheat.
TODAY’S GUIDANCE: While oversold and in a position to see increased feeding usage, traders see the lack of a serious weather issue in Europe as a key and this has helped keep fund traders as active sellers.
TODAY’S MARKET IDEAS: Short-term support for September wheat is at 691 and then 681 3/4 but the technical action is bearish. However, futures are oversold and July wheat has already reached the some initial downside objectives. Bears might be cautious given the potential production issues for the northern plains and Canada.
USDA: Supply & Demand Update – 2011.06.09
CORN:
The USDA report this morning was considered bullish with the market called 10-20 cents higher on the opening. US ending stocks were pegged at 730 million bushels, unchanged from last month and compared with expectations near 705 million. For the 2011/12 season, ending stocks are pegged at just 695 million bushels as compared with 900 million bushels last month and trade expectations near 770 million. This is a 5.2% stocks/usage ratio which would be the second tightest on record. Yield was left unchanged at 158.7 bu/acre but planted area was revised down by 1.5 million to 90.7 million acres and harvested acres down by 1.9 million to 83.2 million. As a result, production is expected to come in at 13.2 billion bushels which is down 305 million bushels from last month and 55 million below expected usage. Feed usage for the new crop season was revised down by 100 million bushels. World ending stocks for the 2011/12 season came in at just 111.89 million tonnes, as compared with 129.14 million tonnes last month and 117.44 million this year. This is a 12.8% world stocks/usage ratio which is the third tightest on record and the tightest since 1973.
WHEAT:
The USDA Crop Production and supply/demand report this morning was considered slightly bearish but the market is called 5-10 higher. US ending stocks for the 2010/11 season came in at 809 million bushels as compared with trade expectations near 845 million. For the new crop 2011/12 season, ending stocks came in at 687 million bushels as compared with 702 million bushels last month and trade expectations near 657 million. For the 2011/12 wheat production report, the USDA all wheat production at 2.058 billion bushels as compared with trade expectations near 2.010 billion. All winter wheat production came in at 1.45 billion bushels, about 60 million above expectations. Hard red winter was near the high end of expectations at 776.9 million, 34 million above expectations. Soft red winter was 433.7 million bushels, 17 million above expectations. For the world report, 2011/12 ending stocks were pegged at 184.26 million tonnes from 181.26 million tonnes last month. While production was revised lower by about 5 million tonnes, beginning stocks were revised higher to 187.12 million tonnes, up 4.92 million from last month.
SOY COMPLEX:
The USDA Supply/demand report was considered bearish for soybeans but the market is called to open anywhere from 5 lower to 5 cents higher for the opening. Corn numbers were bullish. US ending stocks for the 2010/11 season were pegged at 180 million bushels as compared with 170 million last month and trade expectations of near 175-180 million. The USDA lowered exports by 10 million bushels for this season and 20 million bushels for the 2011/12 season. New crop ending stocks were pegged at 190 million bushels which was about 20 million bushels higher than expected and compared with 160 million last month. Total demand for the new crop season was revised to 3.290 billion bushels, down 20 million from last month and down 25 million from this year. There were no revisions in acreage or yield. World ending stocks for the 2010/11 season were revised higher to 64.53 million tonnes from 63.81 million last month and 60.94 million two months ago. Brazil production was revised to 74.5 mmt from 73 million tonnes last month. China import demand slipped to 54 million tonnes from 54.5 million last month and 57 million two months ago. For 2011/2012, world ending stocks are pegged at 61.59 million tonnes. China demand is pegged at 58 million tonnes.
Bounce Has More of a Technical Feel; US Planting Behind; Saudi’s Up Crude Production
Little more of a positive physical commodity track. However, it has more of a technical bounce than a change in fundamentals. Some disappointing GM sales out of China but positive Retail Sales data out of the Euro-Zone. Energy upside may be limited unless energy stock figures show a tightening in stocks with expectations of Saudi Arabia will increase production. US planting progress, while advancing, is behind last year especially in Ohio.
Commodity Outlook – 2011.06.06
Below is an excerpt from The Hightower Report’s most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!
The outlook for commodities as of the beginning of June is somewhat suspect, as the world is concerned about slowing growth in the US and China and many economists are disappointed with the lack of rebuilding signals from the Japanese economy. But as strange as it may sound, it is possible that the evidence of slowing from inside and outside of the US over the last month might hold a silver lining for some commodity markets, as enough slowing could give credibility to the talk of extending QE2 or even implementing some form of QE3. 
As the September US Treasury Bond chart indicates, the fear of slowing is being widely embraced in the interest rate markets, and that has tempered the bid for several physical commodities. The ongoing burden on the US economy from negative reverberations in the US housing sector probably has the Administration and certain members of the Fed on edge again, especially if the recovery becomes even more suspect in the weeks ahead.
However, talk that high energy prices are crimping consumer spending should begin to moderate slightly, as nearby RBOB prices were recently as much as 32 cents a gallon below the April highs. But while the bullish buzz from the energy complex might be temporarily under wraps, US heating oil and gasoline stocks are at relatively tight levels (see chart) and US refinery operating rate recently showed that almost 17% of US refineries were idled. The spring demand lull is over now, and that means tightening product stocks will likely remain a threat throughout the coming US summer driving season. With the US government recently warning against price gouging, we also think that some US refinery operations will be idled more quickly in the face of slumping margins or almost any sign of weakness in demand, as most companies don’t want to risk being attacked by the Justice Department for charging more, especially if they are facing thinner profit margins.
Even the grain markets started the month of June on a slight corrective track, as a break in the pattern of unrelenting rain events throughout the US Midwest allowed planting progress to play some catch-up. That probably served to shift the focus away from delayed planting progress and toward weather conditions going forward. In addition to the potential for reduced US yields because of the later plantings, the market is also seeing a threat against European feed wheat production due to drought, as well as from dryness in China. While US weather conditions could become more conducive to planting, it should not be forgotten that as of May 29th Ohio still had almost 3 million corn acres unplanted. In North Dakota, only 55% of the spring wheat crop was planted as of May 29th, a record low for that date. The 10-year average is 90%. With initial forecasts for June calling for an entrenched hot and dry pattern, the grain trade is concerned that the weather is poised to go from one extreme to another. This could be detrimental to the crop if the pattern lasts more than two weeks. 
Still, one also has to wonder if a large contingent of fund longs will be content to stick with their long corn positions in the face of a favorable weather pattern and in the face of slack to weak expectations for the economy in general.
In the face of global slowing evidence and noted price recovery efforts in sugar and cocoa during May, traders might look to attack the short side of both of those markets. Facing a period of rising supply and potentially suspect demand ahead, it wouldn’t be surprising to see them fall down to their lowest levels since the 4th quarter of 2010.
The commodity markets need to see an improvement in scheduled data flows, a fresh downside breakout in the Dollar, or a significant threat to physical oil supplies to fully reignite the commodity bull market. In the meantime, we suggest that traders wait for a return to the May lows, in some cases to the 2011 lows, before entering back into the long side of the market. Aggressive traders might actually look to sell cocoa, sugar, crude oil and natural gas, as those markets appear to be poised for a correction.
WHEAT: Wheat is Still a Follower of Corn; For Now
by Terry Roggensack on August 29, 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!
NEAR-TERM MARKET FUNDAMENTALS: The overnight rally pushed the market to the highest level since June 14th as talk that lower corn production will force increased wheat feeding this year helped to support. The weaker US dollar is also seen as supportive but export news has been a bit negative as a surge in Black Sea exports this year will force other key world exporters to export less. Improving weather in Australia and Argentina are seen as negative supply forces. Spillover buying support from higher grain prices and talk that even Russia selling prices are at least seeing higher and higher prices helped to support. European milling wheat futures jumped 1.9% overnight. After choppy and lower trade early on Friday, fund buyers turned active in a wide spectrum of commodity markets and wheat was no exception. The market followed other grain and commodity markets lower early in the session with fears of a long liquidation selling trend for commodities but outside forces turned up to support. Kansas City wheat found support early from talk that the advancing La Nina condition could keep the plains drought in tact with a two-week outlook of hot weather for the southern plains helping to support. There are some rains for winter wheat areas in the forecast for the next ten days which might support better planting conditions in some areas. Strength in other grains and a surge up in Minneapolis wheat helped drive the market to new highs for the move. Algeria bought 300,000 tonnes of durum wheat. December Minneapolis wheat is up nearly 50 cents from Thursday’s lows to Friday’s highs. Morocco is tendering for up to 300,000 tonnes of US hard wheat and Jordon is in the market for 20,000 tonnes. Bangladesh is tendering for 50,000 tonnes of wheat and South Korea is tendering to buy 53,170 tonnes of US wheat. The Commitments of Traders reports as of August 23rd showed Non-Commercial traders were net short 17,298 contracts, a decrease of 6,026 contracts for the week and the short-covering trend is seen as positive. Non-Commercial and Nonreportable combined traders held a net short position of 39,745 contracts, a decrease of 5,460 contracts for the week. Commodity Index traders held a net long position of 205,196 contracts, up 2,163.
TODAY’S GUIDANCE: Chicago wheat may have limited upside potential from a supply perspective ahead but the tightening supply of hard wheat could be a significant factor. Traders also see the southern plains drought as a serious threat for next year’s crop. Wheat is still a follower of corn for now.
TODAY’S MARKET IDEAS: The next key resistance for December Kansas City wheat is at 914 1/2 with support at 877 1/2. December Chicago wheat next key resistance is up at 812 3/4, with 785 1/2 and 771 3/4 as support.