Subdued Fund Buying Despite Strong Commodity Gains

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, June 1. A week that saw S&P 500 trade mostly sideways near its record high while the technology sector lost steam. Treasury yields rose ahead of jobs data with the market pondering for how long the Fed can continue adding support amid rising inflation. The dollar held steady while the commodity sector recovered strongly from the May correction.

Commodities

The commodity sector saw buyers return following the May correction with the Bloomberg Commodity index rising 3%. All sectors apart from precious metals and livestock recorded strong gains led by crude oil, copper, corn and coffee. In response to these developments hedge funds and large money managers increased bullish bets across 24 major commodity futures by 3% to 2,358k lots.

Given the strength of the recovery a relatively small increase that was led by crude oil (25k), gas oil (17k), natural gas (+11.7k), corn (21.9k) and sugar (12.5). Other contracts such as copper (-6.3k) and both wheat contracts (-5.7k) were sold despite recording strong price gains. Potentially a sign that investors despite being dictated by the price action to be long are feeling somewhat uncomfortable with prices at multi-year highs and breakeven yields (inflation) that has been drifting lower during the past three weeks.

Energy

Most of last week’s commodity buying was concentrated in the energy sector, most noticeable crude oil and gas oil. OPEC’s bullish demand outlook for the second half combined with the OPEC+ groups ability to control the price, helped drive Brent above $70 while WTI reached levels last seen in 2018. In response to these developments hedge funds increased their combined crude oil net long by 25.2k lots to 649.5k, a three week high but still some 88k below the recent peak in February.

While the overall increase in both WTI and Brent was primarily driven by fresh buying, the bulk of the buying occurred in WTI. This in response to tightening US market amid increased demand for fuel and low stocks at a time where production is expected to show a much slower growth trajectory than the one we witnessed during previous cycles of rising prices.

Agriculture

Despite recovering strongly from the late May correction, only small changes were seen in soybeans and wheat. Corn received most of the attention with the 11% price spike driving a 21.8k lots increase, mostly due to short covering with potential buyers showing a degree of hesitancy as we move into the US growing season. In soft commodities, buying benefitted sugar, cocoa and coffee, and just like corn the net buying in coffee was primarily due to the short covering with buyers hesitating chasing the 7% rally seen during the week.

Metals

Gold buying ran out of steam with long accumulation slowing to just 2.9k lots, a far cry from the 61.3k lots that was net bought the previous three weeks. Having surged higher by 240 dollar since early April on a combination of technical buying and short-covering from large trend following funds, the lack of fresh buying last week could indicate that this initial demand has now been met. Also worth noting the reporting week up until last Tuesday did not take into account the US economic data related price swings that hit the market towards the end of last week. At 129k lots, the gold long remains well below the most recent 284k lots peak from March last year.

Elsewhere in the metal space, silver longs were reduced for a second week while copper selling extended to a fourth week. During this time the net long has slumped by 58% to just 27.6k, the lowest bet on rising copper prices since last June when the rally had only just started to gather momentum.

Latest: Gold trades softer in early trading following an end of week rollercoaster ride where prices first slumped on emerging profit-taking, only to bounce back on Friday following what looked like “Goldilocks” US payroll date. Gold’s so far shallow correction following the strong rally since early April potentially highlighting the risk that all is not done yet on that front. The first key downside support level that will determine the underlying strength of the market is the 200-day moving average at $1842. Focus on the dollar and whether yields can maintain their Friday drop, President Biden’s spending plan and the market reaction to the G7 tax proposal.

Forex

In forex, the flows in the week to June 1 were mixed while the overall sentiment was still skewed towards additional dollar selling. The net short against ten IMM futures and the Dollar Index reached a 12-week high at $17.7 billion after speculators net sold $900 million. Despite trading softer on the week, speculators continued to buy euros (5.3k lots) with buying also seen in JPY (3k), CAD (3.9k) and CHF (1.5k), while selling reduced the sterling long by 6.5k lots.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Gold Long Extends Further; Ag Selling Picking Up Speed

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities and forex up until last Tuesday, May 18. A relatively quiet week ahead of Wednesday’s crypto collapse and FOMC minutes saw stocks, bonds and the dollar trade softer, while the biggest changes were seen across the commodities sector where the month long synchronized rally increasingly showed signs of running out of steam.

Commodities

The Bloomberg Commodity index dropped 0.7% on the week as an emerging correction across agriculture commodities, led by soybeans and corn off-set gains in energy and precious metals. In response to these developments, hedge funds cut bullish commodity bets for a second week with the total net long across 24 futures contracts falling by 4% to a four-week low at 2.4 million lots. Broad selling across all sectors except precious metals was led by corn (25.3k lots), soybeans (25.2k) sugar (20.8k) and crude oil (22.2k) with most of the buying concentrated in gold (11.3k) and natural gas (12.1k).

Commodities Chart

Energy

Speculators cut bullish oil bets for a second week with the combined net long in Brent and WTI falling by 22.2k lots to 634k lots to a six-week low. In Brent, the reduction was driven by increased short selling with the gross short rising to the highest since November. The short-term outlook has once again deteriorated with the prospect for rising Iran production and OPEC+ production increases hitting a market still lacking the synchronized global recovery in in demand. Despite a strong recovery in fuel demand across the U.S. and Europe, continued Covid outbreaks in Asia will continue to impact the short-term outlook and not least the recovery in jet fuel demand, which looks set be very slow with restrictions and lack of interest flying intercontinental not going away anytime soon.

Fuel products continued to be bought with the net longs in gas (143k lots) and NY Harbor ULSD (24.5) both reaching the highest levels in 30 months. Natural gas meanwhile saw fresh buying as the contract made another and so far unsuccessful attempt to gain a foothold above $3.

Metals

Gold’s new found momentum helped drive a third consecutive week of fund buying, which resulted in the net long rising 12% to 107k lots, a 16-week high. Gold has not managed to put together a three week buying spree of this magnitude since last June, and it highlights the continued improvement in the technical outlook during a period of stable Treasury yields, a weaker dollar, and not least heightened volatility across crypto currencies. The improvement in the technical outlook was further confirmed this past week by the move above the 200-day moving average, last at $1845, and the breaching of the downtrend from the $2075 record high last August.

Silver gave back some its recently earned relative strength against gold in response to continued profit taking hitting the up some of the up until recently highflying industrial metals. The net long was cut by 3% to 46.5k lots while a second week of net copper selling reduced the net long there by 15% to 51.9k lots.

Agriculture

Emerging profit taking helped drive a 9% reduction to 963k lots in the net long held in ten major grains and soft commodities. Most noticeable was the accelerated net selling across the three key crops where 25k lots reductions in both corn and soybeans triggered a reduction in the net long to a December low at 458k lots. The bullish soybean momentum has eased with planting in the U.S. progressing at speed while wheat’s two-week decline of more than 11% has been the result of heavy rain in Kansas, the top growing state raising the prospect for record yields. Corn meanwhile managed to hold steady supported by tight supply with focus on Chinese buying, currently running at levels never seen before, and increased demand from the renewable fuel industry.

Agriculture

Forex

Mixed flows in the week to May 18 resulted in an unchanged dollar short position against ten IMM currency futures and the Dollar Index. Buying of EUR (5.9k lots) and CAD (7.5k) being offset by selling of JPY (9.2k) and GBP (3.3k).

Forex Chart

From a ten-year high at $36.8 billion on January 19, the dollar short against the mentioned futures contracts dropped to a $5.2 billion low five weeks ago before short-sellers re-emerged to take it back to the current $15.5 billion.

DXY

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Commodities Remain the Hot Property of 2021

The “everything rally” in commodities continues to gather steam with the Bloomberg Commodity Spot index rising for the fifth straight week to reach its highest level since 2011. Spurred on by multiple factors from a vaccine-led rebound in global growth, transportation bottlenecks crimping supplies, weather concerns in key growing regions along with rising inflation concerns and a speculative frenzy triggering increased investment demand.

All the major commodities traded higher this past week led by iron ore, Arabica coffee, corn and lumber. Metals of all colors rallied as well with copper reaching a record high while gold, supported by silver, managed to break above $1800. The energy sector came bottom with crude oil, rightfully so, struggling to break higher with virus outbreaks in Asia creating a very uneven demand recovery.

On a macroeconomic level, both the dollar and US Treasury yields provided further support with the Greenback trading softer and nominal yields holding steady. The latter receiving a great deal of attention with rising inflation focus sending 10-year breakeven yields to an eight-year high and real yields back down towards minus 1%.

One of the biggest concerns related to the current surge in global commodity prices is the impact rising food costs have on those populations and economies that can least afford it. The UN FAO’s Global Food Price index, which tracks a basket of 95 food quotations from around the world, surged higher in April to record an annual rise of more than 30%. Food inflation has not risen this fast since 2011 – when higher food prices helped trigger the Arab Spring –  with all sectors rising led by a 100% jump in edible oils, sugar 58% and cereals at 26%.

Grain futures in Chicago remain the key engine behind the continued rally across the agricultural sector. Persistent drought concerns in Brazil and strong demand from animal feed producers have buoyed the corn market while also adding renewed support to sugar and coffee prices. Corn, wheat and soybeans all trade at fresh eight-year highs, while Arabica coffee has reached a four-year high above $1.5/lb

Technical comment on Arabica coffee: After breaking previous resistance at $1.40, the uptrend has accelerated with several indicators supporting the underlying bullish sentiment. To demolish the current positive outlook, a close below $1.3950 is needed in the short term while the longer-term bullish picture remains intact above $1.20. Upside focus now the 2017 high at $1.57.

Source: Saxo Group

Copper reached a record high above $10,300 per tons on the London Metal Exchange and $4.72/lb in New York. Copper is front and centre in the rally that is currently driving raw materials to multiyear or even record highs. Being an integral part of the green transformation process through the rollout of millions of electricity-hungry vehicles over the coming years, copper has surged higher on a combination of both physical but also paper demand from investors looking for inflation hedges in markets with a strong fundamental outlook. An outlook that according the Glencore and Trafigura, two physical commodity titans, could see the need for 50% higher prices in order to provide mining companies the economic incentive to increase the search for additional supply.

Technical comment on High Grade: Copper’s strong uptrend during the past year has seen the price not only double but even accelerating since its latest correction last month. On daily charts, RSI divergence seems to be building which could indicate the short-term risk of the uptrend becoming exhausted, however, a trend change is not in the cards.

Source: Saxo Group

Brent and WTI crude oil both lagged the momentum seen across metals and agriculture, and despite increased calls for +70 dollar Brent, the market has sensibly adopted a wait-and-see approach. Before drifting lower, Brent got tantalizing close to $70/b, a level it briefly breached two months ago before suffering a 15% correction. The market, already supported by investment demand, has also increasingly been focused on reopening’s in Europe and the U.S. driving a strong recovery in fuel demand.

Oil bulls, however, may have to remain patient given ongoing production increases from OPEC+, the prospect for a renewed Iran nuclear deal leading to increased production, and not least the current risk to demand in parts of virus-hit Asia. Since late March, Brent crude oil has traded within a four dollar wide uptrend, currently between $66.50 and $70.50.

Precious metals

Having failed on a handful occasions during the past couple of weeks, gold finally managed to mount an attack strong enough to take it above $1800. While lower U.S. real yields and a softer dollar provided the fundamental tailwind the yellow metal needed support from in-demand silver, one of the best performing commodities this week. During the past month, the continued rally across industrial metals have supported silver relatively more than gold. This can be seen through the gold-silver ratio which has been declining since late March.

Silver is currently trading within a rising channel and after hitting the upper end at $27.55 it may need to spend some time consolidating before mounting a fresh upside attempt towards the 2021 high at $30. In order for gold to continue higher, it first needs to establish support above $1795 before chasing after long-term trend following short positions. The next level of upside interest is $1851, the 200-day moving average and 61.8% retracement of the January to March sell-off.

Source: Saxo Group

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

How to Hedge Organic Corn and Organic Soybeans

The Chicago Board of Trade started offering corn contracts with formal rules in 1865, the same year The Jacobsen began publishing.

Beginning in 2021, for the first time, commercial entities that wanted to hedge or trade organic corn or organic soybeans will have that opportunity using The Jacobsen data via Stableprice.com.

Purchasing Calls and Puts

Stableprice.com will offer call (call spreads) and put (put spreads) options on organic corn and organic soybeans using The Jacobsen data to settle each trade. This process will allow consumers to hedge their exposure with triple-A rated insurance companies as their counterparties.

This first of its kind product will finally enable organic grain traders to trade derivatives using the most trusted publishing company in the business. The products are available now, allowing you to trade immediately using our trusted data. The types of options that are available are both call options and put options.

To hedge, you can either buy a call option on organic corn, which protects you if prices rise. Alternatively, you can buy a put option to protect you against organic corn (soybean) prices falling. You will pay a premium for the right to either buy or sell organic corn (soybeans) in both cases. The initial product offered by Stable price is a call spread or put spread, which means that the protection value is capped.

For example, you can purchase an $8-12 call spread on organic corn, capturing any movement between $8-$12 per bushel. Above $12, you will not be protected.

Average Price and European Options

Stableprice.com will offer both average price options and European style options. Average price options measure the average price calculated during the month versus the strike price, while European style options measure the strike price versus the last trading day of the month. If you are a Premium client of The Jacobsen we will calculate the averages for you. You will also see historical averages that can help you determine the most accurate strike price to use when you purchase calls and puts.

Triple-A Credit

If you trade options with Stableprice.com, you will face a counterpart backed by Triple rated insurance companies, including AON. This product provides the peace of mind the industry has been waiting for.

Additionally, companies with exposure to fats, oils, hides, and hemp can hedge their exposure using similar concepts. The Jacobsen is one of the few companies with IOSCO certification and is considered the most trusted commodity price discovery source. If you are looking for more information about how you can hedge your organic corn or organic soybean exposure, please contact David Becker at david@thejacobsen.com.

Organic Corn Prices Remain Depressed Despite Decline in Organic Cracked Corn Imports

Organic corn prices remain depressed despite a decline in organic cracked corn imports. Organic cracked corn imports increased steadily during the ramp-up in organic poultry demand in the United States during the 2017/2018 marketing season but have tailed off during the 2019/2020 season.

There was a dearth of organic cracked corn imports in September 2020 which was in line with the Jacobsens expectations. Despite the lack of organic cracked corn, organic corn prices have remained depressed. The Jacobsen estimates that no organic cracked corn imports arrived in September in the United States, which compares to approximately 1,600 tons which appeared in September of 2019. Historically, September has experienced robust volumes of organic cracked corn imports. For example, in September of 2018, approximately 22K tons of organic cracked corn was imported into the US.

While organic cracked corn remains a bone of contention, especially for US domestic organic farmers, the volume has declined in the past marketing year. The Jacobsen estimates that organic cracked corn imports for the 2019/2020 season were down 27% year over year, compared to the 2018/2019 marketing year.

The decline in cracked corn imports is likely a function of the drop in organic whole corn prices and the robust increase in organic whole corn available in the US. With the harvest season upon us, organic corn prices will continue to face pressure unless demand accelerates quickly or, organic cracked corn and whole corn imports moderate throughout the 2020/2021 season. The downturn in organic corn prices has not impacted the strong demand and upward price movements of organic soybeans.

The 2019/2020 season was littered with low test weight organic corn, that was sold at a discount. The Jacobsen does not expect the 2020/2021 season to see this same phenomenon, which could help buoy organic corn prices if demand remains robust and imports begin to decline.

Organic Corn Prices Continue To Slide Despite Rising Demand from Retail Consumers for Groceries

Organic corn prices remain heavy, and the coming harvest will likely further weigh on organic corn prices. The potential damage to crops in Iowa will likely be offset by a bumper crop in Minnesota according to Merchandisers. Organic corn prices are hovering near the $6.50 level, with bids closer to $6 picked up at the farm.

There is a plethora of organic corn that is still in bins ahead of the new-crop season. The Jacobsen currently sees the organic corn carryover at 3.3 million bushels with less than 2-months before the completion of the old-crop season. There have been few contracts for new-crop reported recently and for prices to retrace back to the $7-handle could be a challenge.

Organic Animal Proteins Take a Large Piece of the Pie

The decline in organic corn prices comes despite rising demand for organic animal proteins (organic chicken, organic eggs, organic dairy) sold at supermarkets, and big-box stores are has grabbed a larger piece of the pie according to The Jacobsen.

Despite this upward trend, there has been little upward movement driving organic prices.  While food services continue to suffer and the supply chain remains fragmented, supermarkets and big-box stores are thriving.

In its latest financial report, Target reported that its private-label grocery brand, Good & Gather, hit $1 billion in sales after launching in September of 2019. Same-store sales surged year over year rising a robust 20%. At Walmart, E-commerce business jumped 97% year over year, boosted by people ordering groceries online to pick up at store parking lots. Both Walmart and Target carry a wide array of organic milk, organic cheese, organic butter, and yogurt, along with organic chicken and organic chicken eggs.

Organic animal proteins sold at grocery stores are taking a larger part of the overall pie, rising to 7% on average in the Q2. This compares to approximately 5% in 2018 and 5.5% in 2019. The upward trend should continue to perpetuate as more products become available.

Despite the drop in organic corn prices, organic soybean prices continue to remain buoyed as demand remains strong and supply is still scarce.

Funds Rushing into Commodities

Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

This summary highlights futures positions and changes made by speculators such as hedge funds and CTA’s across 24 major commodity futures up until last Tuesday, July 7. During this U.S. holiday shortened week the appetite for risk was firm with the Nasdaq 100 rising by 3.6% and the CSI 300 by a staggering 12.8%. Strong buying across all sectors lifted the Bloomberg Commodity Index by 2.4% with gains seen in all but four of the 24 major commodity futures tracked in this update.

Hedge funds responded to the favorable price movements by raising bullish bets in all but four of the 24 major commodity futures tracked in this update. While the biggest price gains were seen across the energy sector, led by gasoline and natural gas, it was short covering in the grains sector that helped lift the combine net-long back above one million lots for the first time since late January.

Energy

Despite solid price gains, both WTI and Brent crude oil were net-sold with the combined net-long falling by 26k lots to 557k lots. The reductions primarily due to long liquidation as both contracts struggled to break resistance at $41/b in WTI and $44/b in Brent. However, based on the reduction being led by long liquidation and not fresh short selling, the bullish narrative has yet to challenged. The long position in natural gas jumped by 27% as an emerging heatwave across the U.S. helped lift the price by 7%

Latest developments

Crude oil trades lower today following Friday’s rally. Key focus this week will be Wednesday’s OPEC+ meeting where the group needs to decide whether to keep the temporary 9.6 million barrels/day production cut into August or begin to restore up towards 2 million barrels/day. Reports over the weekend said the group look set to ease oil cuts as demand continues to recover.

The decision however comes at a time where Libya attempts to restore production, U.S. stocks are close to record levels while the pandemic is far from under control. Especially across the three biggest fuel consuming U.S. states. Both benchmark oil contracts in our view remain range-bound with resistance at $41 on WTI and $44 on Brent capping the upside

Metals

A relatively quiet week across the metal space with funds adding exposure to all five contracts. The gold net-long only increased by 1% during the reporting week that finished the day before the yellow metal traded above $1800/oz. for the first time since 2011. However, with funds increasing fresh short positions (+6k) almost by as much they added to the long side (+7.6k), some nervousness may emerge about the underlying strength in the market. Something that was highlighted on Friday when after having struggled to attract fresh momentum on the break above $1800/oz closed back below on virus treatment hopes,.

The HG copper net-long rose 14% to reach 31.5k lots, the highest since June 2018. This before finishing another strong week at $2.8975, a level last seen in May 2019. The 40% rally since the March low has been driven by a forceful combination of increased Chinese demand, a speculative surge and most recently coronavirus disruptions to supply from Chile and Peru, the world’s two largest producers. The latter explaining why copper, at least in the short term, can trade above pre-pandemic levels.

Latest developments:

HG Copper took aim at $3/lb during the Asian session thereby continuing its impressive run of gains that has taken it to the highest in more than two year and well above January’s pre-pandemic level. On top of the support being provided by virus-related supply disruptions from the world’s two largest producers in South America, the market now also has to deal with the risk of strikes. This after workers at an Antofagasta mine in Chile have rejected a final offer while another operation will conclude voting today on whether to accept a final offer.

Precious metals trade higher this Monday, inspired by a the general risk on that has driving stocks higher and the dollar lower. On top of this some safe have demand due to a continued surge in virus cases and US-China trade and political tensions. Adding to this copper’s impressive run of gains which has given silver a fresh boost. The price is once again challenging resistance at $19/oz while the XAUXAG ratio has dropped to 95.50. A break below the June low at 94.50 could be the trigger that signals a move in the spot price towards $20/oz.

Agriculture

Funds spent another week scrambling to adjust grain positions to a potential more friendly price outlook. Corn was bought for a second week and the net-short has now more than halved to 142k lots. The turnaround since June has been let by a pick-up in ethanol demand and most recently the surprise June 30 announcement that U.S. farmers had planted less corn than previously expected.

The wheat net-short was trimmed by 14% to 33.5k lots just before the price surged above $5/bu in response to concerns about shrinking crop production estimates in countries from France and Russia to Argentina.

Soft commodities had a mixed week with sugar being bought despite trading rangebound around 12 cents/lb. The cocoa short jumped by 90% to 21k lots, a ten-month high, as the pandemic continued to sap demand for both cocoa and coffee.

For a look at all of today’s economic events, check out our economic calendar.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire


What is the Commitments of Traders report?

The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock index, currencies and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.

In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.

In financials the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.

Our focus is primarily on the behaviour of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered funds.

They are likely to have tight stops and no underlying exposure that is being hedged. This makes them most reactive to changes in fundamental or technical price developments. It provides views about major trends but also helps to decipher when a reversal is looming.

Gold, Silver, Crude Oil and Grains

What is our trading focus?

XAUUSD – Spot gold
XAGUSD – Spot silver
XAUXAG – Gold-Silver ratio
COPPERUSSEP20 – HG Copper
OILUSAUG20 – WTI Crude oil
CORNSEP20 – CBOT Corn


Gold

Gold has reached another new high for the cycle with $1800/oz now within striking distance, a level that the futures contract (GCQ0) has already reached. The market capped its best quarter in four years as the WHO warned that the worst of the pandemic is still to come. The break higher looks intact as long as the daily closes remain north of 1,745-1,750 area. Gold will continue to look for direction either from new policy measures aimed to force inflation higher or negative real rates more negative or some more participation from the US dollar and other commodities, especially silver.

Silver

Silver has outperformed gold this week with the XAUXAG ratio falling below 98 (ounces of silver to one ounce of gold). With copper racing higher to reach $2.75/lb. on virus related supply worries and firming Chinese demand, silver’s short-term upside potentials could be better than golds. Especially on a break above the March high and trend line resistance around $18.40/oz.

Crude Oil

Crude oil trades higher, but within the established range, after the American Petroleum Institute reported a bigger-than-expected stockpile drop last week of 8.2 million barrels. If repeated by the EIA in their weekly report today at 14:30 GMT it may offer some additional support to a market currently worried by the demand impact from renewed lockdowns and the surging number of virus cases in the U.S.

Also supporting the price was the monthly production report from the Energy Information Administration which found that U.S. production dropped by 5.3% in April to 12 million barrels/day. Thereby confirming the slowdown seen in the weekly estimates reported every Thursday in the mentioned inventory report.

A monthly OPEC oil production survey carried out by Reuters found the group collectively cut production to the lowest in two decades last month. The additional deep cuts promised and delivered by Saudi Arabia and other Gulf Arab members helped push the groups compliance above 100%.

We maintain the view that crude oil is likely to remain range-bound while the market tries to figure out the demand impact from renewed virus cases. Weak demand from motorists during the key holiday demand season may pose a threat to the current stability. Not least considering the pressure on OPEC+ to deliver a prolonged and economic painful production cut extension beyond July.

Chart source: Saxo Group

Looking ahead to the inventory report the market, apart from looking for a drop in crude stocks, will be looking for signs of renewed weakness in gasoline and diesel consumption, just as the July 4th holiday signals the beginning of the U.S. summer driving season. As per usual I will post results and charts on my Twitter @Ole_S_Hansen

U.S. grain markets led by corn and soybeans rallied strongly on Wednesday after a government report showed a bigger-than-expected reduction in the planted acreage. Corn jumped 4% after surveys over-estimated the U.S. acreage by the largest amount since at least 2005. U.S. farmers entered the fields this spring at a time of peak uncertainty with low prices, poor outlook and the pandemic raging. As a result they reduced the corn acreage to 92 million acres (95.1 expected) and soybeans to 83.8 from 84.8 expected.

A separate USDA report however showed that domestic quarterly grain stocks were bigger than expected. Primarily due to lower ethanol linked demand for corn and reduced soybean exports to China during the lockdown.

Corn’s dramatic turnaround from a $3.15/bu low on Monday to a $3.45/bu high today could force continued buying from funds holding an elevated short position. Support now at $3.39/bu.
For a look at all of today’s economic events, check out our economic calendar.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Crude Oil Demand; Gold Longs cut Again

Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across 24 major commodity futures up until last Tuesday, June 9. Appetite for risk remained high that week, not least following the better-than-expected US job report on June 5. The S&P 500 rallied 4.2%, the dollar index lost 1.4% while bond yields jumped. The Bloomberg Commodity Index climbed 1.5% with gains seen across all sectors with the exception of precious metals.

A mixed week in commodities which despite broad price gains did not yield much in terms of major position changes. Crude oil continued to be bought albeit at a much reduced pace, fuel products were sold on rising overhang of stocks while natural gas held steady. Precious metals remained out of favor with the gold and silver longs dropping further while enthusiasm for copper attracted strong buying. Grains, led by corn, continued to be sold while the sugar position flipped back to long. Thereby becoming vulnerable to profit taking after the rally’s main engine, crude oil, began looking exhausted.

Energy

Buying of crude oil slowed despite another week of strong gains for both WTI and Brent crude oil. WTI saw the smallest amount of buying in this cycle with bullish bets close to a two-year high. Elevated levels of fuel products in the U.S. drove a reduction in the gasoline (RBOB) net-long to a three-year low and a rise in the distillate (ULSD) short to a three-month high.

Metals

Gold selling extended into a third week with the net long falling by 9k lots to 127k lots, a one-year low and down 55% since the February peak. Copper meanwhile and as expected attracted additional buying following the technical break above $2.50/lb, a key level of support-turned-resistance since 2017. The near five-fold jump took the net-long to 14k lots, a 15-month high.

Agriculture

Ahead of Thursday’s global supply and demand outlook report from the US Department of Agriculture, the corn short had extended to 297k lots, a 13-month high and biggest seasonal short in at least 20 years. This despite a continued steady recovery in the price. The wheat short jumped by 88% ahead of the WASDE report which pinned global stocks next year at a record high. The soybeans long meanwhile more than doubled on increased Chinese buying.

The soft sector was mixed with the oil-related rally in sugar helped flip the position back to a net long while the Arabica coffee short more than doubled in response the deteriorating technical outlook.

For a look at all of today’s economic events, check out our economic calendar.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by COT, part of Saxo Bank Group through RSS feeds on FX Empire

WTI and Copper Bought, Gold sold as Risk on Reigns

Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across 24 major commodity futures up until last Tuesday, June 2. A week where appetite for risk driven by stock market euphoria leading to hopes of a V-shaped recovery continued to be the dominant force.

The Bloomberg Commodity Index rose 0.7% with gains in energy, metals and grains being off-set by losses in softs and livestock. Speculators only made small changes to their positions with the net-long across 24 major commodity futures increasing by 2% to 545k lots. Buying of WTI crude oil, gas oil, copper and cotton being off-set by selling of gold, soybeans, corn and coffee.

Energy

Buying of WTI crude oil extended into a 9th week with funds adding 17k lots to bring the net-long to 380k lots or 380 million barrels, the highest since July 2018. Short sellers added small length for a second week thereby keeping the long/short ratio steady. The Brent crude oil net-long saw a small reduction as short-sellers added length for the first time since March. Despite dropping by almost 9% the natural gas long was kept close to unchanged with both long and short positions rising.

OPEC and its oil-producing allies agreed on Saturday to extend the group’s historic 9.7 million barrels/day production cut by one month to the end of July. As we highlighted in our latest update the risk of failure, despite concerns about non-compliance from a handful of producers, was limited given the need to support the price while lockdowns are eased and demand recover. A recovery that potentially risks being slower than the market expects due to the risk of second waves.

According to the latest weekly EIA report, demand for distillates in the US, which is mainly diesel, hit a 1999 low some 30% below the five-year average. Gasoline demand meanwhile has recovered but was 1.9 million barrels/day or 25% below the average for this time of year. With the deal having been all but priced in ahead of the meetings the risk to crude oil remains balanced. Speculative momentum may see both WTI and Brent take aim at closing the gaps to $41.05/b and $45.18/b respectively.

However much higher prices at this early stage in the recovery carries the risk of becoming self defeating as it invites back increased production from high cost producers, not least along the US shale patch. The market may soon also begin to focus on rising production after July from core OPEC members while Libya is showing signs of returning production.

Metals

The lack of short-term tactical opportunities together with the rising risk appetite seen across other asset classes, continued to cut interest in gold. Last week speculators cut bullish bets on COMEX gold futures by 8% to 137k lots, a one-year low. This during a time where demand for gold via bullion backed exchange-traded funds registered a new record with total holdings rising above 100 million ounces. Part of this development may be a product specific challenge that the futures contract currently faces.

The transatlantic disconnect that occurred between gold futures traded in New York and spot gold traded in London back in March left many market makers with heavy losses. This after the spot to futures spread, the so-called Exchange for physical or ETF, blew out thereby forcing cut backs and reduced risk appetite among market makers normally assuring a well functioning market place. These developments are likely to have led to some investors and traders instead focusing on bullion-backed ETFs.

The silver net-long held steady at 27k lots with the near 4% rally failing to attract fresh long positions. Potentially due to the fact that silver’s recent outperformance against gold reached its target as highlighted through the gold-silver ratio. Additional gains in silver may now require support from gold which struggled towards the end of week when a stronger than expected US job report sent real yields higher and gold lower.

HG Coppers continued recovery and flirtation with key resistance at $2.50/lb – that got broken on Thursday – finally saw the net switch to a long position for the first time since January. Dictated by the mentioned breakout funds are likely to add additional speculative length with the price now potentially taking aim at $2.60/lb.

Agriculture

The UN FAO’s Global Food Price Index reached the lowest monthly average since December 2018 last month. Covid19-related declines extended to a fourth month with all sub-indices with the exception of sugar seeing declines. A development which is also being replicated by the speculative exposure with hedge funds holding net-short positions in seven out of the ten grains and softs contracts tracked in this report.

Selling of corn continued with the net reaching a one-year high at 282k lots. This despite signs of a recovering price in response to increased ethanol-linked demand, The rising fuel cost theme also supported another week of short-covering in sugar. Hardest hit was Arabica coffee after the recent technical break below key support wiped out the remaining long with a net-short of 7k lots emerging.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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Commodity Weekly: Crude Oil Frets Geopolitics, Sluggish Demand Bounce

The energy sector gave back some of their record monthly gains, industrial metals paused while precious metals rose on increased geopolitical concerns, a weaker dollar and lower bond yields.

Commodities trading was mixed during the final week of May. A month that turned out to be the come-back month for many markets following the Covid-19 related collapse seen during Q1. The continued easing of lockdowns around the world have, despite dismal economic data, raised hopes that a V-shaped recovery may occur over the coming months.

This is optimism we unfortunately do not share – with millions of workers unlikely to return to work, together with the risk of the virus re-emerging as some economies attempt to open-up too soon.

The Bloomberg Commodity Index traded lower, with the energy sector giving back some of their record gains seen after the April collapse. Industrial metals also traded softer on rising US-China tensions despite the National People’s Congress introducing new stimulus measures. A challenge to precious metals was quickly reversed with both gold and not least silver continuing to attract demand amid a weaker dollar, lower real yields and friction between the world’s two biggest economies.

Bloomberg ci sector

While silver continued to claw back some of its substantial March losses, gold’s resilience was tested once again this past week. The lack of follow-through momentum from the recent breakout to $1765 had left the market nervous and it culminated when the spot price briefly broke below $1700/oz this past week. However, just like the break to the upside failed to attract fresh buying, the break below support was not met by fresh selling.

Instead, support was quickly reestablished as the dollar and bond yields moved lower on increased US-China tensions. Investors continue to view the yellow metal, and recently also silver, as the go-to metals for protection.

While hedge funds, which often trade on the back of a short-term technical price developments, have been rather quiet in recent months, the demand for ETF’s backed by bullion has continued to go from strength to strength. Global holdings in gold-backed ETF’s have risen non-stop for the past six months with assets at a record level above 3,100 tons.

The same goes for silver which, despite its March slump, has seen total holdings rise strongly to reach fresh records on an almost daily basis during the past couple of months.

Having rallied by 50% since that March low at $11.65/oz, the metal has also managed to claw back some ground against gold. The gold-silver ratio, which expresses the value of one ounce of gold in ounces of silver, has recovered from the record 125 level reached in March to the current 98, still well above the five-year average close to 80.

We maintain our bullish outlook for both metals, not least gold now that its premium to silver has narrowed. The main reasons why we cannot rule out reaching a fresh record high over the coming years are:

Gold acts as a hedge against Central Bank monetization of the financial markets
Unprecedented government stimulus and political need for higher inflation to support debt levels.

The inevitable introduction of yield controls in the US forcing real yields lower
A rising global savings glut at a time of negative real interest rates and unsustainably high stock market valuation. Raised geo-political tensions as the Covid-19 blame game begins Rising inflation and a weaker US dollar.

The crude oil rally that emerged following the sub-zero collapse on April 20 is showing the first signs of pausing. This after the WTI futures contract hit $35 resistance and Brent failed to challenge $37.2/b, both levels being the 38.2% retracement of the January to April sell-off. The brief collapse into negative territory last month on the expiring May WTI contract probably was the single biggest contributor to support the strong rally that followed.

The event on April 20 sent a shockwave through the global oil market with producers realizing that something dramatic had to be done in order to rescue the market from even more pain. This probably led to the very strong and rapid compliance that major producers have been exhibiting during May.

In their latest monthly Oil Market Report the International Energy Agency saw global supply drop by 12 million barrels/day in May to reach a nine-year low at 88 million. Demand meanwhile was expected to recover from being down 22 million barrels/day year-on-year in May to down 13 million in June.

Supporting the process has been the rapid and in most cases involuntary reduction in US shale oil production, now estimated by the IEA to reach 2.8 million barrels/day year-on-year in 2020. Previous production cuts by OPEC+ always attracted some level of hesitancy as members of the group risked yielding further market share to producers in North America. That risk evaporated with the slump in WTI as it left many producers out of pocket, thereby forcing them to halt production.

Having potentially reached the consolidation phase, it is worth considering what could trigger renewed weakness. There are several risks with the most relevant being:

Easing lockdowns sparking a resurgence of Covid-19 outbreaks. Whether OPEC+ can maintain the current high level of compliance. Cash strapped US producers desperate to increase production with WTI back above $30/b.
Post-pandemic changes in global consumer habits (less flying and more working from home). A break above $35/b on the July WTI futures contract could signal a potential extension towards $40/b while support should emerge at $30/b. Only a break below $28/b would raise concerns of a deeper correction.

Apart from the risk of a new trade war between the US and China, as well as a weaker-than-expected demand recovery, the oil market focus in early June will once again turn to Vienna where OPEC and the OPEC+ group convene to discuss a path forward. Some concerns that Russia may struggle to commit to current cuts beyond July may once again create some nervousness prior to the June 8 to 10 meetings. This on the grounds that the recovery in crude oil prices so far has primarily been driven by supply cuts, that can easily be reversed, and not yet a solid recovery in demand.Crude Brent Oil

HG crude oil increasingly, just like crude oil, looks like it needs a period of consolidation. Having almost retraced most of its Covid-19 related sell-off in March, the metal is likely to struggle in its attempt to break back above $2.50/lb, a level which provided support but now resistance, since 2017. The National People’s Congress in China, which has just finished, offered fresh stimulus measures that will increase demand for raw materials in key sectors such as construction and transport.

Overall, however, it was not the fiscal bazooka the market has seen during previous downturns. While perhaps stabilizing the outlook it is unlikely to drive a recovery in growth back to the 6% level. For now, traders are holding onto the prospects for a global economic rebound outweighing increased tensions between the US and China.

Corn, a recent favorite short-sell among hedge funds, was heading for its biggest weekly gain since last October. The recent recovery in crude oil has led to increased demand from ethanol producers who normally consumer close to 40% of the US corn production.

Together with the potential short-term threat of hot and dry weather across the US Midwest, the price has moved higher and it now looks like a floor has been established at the key $3/bushel level. Speculators held a net-short of 245,000 lots (31 million tons) in the week to May 19 and continued short-covering could see the contract challenge an area of resistance above $3.40/bushel. Wheat is also finding a weather-related bid while soybeans remain troubled by US-China tensions hurting the prospect for Chinese demand.

crude oil Covid-19 related rollercoaster has gone full circle. After rallying by 25% during March on worries supply from South America would be disrupted the price has since collapse once again.

The prolonged shutdowns around the world have since reduced demand for quality beans from coffee shops and cafés. This week the price broke support and dropped back below $1/lb and well below the current cost of production for many farmers across South America. Something that may get addressed when the International Coffee Organization hold a virtual meeting of its International Coffee Council from June 1.

For a look at all of today’s economic events, check out our economic calendar.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Silver bought, Gold sold ahead of Breakout

Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across 24 major commodity futures up until last Tuesday, May 12. Following a couple of weeks of strong energy-led gains, the Bloomberg Commodity Index traded lower by 1.2% in the week to May 12. In response to this speculator’s cut bullish commodity bets by 9% to 567k lots. Most of the selling was seen in natural gas, Brent crude oil, corn and gold while buyers concentrated their efforts in WTI crude oil, soybeans and live cattle.

Energy

The divergence in speculative interest between WTI and Brent crude oil continued in the week to May 12. The 5% rally in CLM0 attracted another 25k lots of fresh longs with the net rising to 325k lots, the highest since September 2018. Brent crude oil (LCON0) meanwhile traded lower by 3% resulting in the net long being cut by 21k lots to 156k lots. The combined net-long reached a three months high at 481k lots with WTI contributing two-third of the nearly 300k lots funds have added during the past six weeks.

As mentioned in my latest ‘COT, the short-lived collapse to a negative WTI price last month probably saved the market. It helped accelerate dramatic cuts in global production, estimated by the IEA to hit 12 million barrels/day this month. With demand beginning to recover and US producers having made substantial cuts, WTI crude oil has so far been the go to contract for bullish speculators. However, driving the price to high before fundamentals can support a sustained recovery carries the risk of US shale oil producers turning the taps back on to soon.

Natural gas’s failure to sustain a rally above $2/therm helped trigger a 19% correction and a 30% reduction in the net long to 112k lots. The price had rallied strongly from the March low on the outlook for lower production from associated oil production. Milder weather combined with continued lockdowns leading to lower demand and reduced export demand for LNG all helped drive the price lower.

Metals

Gold longs were cut to a fresh 11-month low at 161k lots as the price continued to struggle to break it’s $1700/oz shackle. Silver buyers meanwhile returned to increase the net-long by 35% ahead of the Thursday spike back above $16/oz. The white metal has now retraced more than 61.8% of the February to March collapse thereby attracting renewed demand from speculators who in recent weeks had cut net-longs by 85% from the February peak.

HG Copper traders were the least bearish since January after cutting the net-short by 18% to 13k lots, Further upside however remains doubtful with economic data beginning to show the horrendous damage done to the global economy from many weeks of inactivity. Something that was highlighted by the data showing that the change in position was driven by short-covering and not fresh longs.

Agriculture

Another year of plenty supplies across the three major crops are being projected by the U.S. Department of Agriculture in their latest outlook from May 12. Only a deteriorating weather outlook over the coming months or a pickup in U.S. export sales – unlikely given the strong dollar – can prevent stocks building following another bumper harvest in the U.S. and around the world. Overall the grains sector was net-sold with buying of soybeans (+24k) being off-set by wheat (-0.9k) and not least corn where 24k lots of selling lifted the net-short to a one-year high at 214k lots.

All four soft commodities were net bought despite cotton being the only contract being supported by a higher price. Buying of sugar and coffee occurred despite the headwind from a free falling Brazilian real.

What is the Commitments of Traders report?

The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock indexes, currencies and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.

In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.

In financials, the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.

Our focus is primarily on the behavior of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered funds.

They are likely to have tight stops and no underlying exposure that is being hedged. This makes them most reactive to changes in fundamental or technical price developments. It provides views about major trends but also helps to decipher when a reversal is looming.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Another Year of Plenty Awaits the Grain Market

What is our trading focus?

  • WHEATJUL20 – CBOT Wheat
  • CORNJUL20 – Corn
  • SOYBEANSJUL20 – Soybeans

Grain prices are generally trading softer following the monthly release yesterday of the World Agriculture Supply and Demand Estimates report (WASDE) from the US Department of Agriculture.

This was the first report to include projections for ending stocks at the end of the new 2020-21 crop year which runs until August next year. Across the board, another year of plenty of supplies is being projected with only a deteriorating weather outlook over the coming months preventing another bumper harvest in the U.S. and around the world.

Key takeaways:

Corn: Supplies will rise to their highest in 33 years due to massive plantings and what is expected to be a record crop in the 2020/21 marketing year.

Soybeans: The USDA raised its fore forecast of 2019-20 soybean ending stocks to 580 million bushels, up from 480 million last month and above the highest expectations. For 2020-21 the ending stocks was projected to fall to 405 million bushels, below the average estimate.

Wheat: While lowering the projected 2020-21 U.S. ending stocks to 909 million bushels from 978 million this year, it was still well above expectations at 819 million. Adding further pressure to U.S. wheat prices was the a jump in global ending stocks to a record 310 million tons. A recovery in Russian and Australian productions thereby making it harder for U.S. farmers to compete for export orders, unless the dollar should weaken over the coming period.

The uptrend in wheat from the 2019 low is once again being challenged with a break below $5.05/bu on the continuation chart signalling an extension to the next key level of support at $4.91/bu, the March 17 low.

Corn meanwhile remains stuck near a 13-year low with support at the psychological important $3/bu level so far holding. The price has struggled amid the outlook for another bumper crop emerging across the U.S. plains together with stiff competition from producers in Argentina and Brazil both reaping the benefit from much weaker currency. Adding to the recent weakness has been the collapsing oil price as it has cut demand from ethanol producers who normally account for one-third of U.S. demand.

Soybeans has been trading sideways for the past two years with the price struggling to move higher from a near 12 year low around $8/bu. Worries about Chinese demand as the Covid-19 blame game heats up and the mentioned competition from exporters in Brazil and Argentina are two of the main obstacles keeping the price down.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Organic Soybean Acres Planted are Likely to Rise

 

Organic soybean planting is likely to rise related to organic corn planting during the coming harvest according to The Jacobsen. This is because the average value per acre for organic corn has declined substantially relative to the value per acre for organic soybeans. The relative value is measured by The Jacobsen Planting Acre Index.

The Jacobsen planting acre index is beginning to consolidate at 4-year lows. The index calculates the theoretical value of an acre of organic corn relative to the theoretical value of an acre of organic soybeans. The assumptions used are based on the Jacobsen calculation of the average yield per bushel in the Midwest for both organic corn and organic soybeans. The index ignores any additional costs for switching and any additional costs of planning organic corn compared to organic soybeans.

After hitting a higher of more than $800 per bushel in August of 2018 (which coincides with the 4-year high of organic corn prices The JacobsenPUATF), the index has declined by more than $500 per bushel and is hovering below $300 for the first time in the past 4-years.

The low level of the index means that the strong demand for soybeans and the lack of supply during the 2019/2020 season, makes organic soybeans a good option in the rotation despite the value being lower than the value of an acre of organic corn in the mid-west.

Prices Remain Stable

Organic corn prices are stable with little to no activity in the spot market hovering around $7/$7.1 picked up at the farm in the mid-west. Some merchandisers are now quoting $7 delivered into their mid-west facilities. This could put additional downward pressure on prices. Organic corn prices in South Central PA remain near $350 per short-ton delivered for new crop, and slightly below for spot. Organic soybean prices are hovering just above $20 per bushel, but there is little product around. Organic soybean meal prices are hovering near the $760 level mid-west, and have similar values in PA.

Organic Corn Prices Might be Driven by the COVID-19 Spread in Turkey

Organic corn prices could experience upward momentum driven by a shutdown in Turkey. Organic corn prices have been trading under pressure but have been steady of late according to The jacobsen. This comes as the convention corn market implodes. Conventional corn prices on the CBOT broke down today and are poised to test 4-year lows at $3 per bushel. For organic corn traders, the outlook remains bleak, but there is a fly in the ointment that could buoy organic corn prices.

According to reports, Turkey is on shaky ground, as fast-rising coronavirus cases threaten to plunge an already fragile economy into further despair. Turkey is one of the few European countries that have yet to implement a nationwide lockdown, in favor of keeping their economy going. Unfortunately, Turkey is in a particularly bad place to weather a pandemic. Self-isolation is voluntary throughout the country but non-essential business is closed.

Reports show that Turkey began to see an acceleration in COVID-19 cases that increased to 4,000 cases per day as of April 8. The first case of COVID-19 was reported on March 11. Total cases are now more than 65,000.

What a Shutdown in Turkey Would Mean

A shutdown of Turkey’s economy and its ports would likely have a significant impact on the US organic corn market. During the balance of the 2019/2020 season, based on historical deliveries, the US is expected to receive approximately 4.3-million bushels of organic cracked corn imported into the United States from Turkey.

If these shipments, which are scheduled from May to September, do not arrive, then the overhang of organic corn, which remains in storage will evaporate. In turn, this could push prices higher. The carryover, which is now expected to be more than 2-million bushels, according to The Jacobsen, would completely disappear. You can see our forecast based on these projections on The Jacobsen weekly market intelligence.

Organic Retail Demand is Expected to Rise

Organic retail demand is predicted to rise during the balance of the 2019/2020 season according to the Jacobsen insight. A strong tailwind lead by increased demand for food purchased at supermarkets and big-box stores will buoy demand. The rapid shift in US short term interest rates, in conjunction with the fiscal policy, will help further catapult purchases of organic goods when pent up demand is unleashed and the coronavirus fades. This should help buoy organic grain prices including organic corn prices and organic soybean prices.

Social distancing is poised to buoy demand for retail organic food. Supermarkets in impacted coronavirus areas are having a tough time holding on to consumer staples like water, and meat, that can be frozen. While there might be a pause in demand as this scenario fades, strong monetary and fiscal policy will buoy demand. The last time US interest rates were dropped to zero, they stayed there for 7-years.

Fiscal and Monetary Policy Boost

The White House announced several fiscal stimulus policies as well as formulated a policy on social distancing. They are requesting social distancing for the next 15-days. This will likely buoy demand for organic proteins including eggs, dairy, and chicken. While there will likely be a dip initially when things “go back to normal”, the stimulus in the economy should allow for an upgrade cycle for those who might consider organic as a choice over conventional. The fiscal policy in conjunction with the powerful monetary policy should help accelerate growth in the Q4 of 2020 into the Q1 of 2021.

Organic Corn Prices Break Below the $8 Level; Poised to Test 2016 Lows

Organic corn prices mid-west picked up at the farm have dropped below $8 per bushel level. Prices for spot loads are trading near $7.75, as farmers are clearing out their bins ahead of the planting season. There appears to be a concerted effort in the mid-west to purge spot organic corn, and consumers are lower their bids.

Merchandisers have quoted prices in the South-Central PA region at $10.65 per bushel for Q4, and with approximately a $2.5 freight and loading charge to reach the mid-west, Q4 prices should be trading near $8.15 for the Q4. Organic corn prices are poised to test support near the 2016 lows at $7.40.

There is a combination of issues that are dragging on prices. First, most consumers are covered for the balance of Q1 and Q2 fo 2020. There is plenty of corn around, in bins, looking for a home. Additionally, a decent quantity of the organic corn this year has a test weigh below 54. While some merchandisers will accept organic feed corn #2 at a 52-test weight with a discount (of approximately 5 cents per pound), others are rejecting the corn which is creating additional headwinds for prices.

There also appears to be strong demand for organic corn with test weights that would place it at #1, which is 56 and above. The Jacobsen has heard that there is a robust premium for #1 organic corn which could be up to $1 per bushel. This would be used to mix with lower test weight corn to achieve 54 test weight.

There is also an accelerating number of farmers concerned that there could be too much precipitation again in 2020. Their concern stems from a recent report from the National Weather Service who is warning there is a high risk of flooding again this spring in the mid-west especially in areas that are still saturated. Additionally, farmers are concerned that levee fixes will not take place expeditiously, which will buoy insurance premiums for affected areas.

 

Grain Futures Update – 12/20/2019

With the Phase One Trade Deal signed, Stephen discusses how China will impact the grains through the use of monthly charts.

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Corn Prices Hit A 5 Week High, Will Cotton Prices Break The 70 Level?

I will be recommending a bullish position if prices close above 3.85 while then placing the stop-loss at the contract low which was hit on September 9th at 3.65 as the risk would be $1,000 per contract plus slippage and commission as the chart structure is outstanding due to the low volatility that we have experienced over the last several months.

Corn prices are now trading above their 20 day moving average but slightly below their 100 day which stands at major resistance at 3.91 as the USMCA trade agreement will be passed this week as that is a very bullish fundamental factor coupled with the fact that the Chinese trade agreement has been written in stone as I think the bottom has occurred in the grain market as these are very bullish factors for corn prices which still historically speaking are depressed.

The large money managed funds are heavily short corn while adding another 30,000 contracts last week as they believe lower prices are ahead, however I disagree with that situation so play this to the upside as the risk/reward is in your favor.

TREND: HIGHER–MIXED 

CHART STRUCTURE: EXCELLENT

VOLATILITY: INCREASING

Cotton Futures

Cotton futures in the March contract is currently trading higher by 45 points at 67.25 reversing some of the losses that we witnessed last Friday as prices are still hovering right near a 5 month high.

The large money managed funds are still short this commodity by 3,000 contracts as they still believe lower prices are ahead, however I have been recommending a bullish position from around the 66.60 level and if you took that trade continue to place the stop loss under the November 21st low of 63.70 as an exit strategy as the chart structure will start to improve in next week’s trade therefor the monetary risk will also be reduced.

Cotton prices are trading above their 20 & 100 day moving average telling you that the trend is to the upside with the next major level of resistance around the 68.00 level as I think that could be tested in this week’s trade as optimism that China will become a more active buyer of U.S cotton should be supportive in the coming weeks ahead.

At the current time I have several bullish recommendations as I think the commodity markets in 2020 will have significant rallies from these depressed levels as I do think with the emergence of all these trade deals occurring the bearish situation has ended as the risk/reward is in your favor to the upside.

TREND: HIGHER

CHART STRUCTURE: EXCELLENT

VOLATILITY: INCREASING

This article was written by Michael Seery (CTA—COMMODITY TRADING ADVISOR)  www.seeryfutures.com

Corn Higher On Possible Trade Agreement

However, President Trump announced today that a possible trade agreement with China could be at a hand pushing prices higher.

One very bullish fact is that the USMCA agreement looks to be at hand in the coming months ahead as Mexico is our largest importer of U.S corn in the world as we need some bullish fundamental news to push prices higher in my opinion.

Heading into 2020 I think the commodity markets will surge to the upside as they are certainly depressed especially compared to how strong the U.S economy is and if you take a look at the equity market they have hit another all-time high in today’s trade as President Trump I believe will continue to inflate all asset classes in the coming years ahead.

If you are a farmer I certainly would not be selling at these price levels as demand will come back for this product in the coming months ahead as I want to play this to the upside as the downside is very limited in my opinion.I am will be looking at a possible bullish position if prices break the 4 week high which was created on December 3rd at 3.85 while then placing the stop loss under the contract low which was hit on September 9th at 3.65 as the risk would be around $0.20 or $1,000 per contract plus slippage and commission.

This article was written by Michael Seery (CTA—COMMODITY TRADING ADVISOR)  www.seeryfutures.com