Despite the rally in grains the Bloomberg Commodity Index dropped 1.5% last week as oil and precious metals fell. The weakening of the dollar couldn’t give sufficient support to the commodity bulls as fundamentals were lagging.
Technically there is still a chance the market will turn north to complete the 5th wave however it looks at the moment more bearish at least short term due to a possible increase in Crude inventories after the recovery of production in the Mexican Gulf. The summer has however just began and demand should increase with the ongoing holiday season on the northern hemisphere. Any military escalation of the Qatar case would add support to the bulls. In this relation don’t forget the Aramco IPO where at the Saudi Arabia has a major interest in increasing oil prices…
The surge in wheat prices helped to push higher the corn and soybean too. The official USDA Crop progress estimate on Monday however showed improved corn conditions with 68% of crop good and excellent vs. expected decline to 65%. Now traders are focusing on the corn yields and the question is how much it will fall from the last years’ records. 165 bushel per acre could be the level to watch as this would bring the ending stocks below the psychological 2bn bushels for the 2017/2018 marketing year. So watch the weather in the Corn Belt, the key will be if the drought will continue through July or will come some rains.
The front end corn contracts managed to close above 390cents and while there was a gap up on Monday and the following days the trading was very hectic (check long shadows on daily candles). Managed money covered its shorts mostly but new longs were not built which shows that there is no real sentiment change rather cautiousness. According to some news during the weeks there was significant commercial selling which can signal there are more hurdles ahead of the bulls.
Managed money on the other hand reached net short levels close to record highs and in this environment a short covering could trigger a short term volatile rally. The head and shoulder formation reached profit target and some profit taking took place since that but at least according to the COT data from 3rd July there was no change in net short of money managers positioning.
Good Luck and remember to watch your risk and be consistent
Mr. Tech Man
Oil
As Nigeria and Libya, exempt from the OPEC deal, are increasing production, the cartel fails to cap the production. The US rig count increased again after last weeks’ slight drop but according to news the US production has risen in Q2 only by 139k bpd which shows a falling momentum compared to 439k bpd rise in Q1. This drop was partially caused by the Tropical storm Cindy which resulted in disruptions on offshore oil platforms as well as delayed transportation in the Gulf of Mexico. Most likely this caused also the “surprise” drop in crude and fuel inventories which should really a surprise if one’s watching the news…
Technically there is still a chance the market will turn north to complete the 5th wave however it looks at the moment more bearish at least short term due to a possible increase in Crude inventories after the recovery of production in the Mexican Gulf. The summer has however just began and demand should increase with the ongoing holiday season on the northern hemisphere. Any military escalation of the Qatar case would add support to the bulls. In this relation don’t forget the Aramco IPO where at the Saudi Arabia has a major interest in increasing oil prices…
Corn
Weather concerns and drop in planted acreage were the main movers of grain prices the last 2 weeks. Corn and wheat were planted in smaller acreage as expected while soybean acreage didn’t rise as much as expected. The biggest problems seems to be developing in the wheat market as according to some analyst only 90-92%% of the high protein hard spring wheat will make it to the harvest due to the extremely dry weather expected in the north wheat belt in the US. This is much lower than the Official USDA estimate of 96%.The surge in wheat prices helped to push higher the corn and soybean too. The official USDA Crop progress estimate on Monday however showed improved corn conditions with 68% of crop good and excellent vs. expected decline to 65%. Now traders are focusing on the corn yields and the question is how much it will fall from the last years’ records. 165 bushel per acre could be the level to watch as this would bring the ending stocks below the psychological 2bn bushels for the 2017/2018 marketing year. So watch the weather in the Corn Belt, the key will be if the drought will continue through July or will come some rains.
The front end corn contracts managed to close above 390cents and while there was a gap up on Monday and the following days the trading was very hectic (check long shadows on daily candles). Managed money covered its shorts mostly but new longs were not built which shows that there is no real sentiment change rather cautiousness. According to some news during the weeks there was significant commercial selling which can signal there are more hurdles ahead of the bulls.
Sugar
The state owned Brazilian energy giant Petrobras cut gasoline prices again last week again, now by 5.9% which will pressure ethanol prices and ethanol parity, resulting in more profits producing sugar for the Brazilian sugar mills. And the pressure on sugar will increase later this year as in October the EU will end limits on production quotes. According to the producers on the oldest continent this could result in an increase of European sugar production by 20-25% in 2017-2018 season. Adding the expected 25% increase of sugar production in India there seems to be more troubles ahead for the sweetener in the next couple of months unless the weather will not help to lift prices.
Managed money on the other hand reached net short levels close to record highs and in this environment a short covering could trigger a short term volatile rally. The head and shoulder formation reached profit target and some profit taking took place since that but at least according to the COT data from 3rd July there was no change in net short of money managers positioning.
Good Luck and remember to watch your risk and be consistent
Mr. Tech Man
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