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September soybeans gained 30.75 cents on volume of 138,425 contracts. Volume declined on the rally by approximately 23,000 contracts from August 28 when soybeans gained 2.75 and open interest increased by 623 contracts. The reduced volume on the rally was disappointing. On August 29, total open interest declined by 1,098 contracts and in the November contract, open interest increased by a mere 5 contracts. Keep in mind that the November contract represents approximately 50% of the total open interest in soybeans, yet open interest didn’t increase by much as soybeans moved to its highs. With the coming three-day Labor Day holiday, speculators are undoubtedly wary about holding positions through the weekend, and before the speech to be given by chairman Bernanke on August 31. August 31 is first notice day for soybeans, which means that all speculators will be out of that contract by the close of business on August 30.
The export sales report released by the USDA on August 30 showed that sales for the 2012-2013 season amounted to 731,300 metric tons, which is a very robust number considering the stratospheric price of soybeans. The estimates ranged from 500,000 metric tons to 800,000. As of the latest export sales number, over 55% of the soybean crop has been sold, a crop which has not been harvested yet. To put this number in perspective, the average percentage of sales for the new crop at this time of year amounts to approximately 30%. As this report is being compiled on August 30, September soybeans have broken out fractionally above the old July high for August soybeans of $17.77 3/4 making a new high of $17.80 3/4.
October soybean meal gained $8.40 on volume of 68,877 contracts. Volume declined by approximately 6,000 contracts from August 28 when soybean meal gained $2.40 and open interest declined by 1,437 contracts. On August 29, open interest increased by 345 contracts, which is a terrific performance considering that the September contract lost 4,075 contracts, which means there was enough buying in the forward months to offset the decline of open interest in September. This is bullish. Like soybeans, the soybean meal market looks terrific, but going into a three-day holiday weekend, anything can happen including some profit-taking by nervous longs. The USDA export sales numbers show that exports totaled 219,900 metric tons, which is down from the previous week, but still a very healthy number. Exports for the 2012-2013 season were 163,500 metric tons.
December corn rallied 18.00 cents higher on heavier than normal volume of 265,654 contracts. Volume was the highest since August 23 when corn declined by 20.00 cents and open interest declined by 7,609 contracts. On August 29, total open interest declined by 11,524 contracts while open interest in the December contract declined by 1,798 contracts, and September declined by 14,994 contracts. Unlike soybean meal, there was not sufficient buying in the forward months to offset the open interest declines of September and December. The USDA reported that weekly export sales totaled 134,700 metric tons, which was down from 325,400 metric tons last week and below analyst estimates of 250-400,000 metric tons. Unlike soybeans, stratospheric corn prices are beginning to negatively impact sales.
December wheat closed 30.25 cents higher on volume of 85,285 contracts. Volume increased by approximately 8,000 contracts from August 28 when wheat declined by 5.75 and open interest declined by 2,630 contracts. On August 29, total open interest increased by 3,044 contracts, which is a terrific performance considering that open interest in the September contract declined by 4,590 contracts. In other words, there was heavy buying in the forward months to offset the good sized decline in the September contract. This is bullish. Also, relative to volume, the open interest increase was approximately 20% above average, which is another bullish indicator.
For the week, the USDA reported that export sales for wheat totaled 509,300 metric tons, which was at the lower end of the range of analyst estimates of 400-700,000 metric tons. The big driver of wheat prices on August 29 was the persistent rumor of an export sales ban by Russia. On August 31, the Russian agricultural ministry will meet to discuss a potential export curb. Russian agricultural analysts estimate that the 2012 Russian crop will total 38,000,000 metric tons, which is significantly lower than the current USDA estimate. Additionally, if this estimate holds, the crop would be lower than in 2010 when the Russians imposed an export ban. We have been saying for a number of weeks that we are friendly to wheat and that the end of August, or early September would be the time to implement bullish positions. We suggest waiting until after the August 31 meeting of the agricultural ministers before implementing bullish positions.
October crude oil lost 84.00 cents on very light volume of 368,240 contracts. Volume shrank approximately 12,000 contracts from August 28 when crude oil gained 86.00 cents and open interest increased by 13,066 contracts. On August 29, open interest increased by 1,681 contracts. Speculators should stand aside in crude oil and because the market is loaded with speculative longs, it is all the more likely that crude oil will surprise to the downside.
October heating oil lost .0061 cents on light volume of 116,195 contracts. Volume shrank approximately 27,000 contracts from August 28 when heating oil declined by .0090 and open interest declined by 8,881 contracts. On August 29, open interest increased by 6,420 contracts, which in relation to volume is almost 200% above average. The large changes of open interest on essentially unchanged prices make it difficult to assess the immediate direction of heating oil. Stand aside.
October gasoline lost 1.65 cents on volume of 123,237 contracts. Volume declined approximately 42,000 contracts from August 28 when gasoline lost 1.67 and open interest declined by 5,736 contracts. On August 29, open interest increased by 2,856 contracts, which in relation to volume is slightly below average. With the summer driving season at an end, and prices trading at the upper end of the range, there is not a good reason to be long at current levels.
September copper lost 2.00 cents on volume of 77,054 contracts. Volume increased by approximately 11,500 contracts from August 28 when copper declined by 1.40 and open interest increased by 1,628 contracts. On August 29, open interest declined by 1,418 contracts. The fundamentals for copper appear to be dismal, especially with the economic problems in China getting increasingly worse. We want to watch the market before suggesting the implementation of bearish positions.
December gold lost $6.70 on volume of 126,038 contracts. Volume increased approximately 13,000 contracts from August 28 when gold declined by $5.90 and open interest increased by 9,957 contracts. On August 29, open interest declined by 3,786 contracts, which in relation to volume is average. The market continues to act well, and setbacks are buying opportunities.
September silver lost 3.8 cents on volume of 82,754 contracts. Volume increased by approximately 6,000 contracts from August 28 when silver declined by 17.3 cents and open interest declined by 4,681 contracts. On August 29, open interest declined by 2,848 contracts, which in relation to volume is approximately 20% above average. From August 24 through August 29, open interest has declined by 10,567 contracts while silver has advanced by 38.1 cents. As indicated in yesterday’s report, the pattern of open interest declines while prices advance is not positive. However, silver remains on a short and intermediate term buy signal and is acting well despite the declines of open interest. As this report is being compiled on August 30, silver has had its first major pullback and is trading 40.7 cents lower. This is a healthy development because the market was massively overbought and needs some time to consolidate at a lower level before taking out the high of $31.225 made on August 27.
The September Euro lost 36 points on volume of 178,566 contracts. Open interest declined by 299 contracts. Stand aside.
10 Year Treasury Notes:
The September 10 year treasury note gained 3.5 points on extremely heavy volume of 2,588,457 contracts. Volume was the highest since May 30 when 2,726,420 contracts were traded. On August 29, open interest increased by 31,418 contracts, which in relation to volume is approximately 50% less than average. Additionally, the open interest increase on the 29th was 7,869 contracts fewer than the 39,287 contract increase on August 28.
On August 29, the market made a new high for the move at 134-01, which was the highest price for September notes since August 7 when they reached 134-04. Despite the sharp move upward, September notes remain on a short and intermediate term sell signal. For the short term sell signal to change status to a buy signal, the daily low on September notes must be no less than 134-00. As this report is being composed, September notes are trading 11.5 points higher and will not generate a short-term buy signal on August 30. Remarkably, the volume in treasury notes has exceeded the volume in the S&P 500 e-mini for the past three days. On August 29, volume in notes was 265% greater than the volume in the S&P 500 E mini.
If there is any disappointment by speculators about the Federal Reserve Chairman’s speech, notes will sell off, perhaps precipitously. As we stated before, we believe the note market has been discounting the possibility of more quantitative easing. In order to protect any outstanding long equity positions, speculators may consider purchasing long out of the money puts on December notes.
S&P 500 E mini:
The September S&P 500 E mini gained 0.25 points on volume of 962,845 contracts. Open interest increased by 25,491 contracts, which in relation to volume is average. The S&P 500 volatility index (VIX) has been increasing from the low of 13.38 made on August 20 to the high of 18.05 made so far on August 30. However, from August 20-August 28, the S&P 500 E mini is only declined by 7.50 points, which possibly means the increasing VIX may signal that the S&P 500 is vulnerable to a larger decline. The behavior of treasury notes and the S&P 500 appear to contradict each other. The S&P 500 seems to be indicating there is fear that the Bernanke speech will disappoint, but treasury notes are acting as if quantitative easing is a done deal. One of them is going to be wrong.