Soybeans:

July soybeans lost 6.00 cents on volume of 217,518 contracts. Total open interest declined by 6,624 contracts, which relative to volume is approximately 20% above average, meaning there was healthy liquidation as prices moved to new lows for the move ($14.60 1/2). The May contract lost 9,190 of open interest. As this report is being compiled on April 24, July soybeans are trading 1.00 cent lower, however the May contract is trading 3.50 lower and the spread between May and the July 2014 contract has narrowed to approximately 1.50 cents. On April 23, the May-July 2014 spread closed at 3.75 premium to May. However, the spread has been narrowing dramatically since the beginning of April, and this is very negative in the short-term for soybean prices. For example, on April 2, May soybeans sold at a 21.00 cents premium to July. The narrowing of the spread is another indication that soybean prices are headed south. We have been warning clients to stand aside in soybeans due to the seasonal tendency of prices to decline in the period just ahead. July soybeans remain on a short and intermediate term buy signal. 

The USDA reported that sales of soybeans totaled 7.8 thousand metric tons, which was the lowest of the season and brings total commitments to 1.639 billion bushels versus the USDA projection for the season of 1.580 billion bushels.

Soybean meal:

July soybean meal lost $1.30 on volume of 82,811 contracts. Total open interest declined by 238 contracts, which is minuscule and dramatically below average. The May contract lost 5,814 of open interest. The July contract made a low of $467.00, which took out the 468.00 low made on April 15. As this report is being compiled on April 24, July soybean meal is trading $1.00 higher on the day and has not taken out yesterday’s low. The May-July 2014 spread has narrowed since March 26, but has not narrowed to the degree of the May-July 2014 bean spread. Also, exports for soybean meal continue to be robust compared to soybeans. We think soybean meal has the potential for some major fireworks in the late May through mid to late July time frame. July soybean meal remains on a short and intermediate term buy signal. Stand aside.

The USDA reported that sales of soybean meal totaled 186.33 thousand metric tons bringing total commitments to 8913.7 thousand metric tons versus USDA projections of the season of 9979 thousand metric tons. This week’s sale is the highest since March 27.

Soybean oil:

July soybean oil lost 20 points on volume of 82,544 contracts. Total open interest increased by 3,652 contracts, which relative to volume is approximately 75% above average meaning that new short sellers were aggressively entering the market in heavy numbers and driving prices lower. The May contract lost 2,022 of open interest, which makes the total open interest increase more impressive (bearish). As this report is being compiled on April 24, July soybean oil is trading unchanged on the day, but has made a new low for the move at 42.47. The May-July 2014 spread topped out on March 6 at a 7 point premium to the July contract. This occurred when May and July soybean oil made their tops at 44.49 and 44.56 respectively. Yesterday, the spread closed at 28 points premium to July. On April 15, July soybean oil generated a short-term buy signal, but the decline has exceeded OIA 3 day protocol, and as we have said in recent reports, our concern is that the soybean market is rolling over and will take soybean oil with it. Stand aside.

The USDA reported that 5.74 thousand metric tons of soybean oil was sold, which brings total commitments to 583.4 thousand metric tons versus USDA projections for the season of 703.1 thousand metric tons.

Corn:

July corn gained 7.50 on healthy volume of 316,285 contracts. Volume shrank from the 433,504 contracts traded on April 22 when July corn advanced 8.25 cents and total open interest declined by 8,297 contracts. On April 23, total open interest increased by a massive 22,813 contracts, which relative to volume is approximately 185% above average meaning that massive numbers of new longs were entering the market and driving prices higher. The May contract lost 15,672 of open interest, which makes the total open interest increase much more impressive (bullish). As this report is being compiled on April 24, July corn is trading 0.25 cents higher after making a new high for the move at $5.13 1/2. Although yesterday’s price and open interest action was extremely positive, the fact remains the market does not seem to have the momentum to make new highs. The high for July corn occurred on April 9 at $5.19, and corn has been unable to test it, let alone surpass the high. Although the long to short ratio, which currently stands at 5.75:1 is down significantly from the ratios of previous weeks, this remains an elevated ratio and there are large numbers of speculative longs who at best have made only modest profits on their positions. We much prefer the long side of wheat. We have no recommendation at this juncture. July corn remains on a short and intermediate term buy signal.

The USDA reported that 618.9 thousand metric tons were sold, which brings total commitments to 1.697.7 billion bushels versus USDA projections for the season of 1. 750 billion bushels.

Chicago wheat:

 July Chicago wheat advanced 3.25 cents on volume of 83,476 contracts. Total open interest increased by 5,092 contracts, which relative to volume is approximately 20% below average. However, the May contract lost 6,303 of open interest, which makes the total open interest increased more impressive (bullish). As this report is being compiled on April 24, July Chicago wheat is trading 16.25 cents higher and has made a new high for the move at $7.02 3/4, which is the highest print since $7.09 1/4 made on April 17. It appears likely that July Chicago wheat is headed for a test of the March 20 high of 7.25 1/4.

From the April 22 report:

“From April 15 through April 22, price and open interest has been performing in a bullish congruent manner. Before advising clients to get long  wheat, we want to see two items: First, we want to see July Kansas City wheat generate a short-term buy signal, which would reverse the short-term sell signal generated on April 10. Second, independent strength by Chicago and Kansas City wheat relative to corn.”

Kansas City wheat:

July Kansas City wheat advanced 3.75 cents on volume of 20,907 contracts. Volume shrank dramatically from April 22 when 28,196 contracts were traded and July KC wheat advanced 5.00 cents while total open interest declined by 2,552 contracts. On April 23, total open interest declined by 248 contracts, which relative to volume is approximately 50% below average. The May contract lost 3,049 of open interest, and there was sufficient open interest increases in the forward months to bring total open interest significantly below average. As this report is being compiled on April 24, July KC wheat is trading 14.25 cents higher after making a new high for the move at 7.72, which is the highest print since 7.78 1/2 made on April 17. July Kansas City wheat will not generate a short-term buy signal on April 24, which is one of the conditions required before we advise clients to enter long side of wheat.

The USDA reported sales of 339 thousand metric tons, which brings total commitments to 1.141 billion bushels versus USDA projections for the season, which ends on May 31 of 1.175 billion bushels.

Cotton:

July cotton lost 61 points on heavy volume of 32,777 contracts. Volume was the highest since April 11 when 45,052 contracts were traded and July cotton closed unchanged while total open interest declined by 4,354 contracts. On April 23, total open interest declined by a massive 5,392 contracts, which relative to volume is approximately 460% above average meaning that liquidation was extremely heavy on the decline. The May contract lost 5,091 of open interest. However, the July and the December 2014 contracts only lost a total of 356 of open interest. The reason this is important is that total open interest in those 2 contracts totals 162,602 contracts. In short, the net change of open interest in July and December was minor even though prices fell to 90.73 in fast market conditions, which was the lowest print since 90.51 on April 15.

During the 15 minute period when cotton had its collapse, over 3,200 contracts were traded, or approximately 10% of total volume for the session. Although, one could look at the action in the July and December contracts and extrapolate a positive view, but we are a bit cautious because the sharp decline was uncharacteristic, especially since cotton was not significantly overbought, nor was the long to short ratio at an unreasonably high level.. As a matter of fact, the long to short ratio in cotton of 5.34:1 is the lowest since February 4 when it reached 4.48:1. In other words, there had already been a fair amount of liquidation since the March 25 COT tabulation date when managed money was long by ratio of 10.99:1. As this report is being compiled on April 24, July cotton is trading 80 points higher and has made a daily high of 93.52, which is 3 ticks above the high of April 22 of 93.49. Although cotton remains on a short and intermediate term buy signal, we do not feel comfortable making a bullish recommendation at this juncture.

WTI crude oil:

June WTI crude oil lost 31 cents on volume of 517,390 contracts. Total open interest increased by 4,723 contracts, which relative to volume is approximately 50% below average. The May contract lost 84 of open interest. As this report is being compiled on April 24, June WTI is trading 43 cents higher, and has taken out yesterday’s high of $102.08 (102.35). At this juncture, we think it is wise to avoid crude oil altogether and stay on the sidelines. June WTI crude oil remains on a short and intermediate term buy signal.

Natural gas:

May natural gas lost 9 ticks on light volume of 196,389 contracts. Total open interest increased by 4,313 contracts, which relative to volume is approximately 15% below average. The May contract lost 12,296 of open interest, which makes the total open interest increase more impressive (bearish). As this report is being compiled on April 24, June natural gas is trading 4 tics lower after making a high of $4.818. Due to the poor open interest action on April 22 and April 17, we made recommendations in order for clients to book some profits and mitigate any loss caused by the storage report released today. We continue to recommend the course of action advised on April 22. Although, the market has not rolled over, we remain cautious. Sell stops should be in place based upon sound money management and risk appetite.

 From the April 22 report:

“Tomorrow is the natural gas storage report, and this is going to have a major impact on prices. At this juncture, we suggest the partial liquidation of bullish positions, and for the remaining position write out of the money calls to shield against further declines. Sell stops should be based upon sound money management and risk appetite.”

 The Energy Information Administration announced that working gas in storage was 899 Bcf as of Friday, April 18, 2014, according to EIA estimates. This represents a net increase of 49 Bcf from the previous week. Stocks were 831 Bcf less than last year at this time and 1,008 Bcf below the 5-year average of 1,907 Bcf. In the East Region, stocks were 470 Bcf below the 5-year average following net injections of 17 Bcf. Stocks in the Producing Region were 412 Bcf below the 5-year average of 805 Bcf after a net injection of 22 Bcf. Stocks in the West Region were 127 Bcf below the 5-year average after a net addition of 10 Bcf. At 899 Bcf, total working gas is below the 5-year historical range.

Australian dollar:

The June Australian dollar lost 75 pips on volume of 88,686 contracts. Total open interest increased by 565 contracts, which relative to volume is approximately 65% less than average. Trading in the Australian dollar was very interesting for a couple of reasons. First, the volume on the decline was below the average daily volume for March of 96,102 contracts and average daily volume year to date of 90,996 contracts. In addition, open interest didn’t decline on a fairly significant drop in the Australian dollar after moving to the lowest level (92.35) since April 8 (92.18). As this report is being compiled on April 24, the Australian dollar is trading 28 pips lower and has made a daily low of 92.21. In short, it is apparent that the massive build up of long positions by managed money is not being liquidated as prices move lower. This makes the Australian dollar vulnerable to more downside. For the June Australian dollar to have a chance to test the old high of 94.19 made on April 10, the low for the day in the June Aussie must be above 92.63. Until this occurs, the Australian dollar will trade sideways to lower. The Australian dollar remains on a short and intermediate term buy signal.

 Copper: July copper will generate a short-term buy signal on April 24.

July copper gained 55 points on volume of 79,037 contracts. Total open interest declined by 2,777 contracts, which relative to volume is approximately 40% above average meaning that liquidation was heavy on the advance. Accounting for the massive loss of open interest was the May contract, which lost 6,328 of open interest, and is approaching 1st notice day. July copper has advanced for 6 consecutive days beginning on April 16 through April 24 and has made a high on the 24th of $3.0950, which is the July contract’s highest print since March 7. As of the latest COT report, managed money is short copper by ratio of 1.51:1. This large short position will add fuel for a continued move higher. As is usually the case after the generation of a buy signal, a pullback usually takes place lasting 1-3 days, which is the opportunity to initiate bullish positions. A couple of caveats… Copper is highly volatile and therefore timing of the trade is crucial. Additionally, the options market is illiquid, which makes it impractical to trade copper through options.

S&P 500 E mini: On April 23, the June S&P 500 E mini generated a short-term buy signal, which reversed the short-term sell signal generated on April 11. The June E mini remains on an intermediate term buy signal.

The June S&P 500 E mini lost 1.00 points on very light volume of 1,003,033 contracts. Total open interest increased by 11,054 contracts, which relative to volume is approximately 50% below average. As this report is being compiled on April 24, the June E mini is trading 0.75 points lower after making a daily high of 1882.50, which is only slightly above yesterday’s high of 1880.75. Usually, after the generation of a buy signal, the market has a tendency to pullback from 1-3 days, and this generally speaking is the opportunity to initiate bullish positions. However, we caution clients about getting overly enthusiastic on the long side with respect to the E mini. Maintain long puts, but do not add to this position. This is for clients who hold long equity positions.