When evaluating the possibility of a bottom, or temporary bottom in the grains, the focus should be less on price than the imbalance of supply and demand for futures contracts.

Beginning on July 8, we placed the above sentence in each report to remind clients that the focus should not be on price, but rather the imbalance of supply and demand for futures contracts. The reason: this is going to be the primary driver of prices until the distorted position of managed money aligns itself with market conditions. Once this occurs, prices should begin to stabilize.

Soybeans:

August soybeans lost 37.00 cents while the November contract declined 18.00 on total volume of 255,216 contracts. Total open interest increased by 8,702 contracts, which relative to volume is approximately 40% above average meaning that new short sellers were aggressively entering the market and driving prices to new contract lows and for the August contract to 2 1/2 year lows. The July contract lost 450 of open interest in August -764 while the September 2014 through July 2016 contracts all gained open interest.

From July 2 through July 11 (7 trading days), total open interest increased each day with only one exception and this occurred on July 8 when total open interest declined by 308 contracts. This brings the total open interest increase for the past 7 days to 24,484 contracts while August soybeans have declined $1.32, -9.94% and the November contract lost 72 1/2 cents, -6.32%. The increase of open interest is supported by the COT report which show manage money long by a ratio of 1.58:1. As this report is being compiled on July 14, August soybeans are trading 11.25 cents higher while the November contract is +11.00.Soybeans are experiencing the kind of tepid rally typical of a market that has had a major shakeout. The low made on July 11 should provide support, at least temporarily, but if the market breaks below this, all bets are off.

In the WASDE report, ending stocks were raised to 415 million bushels compared to 325 million bushels the previous month and crush was revised higher while exports were increased for a total of 90  million bushels. Additionally, the USDA raised ending stocks for the 2013-2014 season 140  million bushels from 125  million the previous month.

Corn:

September corn lost 8.00 cents on total volume of 296,815 contracts. Volume was the highest since June 30 when corn lost 23.50 cents on volume of 475,189 contracts and total open interest increased by 1,321 contracts. On July 11, total open interest increased by a massive 11,000 contracts, which relative to volume is approximately 50% above average meaning that aggressive new short sellers were heavily entering the market and driving prices to a new contract low ($3.75 3/4). The July contract lost 1,267 of open interest and September – 1541.Open interest increased in the December 2014 through May 2016 contracts. As this report is being compiled on July 11, September corn is trading 2.50 cents higher after making a new contract low of $3.74. From now on, we expect tepid rallies to occasionally interrupt the down trend unless there is a major weather event.

The USDA revised ending stocks higher to 1.801 billion bushels from the previous month of 1.726 billion bushels and feed usage declined by 50 million bushels..

Chicago wheat:

September Chicago wheat lost 22.50 cents on volume of 116,569 contracts. Volume was higher than June 30 when the USDA released its report and September wheat declined by 16.25  cents on volume of 115,256 contracts and total open interest increased by 1,059 contracts. On July 11, total open interest increased by a massive 5,456 contracts, which relative to volume is approximately 75% above average meaning that aggressive new short sellers were heavily entering the market and driving prices to a new contract low (5.25).This is the lowest price on the wheat continuation chart since July 2010. As this report is being compiled on July 11, September Chicago wheat is rallying 9.25 cents after making a new contract low at 5.24 1/4.

The USDA reported total production for the 2014-2015 season estimated at 1.992 billion bushels which was up from the previous month of 1.942 billion bushels and ending stocks of 660 million bushels up from the June estimate of 574 million bushels.

Live cattle:

August live cattle advanced 97.5 points on volume of 93,526 contracts. Total open interest increased by 1,186 contracts, which relative to volume is approximately 45% less than average. The August contract accounted for loss of 9,022 of open interest, which makes the total open interest increased more impressive (bullish ). As this report is being compiled on July 11, August cattle is trading 1.175  cents lower.We want to see more backing and filling and think there is a excellent possibility that it will challenge the contract high of 1.56475 made on July 7. As we reported in the weekend report, the current ratio of managed money (8.70:1) is the lowest since January 21, 2014 when they were long live cattle by ratio of 8.88:1.  If the number of speculative longs are reduced, selling pressure should abate. this combined with a low ratio may be a set up for a good buying opportunity.For August cattle to generate a short-term sell signal, the high of the day must be below 1.45180.

WTI crude oil: On July 11, August WTI crude oil generated an Intermediate term sell signal after generating a short-term sell signal on July 3.

August WTI crude oil lost $2.10 on heavy volume of 637,532 contracts. Volume was the highest since June 19 when August crude oil advanced 46 cents on volume of 781,559 contracts and total open interest declined by 8830 contracts. On July 11, total open interest declined by 6,897 contracts, which relative to volume is approximately 50% below average. The August contract lost 14,812 of open interest. Although WTI crude oil has been shedding open interest, it is surprising to see a modest total decline when the August contract had its biggest one day loss since March 5. The COT report shows that managed money still remains heavily long, and we think there is more damage to come on the downside.

Brent crude oil: On July 11, September Brent crude oil generated an intermediate term sell signal after generating a short-term sell signal on July 3

Gasoline: On July 11, August gasoline generated an intermediate term sell signal after generating a short-term sell signal on July 7.

Natural gas:

August natural gas advanced 2.6 cents on light volume of 185,785 contracts. Total open interest declined by 7666 contracts, which relative to volume is approximately 55% above average meaning that liquidation was heavy on the modest advance. On July 11, August natural gas made a new low for the move at $4.106, and as this report is being compiled on July 14, has made another new low at 4.092. We think natural gas is going to be a terrific trade some time in 2014, however it needs to form a base and we would prefer to see managed money assume a net short position. Natural gas continues to squeeze speculative longs out of the market, and this is exactly the set up  necessary for natural gas prices stabilize. August natural gas remains on a short and intermediate term sell signal.

Euro:

The September euro gained 5 pips on very light volume of 96,734 contracts total open interest declined by 213 contracts, which is minuscule and dramatically below average. The euro remains on a short-term buy signal, but an intermediate term sell signal. We have no recommendation.

Swiss franc:

The September Swiss franc gained 6 pips on volume of 20,727 contracts. Total open interest increased by 472 contracts, which relative to volume is approximately 10% below average. As this report is being compiled on July 14, the September Swiss franc is trading 5 pips lower.Continue to hold the bullish September Swiss franc position and the bullish CHFEUR position. The exit point for the September Swiss franc trade is 1.1155 and for CHFEUR .8217.

Gold:

August gold lost $1.80 on light volume of 121,249 contracts. Total open interest declined by 3,606 contracts, which relative to volume is approximately 20% above average meaning that liquidation was fairly heavy on the modest decline. As this report is being compiled on July 14, the August contract is trading $28.40 lower and has made a daily low of 1302.20, which is the lowest print since June 25 (1305.40). In the July 7 report, we recommended writing calls, buying puts or selling a partial position and placing a sell stop at the June 25 low of 1305.40. Clients who followed this advice are very happy on July 14.We have no idea whether this is a shakeout, or something worse but we would reduce the bearish hedge on today’s decline. Open interest should decline on today’s market action. We have not recommended bullish positions in gold because we much prefer the long side of silver.August gold remains on a short and intermediate term buy signal.

Silver:

September silver lost 4.7 cents on volume of 33,680 contracts. Total open interest declined by 623 contracts, which relative to volume is approximately 25% below average. As this report is being compiled on July 14, September silver is trading 54.1 cents lower and has made a daily low of $20.90. In the July 7 report, we recommended shorting calls, buying puts or  selling a partial position originally recommended in the June 16 report. Additionally, we recommended a sell stop at the June 25 low of 20.76. Like gold, we have no idea whether this is a shakeout or whether silver has made a top or temporary top. We would reduce the bearish hedge on the remaining bullish position. September silver remains on a short and intermediate term buy signal