The USDA will release its World Agriculture Supply Demand report tomorrow at 11:00 a.m. CDT.

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

Soybeans:

August soybeans lost 2.00 cents while the November contract fell 12.50 on total volume of 198,372 contracts. Volume was the highest since July 1 when August soybeans fell 2.00 cents and November lost 9.75 on total volume of 240,693 contracts while total open interest declined by 1,257 contracts. On July 9, total open interest increased by 4,893 contracts, which relative to volume is average. The July contract lost 566 of open interest and August -496.The September 2014 through January 2016 contracts all gained open interest.

For the past 5 sessions beginning on July 2, total open interest has increased 14,730 contracts while August soybeans lost 81.25 cents and November soybeans fell 43.75 cents. There was only one day out of 5 when total open interest went down and this occurred on July 8 (-308). In summary, the dominant action in soybeans has been driven by new short sellers rather than significant long liquidation.There are a substantial number of distressed longs who must liquidate, or incur further losses. Until this class of trader is blown out of the market, it will be difficult for soybeans to mount any kind of sustainable rally As this report is being compiled on July 10, August soybeans are trading 8.00 cents lower while the November contract -6.25. The August contract has not taken out yesterday’s low of 12.31 1/4, but the November contract is making new lows for the move and is nearing its contract low of $10.88 1/4.Do not enter new positions prior to the USDA report.

The USDA reported sales of 56.26 thousand metric tons, which brings total commitments to date of 1.674.5 billion bushels versus USDA projections for the season of 1.600 billion bushels.

Corn:

September corn lost 7.00 cents on volume of 248,943 contracts. Surprisingly, volume increased only slightly from July 8 when September corn lost 2.25 cents on volume of 236,478 contracts and total open interest increased by 8,525 contracts. On July 9, total open interest increased by 4,303 contracts, which relative to volume is approximately 25% below average. However, the July contract lost 2,070 of open interest and September – 2,996, which makes the total open interest increased more impressive (bearish). Total open interest has increased every day from July 2 through July 9 and totals 29,264 contracts while corn prices declined every day for a total of 24.75 cents. We have a similar situation in corn as in soybeans where the dominant action is driven by new short sellers rather than long liquidation.We think there is a high probability that managed money will remained net long in corn, in tomorrow’s COT report, which means there will be continued selling pressure from this class of speculator. Stand aside.

The USDA reported sales of 363 thousand metric tons, bringing total commitments to 1.873 billion bushels versus USDA projections for the season of 1.900 billion bushels.

Chicago wheat:

September Chicago wheat lost 5.00 cents on total volume of 70,522 contracts. Total open interest increased by 1,961 contracts, which relative to volume is average. The July contract lost 152 of open interest. As this report is being compiled on July 10, September Chicago wheat is trading 3.00 cents lower and has made a new contract low at $5.46 1/4. September Kansas City wheat is trading 8.50 cents lower and as we pointed out in previous reports, managed money remains long Kansas City wheat by a ratio of 2.29:1 whereas they are short Chicago wheat by ratio of 1.55:1. Stand aside.

The USDA reported sales of 338.1 thousand metric tons bringing total sales to date for the current season of 300.1 million bushels versus USDA projections for the season of 925 million bushels.

Live cattle:

August live cattle lost 2.725 cents on huge volume of 115,720 contracts.Volume traded on July 9 was the highest of 2014 and took out the previous volume high of 113,320 contracts made on January 22, 2014 when the August contract closed at 1.31650. As this report is being compiled on July 10, August cattle is trading 2.40 cents lower and has made a daily low of 1.47950. We think it is difficult to say whether cattle has topped out.However, based upon our experience, we think there may be one more attempt to test the all-time high of 1.56475 made on July 7 before this phase of the bull market has come to a conclusion. August cattle remains on a short and intermediate term buy signal. Stand aside.

WTI crude oil:

August WTI crude oil lost $$1.11 on volume of 576,913 contracts. Surprisingly, volume was slightly below that of July 8 when August crude lost 13 cents and made a low of 103.01. Additionally, the range on July 8 was far smaller ($1.19) than on July 9 of 1.75. On July 9, total open interest declined by 11,436 contracts, which relative to volume is approximately 20% below average. For the past 2 days, August crude has declined $1.24 while total open interest declined 20,861 contracts. Based upon the latest COT report, managed money was long crude by a ratio of 9.33:1, or a net long position of 311,395 contracts. In the “Other Reportables“ category, this class of trader is net long by 134,445 contracts.

In short, there is plenty of firepower on the downside to sink WTI prices further. On July 3, August WTI generated a short-term sell signal, but has not had much of a rally to enable clients to initiate bearish positions. This is a testament to the weakness of the market, which has taken us by surprise. For example, on July 9 August WTI closed at $102.29 and yet the high for the day has been only 102.94 after making a low of 101.55. The market has had trouble mounting rallies after generating the short-term sell signal. We advise against chasing the market lower. Continue to stand aside.

Natural gas:

August natural gas lost 3.4 cents on volume of 212,249 contracts. Volume shrank dramatically from the previous day when August natural gas lost 2.1 cents on volume of 299,137 contracts while total open interest declined by 7209 contracts. On that day, July 8, August natural gas made its low for the move at 4.129, which is the lowest print since January 21, 2014 (4.061).As this report is being compiled on July 10, August natural gas has made another new low for the move($4.114), taking out the low of July 8 and trading 4.4 cents lower on the day. We think there will be terrific opportunities in  natural gas during 2014, but the market has much work to do on the downside before a base is established from which a significant rally can occur. As we said in past reports, we want to see managed money move to a net short position, which would be the first indication that natural gas is near a bottom. Continue to stand aside.

The Energy Information Administration announced that working gas in storage was 2,022 Bcf as of Friday, July 4, 2014, according to EIA estimates. This represents a net increase of 93 Bcf from the previous week. Stocks were 653 Bcf less than last year at this time and 769 Bcf below the 5-year average of 2,791 Bcf. In the East Region, stocks were 359 Bcf below the 5-year average following net injections of 56 Bcf. Stocks in the Producing Region were 320 Bcf below the 5-year average of 1,018 Bcf after a net injection of 23 Bcf. Stocks in the West Region were 91 Bcf below the 5-year average after a net addition of 14 Bcf. At 2,022 Bcf, total working gas is below the 5-year historical range.

Euro:

The September euro gained 36 pips on volume of 155,044 contracts. Total open interest increased by 2264 contracts, which relative to volume is approximately 40% less than average. As this report is being compiled on July 10, the September euro is trading 45 pips lower and has only slightly taken out yesterday’s high of 1.3652. The euro remains on a short-term buy signal, but an intermediate term sell signal. Stand aside.

Swiss franc:

The September Swiss franc advanced 28 pips on volume of 30,268 contracts. Total open interest declined by 195 contracts, which relative to volume is approximately 70% below average. This is the 2nd day in a row that total open interest has declined. As this report is being compiled on July 10, the September Swiss franc is trading 25 pips lower on the day. 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 advanced $7.80 on heavy volume of 214,930 contracts.Volume was the highest since June 19 when August gold advanced $41.40 on volume of 245,499 contracts and total open interest increased by 6168 contracts. On July 9, total open interest increased by 4051 contracts, which relative to volume is approximately 25% below average, but thew open interest increase on the advance is positive. As this report is being compiled on July 10, August gold has broken out to the upside and has made a new high for the move at 1346.80, which is the highest print since March 19 ($1359.00). In the July 7 report, we recommended writing out of the money calls, buying puts or selling partial positions and placing stops at the June 25 low of 1305.40.At the time, we were concerned that gold could reverse its move. If any of these defensive measures were taken, we think they should be left in place at least for now. We have not made a bullish recommendation for gold because we much prefer silver.

Silver:

September silver advanced 5.5 cents on light volume of 39,148 contracts. Total open interest increased by 699 contracts, which relative to volume is approximately 25% below average. As this report is being compiled on July 10, September silver is trading 39.3 cents higher and has made a new high for the move at 21.63, which is the highest print since March 14 (21.79). Like gold, we recommended that clients take a defensive measures on July 7, and we would keep these in place for now. To reiterate, we recommended buying puts out of the money, or a partial sale of positions and a sell stop at the June 25 low of 20.76. Continue to hold bullish positions recommended in the report of June 16.