Soybeans: OIA recommends buying puts in the November 2014 contract.

July soybeans gained 7.25 cents on relatively heavy volume of 151,794 contracts. Volume was the highest since May 22 when July soybeans advanced 13.50 cents on volume of 229,996 contracts and total open interest increased by 6,113 contracts. On May 22, July soybeans made its contract high at 15.36 3/4.On June 2, total open interest increased by a massive 11,090 contracts, which relative to volume is approximately 185% above average meaning that new longs were aggressively entering the market and driving prices higher (15.11 3/4). Even the July contract gained open interest in yesterday’s trading of 1632.

As this report is being compiled on June 3, July soybeans are trading 21.00 cents lower. This is a major disappointment, especially since the daily high has been $15.02, which is only 1.50 cents above yesterday’s close, and is 9.75 cents below yesterday’s high. The lack of follow through from yesterday’s move gives rise to suspicions that soybeans may not have the fire power to continue making new contract highs. Another disturbing sign is that the November contract has weakened to the extent that it is about to generate a short-term sell signal, which in our view is the canary in the coal mine.

For example, since July and November 2014 contracts topped out on May 22 through June 2, July soybeans lost 18.25 cents, or -1.20% while the November contract lost 41.00 cents, or -3.23%. Thus far in the 2nd quarter through June 2, July soybeans have advanced 71.00 cents, or +4.97% while the November contract has advanced 42.50 cents, or +3.58%. This is a dramatic shift in the relationship between July and November. In the May 26 Weekend Wrap, we discussed the out performance of the November contract versus July and said that this was a supportive factor for soybeans. The fact that this relationship has broken down means that clients must take defensive measures if they are in bullish soybean positions, which we have discouraged because we favor soybean meal. As a result, we recommend the purchase of puts in the November contract because it is likely that November will continue to display weakness even if old crop soybeans turn around and head higher.

From May 26 Weekend Wrap:

“Although July soybeans outperformed the new crop November contract during the past week, for the 2nd quarter, November soybeans continue to outpace July by approximately 10%. For example, through May 23, November beans have advanced 6.61% while August has gained 6.21% and the July contract is in 3rd place with a gain of 6.02%. The strong performance in the 2nd quarter by the November contract is most definitely supportive of old crop contracts and as we pointed out in last weekend’s report, we expect July soybeans to continue their advance.”

From the May 29 report:

“Although we think the direction of soybean prices is higher, we are somewhat concerned about the apparent deflationary cycle we are seeing throughout most commodities. For example, the metals are sharply lower along with the petroleum complex and the grains are trading lower as well. Most of the commodities we follow are on sell signals, both short-term and intermediate.”

Soybean meal:

July soybean meal advanced $5.80 on volume of 70,660 contracts. Total open interest increased by a massive 3,673 contracts, which relative to volume is approximately 110% above average meaning that new longs were aggressively entering the market and moving July soybean meal prices to a new contract high of  $509.40. Even the July contract gained 905 of open interest.

As this report is being compiled on June 3, July soybean meal is trading $6.40 lower and has made a daily low of 498.20, which is considerably above yesterday’s low of 494.10, which we have recommended as an exit point for bullish positions. OIA continues to recommend holding the long July 2014 short August 2014 contracts and exiting the spread if it dips below $23.00. Additionally, clients should hold bullish positions recommended on May 27. The new crop December contract remains on a short and intermediate term buy signal as well as the July and August contracts. Soybean meal is clearly the leader of the bean complex. By purchasing puts in the November soybean contract, clients are protecting the downside in soybean meal positions.

Corn:

July corn lost 0.25 cents on extremely heavy volume of 327,116 contracts.Volume was the heaviest since May 9 when 416,471 contracts were traded and July corn lost 9.00 cents while total open interest increased by 735 contracts. On June 2, total open interest increased by 5,335 contracts, which relative to volume is approximately 30% below average. As this report is being compiled on June 3, July corn is trading 8.50 cents lower and is currently trading on the lows of the day. On May 15, July corn generated a short-term sell signal and also generated an intermediate term sell signal on May 21. During this time, we have been waiting for a countertrend rally, which has not occurred. Continue to stand aside.

Kansas City wheat: On June 2, July Kansas City wheat generated an intermediate term sell signal after generating a short-term sell signal on May 19.

July Kansas City wheat lost 4.25 cents on very heavy volume of 27,988 contracts. volume was the highest since May 9 when July KC wheat lost 13.75 cents on volume of 28,059 contracts and total open interest declined by 3715 contracts. On June 2, total open interest increased by a massive 1543 contracts, which relative to volume is approximately 120% above average meaning that new short sellers were entering the market at the lowest level since early March and driving prices to new lows for the move (7.10 3/4). As this report is being compiled on June 3, July KC wheat is trading 11.75 cents lower and is trading on the lows of the day. Like Chicago wheat, KC wheat has not had a countertrend rally since generating a short-term sell signal on May 19, which would have enabled clients to initiate bearish positions. However, we much prefer waiting for a rally in Chicago wheat, because we think down the road Kansas City wheat will begin to show independent strength after the conclusion of the harvest. Stand aside.

Cotton:

July cotton advanced 21 points on volume of 32,530 contracts. Volume was the highest since May 23 when July cotton lost 1.47 cents on volume of 35,385 contracts and total open interest declined by 2,702 contracts. On June 2, total open interest increased by 655 contracts, which relative to volume is approximately 20% below average. The July contract gained 27 of open interest. As this report is being compiled on June 3, July cotton is trading 56 points higher and has made a daily high of 88.60. On Friday May 23, OIA recommended liquidating partial positions, or alternatively buying calls because of the likelihood of a significant bounce in cotton. Continue to hold long calls.

Coffee: July coffee will generate an intermediate term sell signal on June 3 after generating a short-term sell signal on May 12.

July coffee lost 5.15 cents on volume of 19,492 contracts. Surprisingly, volume was the lowest since May 27 when coffee lost 2.55 cents and total open interest increased by 842 contracts. On June 2, total open interest declined only 330 contracts, which relative to volume is approximately 35% less than average. As this report is being compiled on June 3, July coffee is trading 1.10 cents lower after making a new low for the move at 1.6735, which is the lowest print since 1.6795 made on March 24, 2014. Since April 23 when July coffee made a high of $2.1900, the market has collapsed, but as of the most recent COT report revealed (compiled on May 27), managed money was long coffee by ratio of 7.34:1. Stand aside.

Live cattle:

August live cattle gained 52.5 points on volume of 57,069 contracts. Total open interest increased by a massive 3,556 contracts, which relative to volume is approximately 140% above average meaning that new longs were aggressively entering the market and driving prices higher (1.39400). The June contract lost 3,857 of open interest, which makes the total open interest increase much more impressive (bullish). As this report is being compiled on June 3, August cattle is trading 1.10 cents higher on the day and has made a new contract high of 1.40550, which takes out the previous contract high made on May 22 of 1.40050. On May 29, OIA recommended the initiation of bull call spreads after August cattle made a low above OIA’s key pivot point of 1.37690. Continue to hold bull call spreads.

WTI crude oil:

July WTI crude oil lost 24 cents on volume of 358,291 contracts. Total open interest increased by 1,444 contracts, which relative to volume is approximately 80% below average. The July contract lost 8,984 of open interest. As this report is being compiled on June 3, July crude oil is trading 3 cents lower on the day. July WTI crude oil remains on a short and intermediate term buy signal. We see no reason to be involved in the market.

Natural gas:

July natural gas advanced 7.00 cents on unimpressive volume of 178,393 contracts.Volume was the lowest since May 23 when July natural gas advanced 4.8 cents on volume of 146,143 contracts and total open interest declined by 3561 contracts. On June 2, total open interest increased by a healthy 3443 contracts, which relative to volume is approximately 20% below average. However, this is the first open interest increase on a price advance since May 27 when July natural gas advanced 10.6 cents on volume of 235,227 contracts and total open interest increased by 529 contracts. The July contract accounted for loss of 400 of open interest. As this report is being compiled on June 3, July natural gas is trading 1.9 cents higher after making a high of 4.662, which is just shy of the May 29 high of 4.665. July natural gas remains on a short and intermediate term sell signal. Stand aside.

Euro:

The June euro lost 39 pips on volume of 167,884 contracts. Total open interest increased by a massive 6361 contracts, which relative to volume is approximately 50% above average, which means large numbers of new short sellers were entering the market and driving prices to new lows for the move (1.3586). As this report is being compiled on June 3, the June euro is trading 34 pips higher after making a daily low of 1.3585, 1 pip lower than yesterday.We advise taking a stand aside posture until the results of the June 5 meeting at the European Central Bank are disclosed. According to the latest COT report, which was tabulated on May 27, managed money is short the euro by ratio of 1.28:1, which is the lowest ratio of 2014. This leaves the euro vulnerable to a significant short covering rally is the June 5 meeting disappoints, or meets expectations.

Australian dollar:

The June Australian dollar lost 58 pips on volume of 63,438 contracts. Total open interest declined by 2,348 contracts, which relative to volume is approximately 50% above average meaning that liquidation was fairly significant on yesterday’s decline. As this report is being compiled on June 3, the Australian dollar is trading 7 pips higher. We have no recommendation.

From the May 26 Weekend Wrap:

“On Friday, the June Australian dollar closed higher for the first time since May 16, and this is the first day of what is typically a countertrend rally after the generation of a sell signal (May 20). As of the latest COT report, leveraged funds are long the Australian dollar by the largest ratio in 2014. This makes the Aussie dollar vulnerable to further selling, especially since many funds undoubtedly are showing losses on their positions.”

Platinum:

July platinum lost $16.00 on volume of 10,176 contracts. Total open interest declined by a massive 827 contracts, which relative to volume is approximately 230% above average meaning that liquidation was extremely heavy on the decline to a new low for the move of $1435.00, which took out the May 13 low of 1435.60. It is likely that July platinum will generate a short-term sell signal on June 3. Stand aside.