On June 11, the USDA releases its World Agriculture Supply Demand Report (WASDE).

Soybeans:

July soybeans closed unchanged and the November contract gained 5.50 cents on total volume of 192,456 contracts. Total open interest increased by 993 contracts, which relative to volume is approximately 75% below average. The July contract accounted for loss of 12,911 of open interest. As this report is being compiled on June 10, July soybeans are trading 12.50 cents higher while the November contract is trading +5.75 on low volume.On June 2, OIA recommended the initiation of long put positions, and at this juncture the position is near break even, or small loss. In order for November soybeans to generate a short-term buy signal, it first must make a daily low above OIA’s key pivot point of 12.33 3/4 and a secondary pivot point of 12.41 1/8. If clients feel uncomfortable going into the USDA report with a small loss, we encourage you to liquidate, however, we advise waiting until just prior to the report, which is released at 11:00 a.m. CDT.

Soybean meal:

July soybean meal lost $5.40 on huge volume of 117,046 contracts.Volume was the heaviest since February 27 when 133,509 contracts were traded and July soybean meal closed at $438.20. On June 9, total open interest declined by 2038 contracts, which relative to volume is approximately 50% below average. The July contract accounted for loss of 12,299 of open interest and August lost 1,011. The new crop December 2014 contract added 9,978 of open interest and the contract closed $2.80 higher. As this report is being compiled on June 10, July soybean meal is trading 7.20 higher and has made a daily high of 492.00 and a low of 481.00, which is $1.00 above yesterday’s low (480.00). Keep these lows in mind for tomorrow’s trading in the event that soybean meal pulls back due to the USDA report. This may be an opportunity to enter bullish positions, but for now stand aside.

Corn:

July corn lost 8.00 cents on heavy volume of 351,951 contracts. Volume shrank from the 362,423 contracts traded on June 6 when July corn advanced 10.00 cents and total open interest increased by 14,748 contracts. On June 9, total open interest increased by 3455 contracts, which relative to volume is approximately 50% below average. However, the July contract lost 25,009 of open interest, which makes the total open interest increased more impressive (bearish). As this report is being compiled on June 10, July corn is trading 4.25 cents lower and has taken out yesterday’s low of 4.45 1/2, which had been the low for the move. Corn remains on a short and intermediate term sell signal. Stand aside.

Cotton:

July cotton lost 23 points on volume of 31,518 contracts. Total open interest declined by 301 contracts, which relative to volume is approximately 50% below average. The July contract lost 5,208 of open interest. As this report is being compiled on June 10, July cotton is trading 1.13 cents higher. Continue to hold bearish positions along with the long call position recommended on May 23 to offset any potential bear market rally.

Live cattle:

August live cattle advanced 1.975 cents on total volume of 64,684 contracts. Remarkably, volume declined from the 68,718 contracts traded on June 6 when August cattle declined by 2.5 points and total open interest declined by 3,559 contracts. On June 9, total open interest declined by a massive 10,924 contracts, which relative to volume is approximately 460% above average meaning that liquidation was off the charts heavy. The June contract lost 14,574 of open interest and surprisingly August lost 1,361.

The massive decline of total open interest is troubling, especially the open interest decline in the August contract as prices advanced sharply and made new contract highs of 1.43575. Additionally, June 9 was the 2nd day in a row that total open interest declined, and during the two-day period, August cattle advanced 1.950 cents while total open interest declined by 14,483 contracts.

However, as this report is being compiled on June 10, August cattle continues to advance and has made another new contract high at 1.43700. The massive open interest decline in yesterday’s trading could be anomalous especially in the light of trading on June 10. As we said in yesterday’s report and it is applicable to June 9 action, longs have been taking profits and shorts are getting blown out of the market. However, we are alert to the fact that cattle prices will be topping at some point, which is why we recommended a bull call spread on May 29 rather than a more aggressive bullish position. Though the ratio of managed money is at an elevated level, it is below the high reached in the May 20 COT report of 19.30:1. The current ratio (15.55:1) is the lowest since the COT tabulation date of May 13 when managed money was long live cattle by ratio of 14.98:1. Hold the bull call spread.

WTI crude oil:

July WTI crude oil advanced sharply by $1.75 on heavy volume of 643,840 contracts.Volume was the strongest since May 15 when July WTI lost 87 cents on volume of 723,803 contracts and total open interest declined by 18,913 contracts.On June 9, total open interest increased only 4,279 contracts, which relative to volume is approximately 65% below average. The July contract accounted for loss of 15,374 of open interest. On June 9, July WTI reached its highest level ($104.57) since May 27 (104.50). As this report is being compiled on June 10, July WTI has made a high of 105.06, which is only slightly above the April 16 high made by the May contract of 104.99. July WTI remains on a short and intermediate term buy signal, but with managed money holding an extremely large net long position, the market remains vulnerable to a correction, or something worse. We think natural gas is a much better play, and has been ignored by managed money despite outperforming WTI crude oil during the 2nd quarter and year to date.

Natural gas:

July natural gas lost 6.5 cents on volume of 326,740 contracts.Volume was the highest since May 22 when July natural gas lost 12.1 cents on volume of 378,764 contracts and total open interest declined by 11,104 contracts. On June 9, total open interest increased by 2255 contracts, which relative to volume is approximately 60% below average. The July contract lost 19,138 of open interest and there was sufficient open interest increases in the forward months to bring the total number significantly below average. Although the open interest increase number was small, we much would have preferred a total open interest decline. As this report is being compiled on June 10, July natural gas is trading 9.9 cents lower on light volume.

On June 6, July natural gas generated a short-term buy signal and has been on an intermediate term buy signal.Yesterday was the first of a possible 3 day correction that is typical after the generation of a short term buy signal. June 10 marks the 2nd day correction of the overbought condition. Remember the correction can occur during a period of 1-3 days. There is no hard and fast rule that says it has to be 3 days. Ideally, we want to see an open interest decline in today’s trading. Currently, July natural gas is trading at 4.548, which is slightly above the 20 day moving average of 4.532, but below the 50 day moving average of 4.604 and slightly below the 100 day moving average of 4.550. In short, natural gas is trading in its value zone going back 100 trading days.

From the June 6 report:

“Now that natural gas has generated a short-term buy signal, we are looking for a pullback lasting from 1-3 days and this is the opportunity to initiate bullish positions.”

Euro:

The June euro lost 59 pips on volume of 226,200 contracts. Total open interest increased by a massive 15,526 contracts, which relative to volume is approximately 170% above average meaning that aggressive new short sellers were entering the market and driving prices lower. As this report is being compiled on June 10, the June euro is trading 48 pips lower and has made a daily low of 1.3533, which is above the June 5 low of 1.3502, a multi-month low. We were looking for more of a rally after the release of the decision by the ECB, but unfortunately, this did not occur. With managed money short the euro by ratio of 1.78:1, we are uncomfortable about making bearish recommendations. The euro remains on a short and intermediate term sell signal.

10 year Treasury Notes: On June 10, the September Treasury Note will generate a short-term sell signal.

September 10 year Treasury Notes lost 5.5 ticks on volume of 838,307 contracts.Total open interest increased by 41,511 contracts, which relative to volume is approximately 100% above average meaning that new short sellers were aggressively entering the market and driving prices lower. As this report is being compiled on June 10, the September note is trading 7 ticks lower and has made a new low for the move at 123-29.5, which is the lowest print since May 13 (123-24.5).Wait for a countertrend rally before considering bearish positions.

From the June 8 Weekend Wrap:

“The central question at this juncture is where do we go from here? According to OIA protocols, the September treasury note first must make a daily low above OIA’s key pivot point of 124-15. After this, the September contract must make a daily low above the 2nd pivot point of 125-22 before it can resume its uptrend. If the September note gets trapped between the 2 pivot points: 124-15 and 125-22, or is unable to make a daily low above either of the pivot points, the market will trade sideways and possibly reverse to generate a short-term sell signal.”