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Soybeans:

January soybeans lost 14.50 cents on volume of 227,097 contracts. Volume declined from October 16 when January beans advanced 13.25 cents on volume of 236,195 contracts and total open interest increased by 1,212 contracts. On October 17, total open interest increased by 2,809 contracts, which relative to volume is approximately 45% below average. The November contract accounted for loss of 6,787 of open interest, which makes the total open interest increased more impressive (bearish). As this report is being compiled on October 20, January beans are trading 9.25 cents lower and have made a daily low of 9.43 1/2, which is the lowest print since October 3 (9.23 3/4). We see soybeans testing the contract low of 9.12 1/4 made on October 1. We recommend writing calls on a good sized rally.

Soybean meal:

December soybean meal lost $4.10 on volume of 74,862 contracts. Total open interest declined by 2,263 contracts, which relative to volume is approximately 20% above average. The December contract accounted for loss of 3,174 of open interest. This is healthy open interest action relative to the price decline. December soybean meal made a high of 338.80, which is the highest print since 341.15 made on September 10.On October 16, December soybean meal generated a short-term buy signal, and the market is going through its usual pullback cycle after the generation of the buy signal.As this report is being compiled on October 20, December soybean meal is trading $1.80 lower and has made a daily low of 325.30. We could become more enthusiastic about soybean meal if it were not for the dismal condition of the soybean market.Unfortunately, the December 2014-March 2015 spread has widened dramatically, which makes it too risky to trade at this juncture.

Corn:

December corn lost 4.25 cents on volume of 189,485 contracts. Volume shrank from October 16 when December corn advanced 4.75 cents on volume of 200,307 contracts and total open interest declined by 6,103 contracts. On October 17, total open interest declined by 8318 contracts, which relative to volume is approximately 65% above average meaning that liquidation was extremely heavy on the decline. The December contract accounted for loss of 8584 of open interest, May 2015-1307. As this report is being compiled on October 20, December corn is trading 1.50 lower and has made a daily low of 3.42, which is the lowest print since 3.30 1/2 made on October 13. We think corn will continue to drift lower and recommend writing out of the money calls in December corn on a good-sized rally. Exit the position if December corn makes a daily low above OIA’s key pivot point for October 20 of 3.49 1/2.

Chicago wheat: On October 17, December Chicago wheat generated a short-term buy signal, but remains on an intermediate term sell signal.

December Chicago wheat lost 1.00 cent on volume of 69,177 contracts. Volume increased somewhat from October 16 when December Chicago wheat advanced 11.00 cents on volume of 65,316 contracts and total open interest increased by 764 contracts. On October 17, total open interest declined by 4,566 contracts, which relative to volume is approximately 160% above average meaning liquidation was extremely heavy on the fractional decline. The December contract accounted for loss of 4,165 of open interest. The December contract made a high of 5.22 1/4, which is the highest print since 5.29 1/4 made on September 10.As this report is being compiled on October 20, December Chicago wheat is trading 1.25 lower and has made a daily low of 5.07 1/4. We much prefer the fundamentals of Kansas City wheat to Chicago wheat.

Kansas City wheat: On October 17, December Kansas City wheat generated a short-term buy signal, but remains on an intermediate term sell signal.

December Kansas City wheat lost 3.25 cents on volume of 24,924 contracts. Total open interest increased by 32 contracts.The December contract accounted for loss of 1296 of open interest.On Friday, December Kansas City wheat made a high of 6.14 3/4, which is the highest print since 6.15 1/4 made on September 11. As this report is being compiled on October 20, December Kansas City wheat is trading unchanged on the day after making a daily low of 5.94 1/2. The pullback is typical after the generation of a short-term buy signal, and we may see another day or two of correction before the market resumes its advance.As we said in the weekend report, we recommend initiating a bull spread: long the December 2014- short May or July 2015 contracts on any pullback.

WTI crude oil:

December WTI crude oil advanced 5 cents on volume of 603,904 contracts. Volume was the lowest since October 6 when WTI crude advanced 60 cents on volume of 554,905 contracts and total open interest increased by 3154 contracts. On October 17, total open interest declined by 10,236 contracts, which relative to volume is approximately 35% less than average. As this report is being compiled on October 20, December WTI crude is trading 2 cents higher after making a daily low of 80.78, which is the lowest print since the contract low of 79.10 made on October 16.Stand aside.

Natural gas:

November natural gas lost 3.00 cents on volume of 218,367 contracts. Total open interest increased by 6,067 contracts, which relative to volume is average.This is bearish open interest action relative to the modest decline. Additionally, the open interest increase on Friday’s price decline is the 1st major increase going back to September 11 when natural gas lost 13.1 cents on volume of 350,676 contracts and total open interest increased by 6,836 contracts.In short, market participants are getting increasingly bearish on natural gas and this is borne out on October 20 as the November contract is trading 9.5 cents lower and is made a daily low of 3.663, which is the lowest print since the week of November 18, 2013 when the December 2013 contract made a low of 3.545. On October 10, OIA announced that November natural gas generated a short-term sell signal and was already on an intermediate term sell signal. Stand aside.

Gold:

December gold lost $2.20 on volume of 125,450 contracts. Total open interest increased by 1,267 contracts, which relative to volume is approximately 50% below average. As this report is being compiled on October 20, December gold has closed at 1244.70, up $5.70.This is the 2nd highest close since October 15 (1244.80). We are becoming more friendly to gold, and think it is only a matter of time before it generates a short-term buy signal. In order for this to occur, the low the day must be above OIA’s key pivot point for October 20 of 1237.50. Stand aside until December gold generates a short-term buy signal, then wait for a pullback before considering bullish positions.

Cocoa:

December cocoa advanced $32.00 on volume of 16,142 contracts. Volume declined substantially from October 16 when December cocoa lost 67.00 on volume of 24,500 contracts and total open interest declined by 1,176 contracts. Additionally, volume was the lightest since October 8 when December cocoa lost 13.00 on volume of 15,008 contracts and total open interest declined by 1,711 contracts. In short, the volume on the advance was totally unimpressive and indicates that potential market participants remain on the sidelines.

On October 17, total open interest declined by a massive 1,153 contracts, which relative to volume is approximately 185% above average meaning that liquidation was extremely heavy on the advance. The December contract lost 660 of open interest, March 2015 -495, May 2015-27. As this report is being compiled on October 20, December cocoa has closed at 3120,up $2.00 from Friday’s close.

The amount of liquidation in cocoa has been astounding since it topped on September 25, however, this has not dampened cocoa’s prospects. Although December cocoa remains on a short and intermediate term sell signal, we think the bull spread makes sense: long March 2015-short December 2015 cocoa. Additionally, volatility in cocoa is very low, which makes call options extremely cheap.

We think the potential upside in cocoa is significant and will take off if it is reported the Ebola virus has spread to the Ivory Coast and/or Ghana. For this reason, we recommend a long call positions in March cocoa. We see the downside being limited to the September 11 low of 3019. Again, December cocoa and March cocoa are on short and intermediate term sell signals, and without the catalyst of the Ebola virus, cocoa is likely to trend lower. Position size should be conservative for this reason.

Coffee:

December coffee lost 6.45 cents on volume of 20,699 contracts. Volume increased from October 16 when December coffee advanced 1.10 cents on volume of 16,804 contracts and total open interest increased by 2,573 contracts. However, volume was below that of October 15 when December coffee lost 5.90 cents on volume of 22,970 contracts and total open interest declined only 238 contracts.

On October 17, total open interest increased by a substantial 698 contracts, which relative to volume is approximately 35% above average meaning that new short sellers were aggressively entering the market in higher numbers than usual and driving prices to a new low for the move (2.0850), which is the lowest print since 2.0530 made on October 3.The increase of open interest on Friday’s decline is bearish and confirms what we have been saying for the past week: longs are digging in and refusing to liquidate as prices move lower. In our view, this confirms the likelihood of continued lower prices until speculative longs are washed out. Additionally, rallies will be met with selling from longs who are looking to trim losses, or increase profits. This will keep a lid on advances.

As this report is being compiled on October 20, December coffee is trading 8.90 cents lower and has made a new low for the move at 1.9720, which is the lowest print since 1.9370 made on October 1. The market gapped lower at the opening on October 20 at 2.0635, and this has been the high thus far on October 20.Although volume traded is higher than Friday’s, there doesn’t seem to be any panic yet.Maintain the bull spread: long July 2015-short March 2016 coffee. We expect the spread to narrow as coffee declines.

In order to generate a short-term sell signal, December coffee must make a daily high below OIA’s key pivot point for October 20 1.9930, and for the uptrend to resume, the low the day must be above OIA’s key pivot point of 2.0740.