On Monday, August 12, the USDA will release its crop production and supply demand report.

Soybeans:

September soybeans gained 5.25 cents on volume of 128,922 contracts. Open interest increased by 933 contracts, which relative to volume is approximately 60% less than average. The August contract lost 1,000 of open interest. The USDA reported that 2.92  million bushels have been sold during the most recent week for 2012-2013. Commitments total 1365.7 mb versus the USDA projection of 1330 mb. As this report is being compiled on August 8, September soybeans are trading 33.50 cents higher. For the past couple of reports, we have been warning about a potential short-term rally. Since the tabulation of last week’s COT report, it is highly likely that managed money has increased their short positions, which will add fuel to any rally. Do not enter any new positions prior to the report.

Soybean meal:

September soybean meal gained $5.40 on volume of 64,344 contracts. Open interest increased by 2,204 contracts, which relative to volume is approximately 40% above average meaning that new longs were entering the market and pushing prices higher. The August contract lost 504 of open interest. The USDA reported that 66.73 thousand tons of soybean meal had been sold for 2012-2013. Commitments total 9786.62 thousand tons versus the USDA projected total of 9526 thousand tons. As this report is being compiled on August 8, September soybean meal is trading $16.50 higher. Ever since soybean meal generated a short and intermediate term sell signal on August 5, we have been warning not to chase the market lower. Do not enter new positions prior to the USDA report.

Corn:

September corn lost 4 cents on volume of 280,139 contracts. Open interest increased by 5,820 contracts, which relative to volume is approximately 20% below average. The September contract lost 15,837 of open interest, which makes the total open interest increase much more impressive (bearish). The USDA reported that 290.1 thousand tons have been sold during the recent reporting week for the 2012-2013 season. As this report is being compiled on August 8, September corn is trading 6 cents higher. Do not enter new positions prior to the USDA report.

Wheat:

September wheat lost 7 cents on heavy volume of 138,001 contracts. Volume was the highest since August 5 when 142,514 contracts were traded and September wheat lost 15.25 cents while open interest increased 8,132 contracts. On August 7, total open interest increased by a massive 10,871 contracts, which relative to volume is approximately 210% above average meaning that new shorts were entering the market in extraordinary numbers and pushing prices lower. The fact that the September contract lost 3,745 of open interest makes the total open interest increase that much more impressive. Without question, the total open interest increase on August 7 is the largest we have seen in many months.

Although price action and open interest action is clearly bearish, and wheat remains on a short and intermediate term sell signal, we continue to have a constructive longer-term outlook. One reason: exports are moving at a very healthy levels, and the most recent USDA report confirms this. In the recent reporting week, 26.7 mb have been sold, which brings total commitments to 500.4 mb, which is nearly half of the USDA projection of 1075 mb. This week, exports were the largest since the week of July 11. With nearly half the crop already committed and approximately 10 months left in the season, which ends on May 31, we think it is inevitable that wheat prices will begin to advance. As this report is being compiled on August 8, September wheat is trading 2.25 cents lower and has not taken out the low of $6.39 made on August 7.

Cotton: On August 7, December cotton generated a short and intermediate term buy signal.

December cotton gained 2.64 cents on very heavy volume of 33,826 contracts. Volume was the highest since June 17 when 61,599 contracts were traded. On August 7, open interest increased by a spectacular 11,186 contracts, which relative to volume is approximately, one-third of total volume. As this report is being compiled on August 8, December cotton is trading 80 points higher and has made a high of 89.42.

On June 14, 2013 December cotton made a high of 89.56 and the same day cotton made a high of 92.58 on the continuation chart. On March 15, 2013, cotton made a high of 93.93 on the continuation chart. Cotton has a habit of making outsized countertrend moves that turn out to be false. Last night, there was some positive economic news out of China and this undoubtedly has had an impact on cotton. Also, it sent copper to a new high for the move. There are large stocks of cotton in the world, and though there may be some weather issues in certain parts of the cotton belt, we think the move higher is not going to have a lot of staying power. In any event, we discourage clients from entering new long positions at current levels. At the very least, after the generation of buy signals, a pullback lasting 1-3 days is likely.

Live cattle:

October live cattle closed unchanged on heavy volume of 54,222 contracts. Open interest increased by 2,049 contracts, which relative to volume is approximately 40% above average. The August contract lost 1,979 of open interest, which makes the total open interest increase more impressive. The big story in live cattle is that Tyson Brands has decided it will not buy anymore cattle that has had been treated with Zilmax beginning September 6. This was announced after the close on August 7, and has taken the market by surprise. Although cattle will generate a short and intermediate term buy signal on August 8, we cannot take the signal too seriously. At the very least, we want to see how cattle trades for the next couple of days, before providing clients with a tactical approach for trading it.

 Crude oil:

September crude oil lost 93 cents on heavier than normal volume of 647,912 contracts. Volume was the highest since August 1 when 700,506 contracts were traded and September crude oil advanced $2.86 while open interest increased 8,528 contracts. On August 7, total open interest increased by 13,207, which relative to volume is approximately 20% less than average. The September contract lost 23,680 of open interest, which makes the total open interest increase more impressive.

During the past 4 days, crude oil has declined $3.52 while open interest has increased by 29,355 contracts. While this is bearish open interest action relative to the price decline, the increase itself is rather minor considering it occurred over a period of 4 days. Additionally, the fact there was an open interest build on the decline indicates that market participants holding long positions are digging in. Since managed money is long crude oil by a ratio of 10.61:1, the market is highly vulnerable to a further downside break. As this report is being compiled on August 8, September crude is trading $1.57 lower and has made a low of $102.22. Crude remains on a short and intermediate term buy signal. In addition, both gasoline and heating oil remain on short and intermediate term buy signals.

Natural gas:

September natural gas lost 7.1 cents on heavy volume of 465,959 contracts. Volume was the highest since July 18 when 469,170 contracts are traded and September natural gas closed at $3.810. On August 7, open interest declined by 7,332 contracts, which relative to volume is approximately 35% less than average. The September contract lost 23,680 of open interest. As this report is being compiled on August 8, September natural gas is trading 6.4 cents higher after having made a new low for the move at $3.129. The low was made after the release of the natural gas storage report which showed there was an injection of 96 bcf, and took market participants by surprise. During 5 minutes of trading after the release of the report, a total of 31,133 contracts were traded, but the market rebounded sharply. Conceivably, natural gas may have made its low for the move on August 8.

Euro:

The September euro gained 27 points on volume of 210,118 contracts. Total open interest declined by 1,211 contracts, which relative to volume is approximately 50% less than average. As this report is being compiled on August 8, the September euro is trading 54 points higher and has made a new high for the move at 1.3402. The euro along with many currencies that comprise the dollar index are trading significantly higher on August 8. It will be interesting to see what the COT report shows when it is released tomorrow afternoon about the position of managed money.

Japanese yen: On August 7, the September Japanese yen generated a short and intermediate term buy signal.

S&P 500 E mini:

The S&P 500 E mini lost 5.75 points on volume of 1,388,163 contracts. Open interest declined by 6,674 contracts, which relative to volume is approximately 50% less than average. As this report is being compiled on August 8, the E mini is trading 7.75 points higher. We strongly encourage those who hold equity positions to initiate long put protection