The USDA supply demand report has been released on July 11, and we will comment on it in tomorrow’s post.
August soybeans lost 3.50 cents on volume of 173,600 contracts. Total open interest increased by 5,319 contracts, which relative to volume is approximately 20% above average. The July contract accounted for loss of 1,567 of open interest, which makes the total open interest increase more impressive. The export sales report showed there were cancellations of 70.92 thousand tons. However, total commitments for the season which ends on August 31 is 1.351 billion bushels versus the USDA projection for the crop year of 1.330 billion bushels. In short, there is approximately 6 weeks left in the current season, and if there is a weather scare of any sort, we could see soybeans move sharply to the upside. As it stands, soybeans will likely trade in a firm manner during the next 30 days. As this report is being compiled on July 11, August soybeans are trading 7.25 cents higher, but have not taken out the July 9 high of $14.79 1/2. Soybeans remain on a short and intermediate term buy signal.
August soybean meal gained 80 cents on healthy volume of 90,291 contracts. Open interest increased by a massive 5,028 contracts, which relative to volume is approximately 120% above average, meaning that both longs and shorts were aggressively entering the market, but were unable to move prices much one way or the other. The July contract lost 501 of open interest. Export sales reported by the USDA showed that 33.71 thousand tons have been sold, which brings the total commitments for the season, which ends September 30 to 9483.2 thousand tons versus the USDA projection for the season of 9435 thousand tons. In short, soybean meal stocks are going to be extremely tight, and we see a firm market for at least another month. As this report is being compiled on July 11, August soybean meal is trading $7.90 higher and has made a new high for the move at $459.40, which took out the high made on July 10 of 455.00. Soybean meal continues to make new highs while soybeans do not. The July contract, which is about to expire is within approximately $22.00 of matching the all time high made in September of 2012. Soybean meal remains on a short and intermediate term buy signal.
September corn gained 2 cents on volume of 241,449 contracts. Total open interest declined 11,382 contracts, which relative to volume is approximately 75% above average, meaning that both longs and shorts were heavily liquidating. The July contract lost 1,720 of open interest. Export sales for the most recent reporting period showed that 392,100 thousand tons were sold for the 2012-2013 season and 657,800 for the 2013-2014 season. As this report is being compiled on July 11, September corn is trading 5.25 cents higher and has made a new high for the move at $5.61 3/4. We have said on previous occasions that speculators should not short corn despite it being on a short and intermediate term sell signal. The critical growing season is ahead, and a weather scare of any sort could send corn higher, if only temporarily.
September wheat gained 1.50 cents on healthy volume of 100,290 contracts. Total open interest increased by 3,126, which relative to volume is approximately 20% above average. The July contract lost 331 of open interest. The USDA reported terrific sales for wheat, which totaled 1473.3 thousand tons and is the highest for the 2013-2014 season which began on June 1. Remarkably, 390.9 million bushels have been committed, which represents 40% of the USDA projection for the entire season of 975 million bushels. It appears that sales thus far are the best since the 2008-2009 season. Although wheat remains on a short and intermediate term sell signal, we caution speculators against shorting it. Export sales could be more robust than what is being factored into the current market. Managed money is significantly short wheat, which would add fuel to any rally. The spread action between wheat and corn also has been positive for wheat.
December cotton gained 81 points on light volume of 13,017 contracts. Total open interest increased by 1,360 contracts, which relative to volume is approximately 310% above average, which is a number that is off the charts. It shows that both longs and shorts were willing to make aggressive new commitments. This is the second day in a row that the open interest increase has been in the stratosphere. On June 24, cotton generated a short-term sell signal, but remains on an intermediate term buy signal. On July 11, as this report is being compiled, cotton has made a new high for the move at 87.11 cents, which is its highest price since June 19 when it reached 87.47. Despite the rally that began on June 25, the short-term sell signal has not been nullified. Additionally, cotton is trading 1.84 cents lower, which is likely due to the USDA supply demand report. We suspect that cotton may have seen the highs, and speculators should consider initiating areas positions on a rally of 75-100 points from current levels. The exit point should be at the July 11 high, or slightly above.
October live cattle lost 32 points on heavy volume of 65,965 contracts. Volume was approximately 2,000 contracts shy of the large volume on July 9, but is a healthy number nonetheless. On July 10, total open interest increased by 1,454 contracts, which relative to volume is approximately 10% below average. However, considering the August contract lost 8,568 of open interest, the total open interest increase looks pretty good. Since cattle generated a short-term buy signal on June 27, it has been trading in a sideways to higher pattern, but is going to need a catalyst to break out of its current trading range.
August WTI crude oil gained a massive $2.99 on extraordinarily heavy volume of 1,182,514 contracts. This volume takes out the previous one year record of 1,078,939 contracts made on July 3, 2013. Surprisingly, open interest increased only 7,884 contracts, which relative to volume is approximately 65% less than average. However, the August contract lost 23,196 of open interest, which makes the total open interest increase of bit better than it appears. During the past 4 days beginning on July 5 through July 10, open interest has increased 61,418 contracts while WTI has advanced $5.28. While this may appear to be respectable relative to the price advance, the open interest increase during four-days when taken as a percentage of volume is actually 25% less than average. WTI remains on a short and intermediate term buy signal.
Brent crude oil:
August Brent crude oil gained 70 cents on volume of 875,334 contracts. Volume was 307,180 contracts lower than WTI on July 10 and increased 187,618 contracts from Brent trading on July 9. Surprisingly, total open interest increased by a massive 54,321 contracts, which relative to volume is approximately 140% above average, which makes the open interest increase one of the largest we’ve seen in quite a while. Making this even more impressive was the fact that the August contract lost 23,833 of open interest.
As this report is being compiled on July 11, August Brent has made a high of $108.93, which is only 14 cents above the high made on July 10. Contrast this with the new high in WTI of $107.45 on July 11, which is a 79 cents above its July 10 high. As we said in yesterday’s report, speculators should be watching Brent to see if it makes new highs because this may represent a ceiling on WTI. The fact of the matter is, the rapid rise in WTI prices is the function of changing logistics, not an absolute increase in demand. The Brent contract represents the true demand picture because it is not hampered by the logjam associated with WTI. Brent generated a short-term buy signal on July 3 and an intermediate term buy signal on July 5.
August heating oil gained 1.60 cents on volume of 129,523 contracts. Total open interest declined by 4,180 contracts, which relative to volume is approximately 25% above average. The August contract lost 5,380 of open interest. Heating oil remains on a short and intermediate term buy signal.
August gasoline gained 8.89 cents on huge volume of 218,688 contracts. Volume was the highest since April 10 when 252,488 contracts were traded. On July 10, total open interest declined by 3,499 contracts, which relative to volume is approximately 35% less than average, but the fact that open interest declined on the largest advance in a number of months indicates that market participants do not believe in the rally. The August contract lost 6,643 of open interest. Points of resistance are the April 1 high of $3.0351 and the March 11 high of 3.0508. Gasoline remains on a short and intermediate term buy signal.
August natural gas gained 2.3 cents on volume of 231,229 contracts. Total open interest increased by 2,468 contracts, which relative to volume is approximately 50% below average. The August contract lost 10,330 of open interest. The Energy Information Administration reported there was a draw of 82 bcf compared to last year’s draw of 34 bcf and the five-year average draw of 74 bcf. The market is reacting negatively and is currently trading 6.7 cents lower. Natural gas remains on a short and intermediate term sell signal.
The September euro gained 96 points on volume of 299,457 contracts. Total open interest declined by 2,408 contracts, which relative to volume is approximately 60% less than average. As this report is being compiled on July 11, the September euro is trading 1.78 cents higher and has had a 2.04 cent trading range. The market made a new high for the move on comments by chairman Bernanke and the move higher started during the evening session on July 10. Despite this, the euro remains on a short and intermediate term sell signal. We want to see the stats tomorrow morning in order to evaluate the market action of July 10 and 11. We suspect the high of 1.3212, which was made during the evening session of July 10 may be the high for quite some time.
S&P 500 E mini:
The S&P 500 E mini gained 3.00 points on light volume of 1,464,633 contracts. Open interest increased by 22,158 contracts, which relative to volume is approximately 40% less than average. From July 5 through July 10, the E mini has advanced 39.50 points while open interest has increased 24,736 contracts. This is miserable open interest action when compared to the price advance during 4 sessions. Additionally, average daily volume of the 4 day period has been 1,448,261 contracts, which compares to year to date average daily volume of 1,988,093 contracts and average daily volume for June of 2,644,807 contracts. In short, open interest during the past 4 trading sessions has been miserable and volume has been significantly below year to date. It appears that the E mini is going to make an attempt to test the May 22 high of 1685, but we are skeptical about its ability to move beyond this.