January soybeans gained 12.25 cents on terrible volume of 118,084 contracts. Open interest declined by 6,307 contracts, which in relation to volume is approximately 100% above average, meaning that liquidation was heavy. Open interest declined in the November contract by 1,702 and January, 4,218. The rally was feeble and the high of $15.23 could not take out the high of November 5 of 15.24 1/4. In short, the market action has been abysmal, and much of this is in anticipation of the November 9 USDA crop report, which many expect to be bearish.
The question that remains is how much of a bearish increase in yield has been discounted, and how much will demand be increased to offset this. During the past 3 days, open interest has declined by 14,287 contracts while January beans have declined 44.50 cents. This market action is congruent with the bullish fundamentals of the market. If there were total open interest builds on the decline, this would be troublesome. For now, it appears that speculative attention has shifted to corn and wheat, but we view this as temporary. The demand fundamentals of soybeans are off the charts, but this is not the case with wheat and corn. Tomorrow, the USDA will release its export sales report, and we will provide this in the November 8 report. Clients should use prudent risk management for long positions. Rather than risk being in the market before the report, a wiser course of action would be to enter new longs after the report has been released provided it is favorable. A friendly report would likely be the catalyst for a move higher. As this report is being compiled on November 7, January soybeans are trading 7.75 cents lower, and has made a new low for the move at 14.97 1/4. This took out the low of 15.02 made on November 5. The move to 14 97 1/4 is likely due to the equities market being sharply lower along with the petroleum and metals complex.
December soybean meal advanced 3.70 on volume of 57,483 contracts. Total open interest declined by 1,377 contracts, which in relation to volume is average. The December contract lost 3,705 of open interest. As this report is being compiled on November 7, December soybean meal is trading $2.00 lower and has made a low of $465.20, which is slightly below 465.90, which was the low made on October 23. We continue to like soybean meal, and believe it will lead the soybean complex higher. However, clients should make sure their risk appetite is appropriate to market conditions. When in doubt about a position, do not hesitate to liquidate, and re-enter when conditions are more favorable. We think the November 9 USDA report will be a catalyst for another leg higher.
December corn gained 5.25 cents on fairly healthy volume of 215,216 contracts. Total open interest declined by 332 contracts. The December contract lost 15,454 contracts of open interest, and speculators are rolling their December positions into March. Much of the support for corn is due to extremely heavy rains in Argentina, which may significantly damage the crop. Additionally, planting is significantly behind the normal pace for this time of year. This is important because Argentina is a major exporter of corn. The problem with corn is that exports are terrible and are the lowest at this juncture for at least a decade or two. As this report is being compiled on November 7, corn is trading 0.75 lower after making a high of $7.51 3/4. Stand aside.
December wheat gained 11 cents on healthy volume of 91,566 contracts. Total open interest increased by 1,838 contracts, which in relation to volume is approximately 10% below average. The December contract lost 5,184 contracts of open interest, and much of this was likely due to position rolling to the March contract. The fundamental situation in wheat is changing due to the poor soil conditions and the continuing drought in parts of the wheat belt.
Additionally, the market is sensitive to the probability of cuts in supply from Argentina and Australia. Like corn, wheat exports have been sluggish, but if supply becomes more constrained, U.S. wheat may become more competitive on the world market. Kansas City wheat (hard red) is a higher protein wheat that is traded on the Chicago Board of Trade. Since making its interim high on September 14, Kansas City wheat has outperformed Chicago wheat. For example, since September 14, December Chicago wheat is down 25 cents or 2.77% while December Kansas City wheat is down 3.25 cents or 0.35%. As this report is being compiled on November 7, December Chicago wheat is trading 18.25 cents higher while December Kansas City wheat is trading 14.25 higher. Additionally from November 2 through November 6, the highs have been higher and the lows been higher, which is another positive sign. It is possible that a short-term, and possibly an intermediate term buy signal will be triggered on November 8. If wheat can close near its highs on November 7, this would be more confirmation that wheat is headed higher.
December crude oil advanced $3.06 on volume of 590,709 contracts. Open interest increased by 5,979 contracts, which in relation to volume is approximately 50% less than average. Rather than see massive short covering, which would’ve been healthy for the market, new buyers and sellers entered the market on the rally. As this report is being compiled on November 7, December crude oil prices have collapsed and are now trading down $4.59. Stand aside.
December heating oil gained 7 cents on volume of 166,695 contracts. Open interest increased by 1,376 contracts, which in relation to volume is approximately 60% less than average. As this report is being compiled on November 7, December heating oil is trading 9.98 cents lower. Stand aside.
December gasoline gained 7.87 cents on light volume of 140,826 contracts. Open interest went up by a mere 234 contracts. As this report is being compiled on November 7, December gasoline is trading 11.95 cents lower. Stand aside.
December copper advanced 3.60 cents on volume of 52,296 contracts. Open interest increased by a massive 3,317 contracts, which in relation to volume is 150% above average, and is a massive increase. As this report is being compiled on November 7, copper is trading 5.50 cents lower. Stand aside.
December gold gained $31.80 on heavy volume of 214,650 contracts. Open interest increased by 5,210, which in relation to volume is average. This indicates a moderate amount of enthusiasm, and longs were in control. Stand aside.
December silver gained 90.6 cents on volume of 58,205 contracts. Open interest increased by 1,897 contracts, which in relation to volume is approximately 25% above average meaning that longs were in control, and were willing to make commitments significantly above average. Stand aside.
The December euro gained 28 points on volume of 234,476 contracts. Open interest increased by 2,783 contracts, which in relation to volume is a proximately 45% below average. On November 5, the December euro generated a short-term sell signal. As this report is being compiled on November 7, the December euro is trading 49 points lower. Stand aside.
S&P 500 E mini:
The S&P 500 E mini gained 13.25 points on volume of 1,481,766 contracts. Open interest declined by 27,155 contracts, which in relation to volume is approximately 25% below average, but significant because the decline was fairly strong on the advance. Even though the broad market rallied, Apple Computer closed $1.77 lower, which was a very negative signal. As our readers know, Apple Computer generated a short-term sell signal on October 11 and an intermediate term sell signal on October 26. As this report is being compiled on November 7, the S&P 500 E mini is trading 30.50 lower, and has made a new low for the move at 1384.00. Maintain long puts.