The grain markets appear to have had a key reversal day on February 27. This is especially germane to the bean complex, and we advise clients to move up stops to protect profits.

Soybeans:

May soybeans advanced 9.75 cents on heavy volume of 344,555 contracts. Volume took out the 336,824 contracts traded on February 13 when soybeans advanced 21.25 cents and total open interest increased by 13,127 contracts. Additionally, volume was the highest going back to late August 2013. On February 26, total open interest declined by 11,244 contracts, which relative to volume is approximately 25% above average. The March contract accounted for loss of 20,911 contracts. As this report is being compiled on February 27, May soybeans are trading 27.00 cents higher and have made a new high for the move at 14.45 1/2, which is the highest price on the continuation chart since September 3 when the high print was $14.67 3/4.

Since January 30, May soybeans have closed higher every day with the exception of 4 days when soybeans had shallow pullbacks. The strength of the market has surprised us, and the fact that export sales continue to be brisk in the face of only minor cancellations is driving prices higher. Additionally, the weather difficulties in Brazil are supporting prices along with logistical problems inherent in moving beans to their destinations. The market is well overdue for a pullback, and we advise against entering new positions at current levels. Soybeans remain on a short and intermediate term buy signal.

The USDA reported that 327.71 thousand metric tons (tmt) have been sold, bringing total commitments season to date of 1.597 billion bushels (bb) versus USDA per projections for the season of 1.510 bb.

Soybean meal:

March soybean meal closed unchanged on volume of 113,665 contracts. Total open interest declined by 1,028 contracts, which relative to volume is approximately 50% below average. The March contract lost 6,053 of open interest. As this report is being compiled on February 27, May soybean meal is trading $9.30 higher and has made a new high for the move at 472.90, which is the highest print since September 9 (486.80). Demand for meal is robust and is the catalyst driving soybeans higher. The market remains massively overbought and is certainly vulnerable to a good-sized correction . We have no recommended position in soybean meal. Soybean meal remains on a short and intermediate term buy signal.

The USDA announced that 115.92 tmt of soybean meal has been sold, bringing total commitments to 7409.12 tmt versus USDA projections for the season of 9888 tmt.

Soybean oil: On February 26, May soybean oil generated an intermediate term buy signal after generating a short-term buy signal on February 7.

May soybean oil advanced 61 points on volume of 132,971 contracts. Total open interest increased by 2,575 contracts, which relative to volume is approximately 20% below average. However, the March contract lost 6,113 of open interest, which makes the total open interest increase more impressive (bullish). This is the 1st time open interest has increased on advance since February 13 when soybean oil advanced 55 points on volume of 190,825 contracts and total open interest increased by 4,967 contracts. As this report is being compiled, on February 27, May soybean oil is trading 31 points higher and has made a new high for the move at 41.96. In the February 10 report, we advised clients to initiate bullish positions, and the trade continues to work well. Maintain bullish positions and move stops up to protect profits.

The USDA reported that 1.62 tmt had been sold, bringing total commitments to 532.63 tmt versus USDA projections for the season of 657.7 tmt.

Corn:

May corn lost 0.25 cents on volume of 362,899 contracts. Total open interest declined by 13,795 contracts, which relative to volume is approximately 45% above average meaning that liquidation was fairly substantial on essentially an unchanged day. The March contract lost 36,604 of open interest and 1st notice day is tomorrow. May corn made a new high for the move at $4.65, and as this report is being compiled on February 27, May corn is trading 0.25 lower on the day. We have no recommendations for corn and it remains on a short and intermediate term buy signal.

The USDA reported that sales of corn were brisk at 840.8 tmt, which brings total commitments to 1.422 bb versus USDA projections for the season of 1.600 bb.

Chicago wheat:

May Chicago wheat lost 12.50 cents on volume of 97,958 contracts. Total open interest declined by 9,638 contracts, which relative to volume is approximately 300% above average, meaning that liquidation was off the charts heavy. The March contract accounted for loss of 8,954 of open interest. As this report is being compiled on February 27, May wheat is trading 1.25 lower and has made a low for the move at 5.88 1/4, which has taken out the low of 5.96 1/4 made on February 18. For May Chicago wheat to continue to move higher, it must make a daily low above $6.09. Chicago wheat remains on a short-term buy signal, but an intermediate term sell signal. In the February 20 report, we advised clients to take partial profits on positions and move up stops to protect profits.

The USDA reported that sales in all wheat categories totaled 365.1 tmt, which brings total commitments season to date of 1.031 bb versus USDA projections of 1.175 bb.

Kansas City wheat:

May Kansas City wheat lost 11.00 cents on volume of 28,202 contracts. Total open interest declined by 3,973 contracts, which relative to volume is approximately 400% above average meaning that liquidation was off the charts heavy. The March contract lost 4,936 of open interest. Since topping out at 6.93 1/2 on February 19, the market has pulled back to a low of 6.66 on February 27. KC wheat has held up much better than Chicago and this has been our preference for bullish positions. In February 6 report, we advise clients to initiate bullish positions and in the February 20 report advised taking partial profits and moving up stops on the remaining positions.

Sugar #11:

May sugar lost 1 point on volume of 204,098 contracts. Total open interest declined by 8,119 contracts, which relative to volume is approximately 55% above average. The March contract lost 8,635 of open interest and May – 1,150. During the past 3 days beginning on February 24, total open interest has declined by 33,087 contracts, and it appears that speculators are getting blown out as prices move higher. As this report is being compiled on February 27, May sugar is trading 39 points higher and has made a new high for the move at 18.13, which is the highest print since November 5 when May sugar reached 18.25. On February 19, May sugar generated a short-term buy signal and generated an intermediate term buy signal on February 24. We have no recommended position in sugar.

Live cattle:

April live cattle advanced 2.125 cents on very heavy volume of 95,500 contracts. Volume was the highest since January 22 when 113,320 contracts were traded and live cattle advanced 1.575 cents while total open interest increased by 2,235 contracts. On February 26, total open interest increased by 2,317 contracts, which relative to volume is average. The market gapped higher yesterday and there is a 70 point gap between the February 25 high of 1.42600 and the February 26 low of 1.43300. As this report is being compiled on February 27, April cattle is trading 17.5 points lower after making a new high for the move at 1.45975. Yesterday we advised clients to cover their short call positions and maintain long bullish positions recommended in late December.

WTI Crude oil:  

April WTI crude oil advanced 76 cents on volume of 424,444 contracts. This was the 1st time since February 20 that WTI crude oil had total volume above 400,000 contracts. On February 26, total open interest increased by 8,884 contracts, which relative to volume is approximately 20% less than average. As this report is being compiled on February 27, April WTI is trading 44 cents lower on the day. As we have said before, the market looks tired at current levels.

It is important to look at the continuation chart to gain some price perspective. For example the November 2013 contract made a high of $104.38 and the March 2014 contract made a high of 103.80 on February 19, which has been the high print thus far on the continuation chart. The April contract made a high of 103.45 on February 24, which only slightly took out the previous high of 103.29 on February 19. In short, crude oil is trading at a level that has shown significant resistance. It will be fascinating to see what has happened to the long to short ratio of managed money when the COT report is released tomorrow afternoon. We are becoming friendly to the idea of writing out of the money calls, but want to see more action before making the recommendation.

Natural gas:

April natural gas lost 15 cents on lighter than normal volume of 381,320 contracts. Total open interest declined by 16,949 contracts, which relative to volume is approximately 75% above average meaning that liquidation was substantial on the decline. The March contract lost 9,835 of open interest. Though April natural gas remains on a short and intermediate term buy signal, we recommend a stand aside posture. The decline of stocks of 95 bcf is the lowest draw in several weeks.

The Energy Information Administration announced that working gas in storage was 1,348 Bcf as of Friday, February 21, 2014, according to EIA estimates. This represents a net decline of 95 Bcf from the previous week. Stocks were 905 Bcf less than last year at this time and 711 Bcf below the 5-year average of 2,059 Bcf. In the East Region, stocks were 361 Bcf below the 5-year average following net withdrawals of 78 Bcf. Stocks in the Producing Region were 251 Bcf below the 5-year average of 775 Bcf after a net withdrawal of 5 Bcf. Stocks in the West Region were 99 Bcf below the 5-year average after a net drawdown of 12 Bcf. At 1,348 Bcf, total working gas is below the 5-year historical range.

Euro:

The March euro lost 59 pips on volume of 210,575 contracts. Total open interest increased by 3,037 contracts, which relative to volume is approximately 40% less than average. As this report is being compiled on February 27, the March euro is trading 25 pips higher on the day. The euro remains on a short and intermediate term buy signal. We have no recommended position.

British pound:

The March British pound lost 14 pips on light volume of 80,359 contracts. Total open interest declined by 1,073 contracts, which relative to volume is approximately 45% less than average. As this report is being compiled on February 27, the March pound is trading 23 pips higher. The pound remains on a short and intermediate term buy signal. We have no recommended position.

Yen:

The March yen lost 29 pips on volume of 124,479 contracts. Total open interest increased by 1,298 contracts, which relative to volume is approximately 50% below average. As this report is being compiled on February 27, the March yen is trading 28 pips higher and is made a high of .9831, which is the highest print since .9837 made on February 20. We continue to be friendly to the yen and think its performance is outstanding, especially considering the Nikkei and major US indices are rallying. We have no recommended position in the yen.

Gold:

April gold lost $14.70 on volume of 155,645 contracts. Total open interest declined by only 5 contracts. This is somewhat surprising, and we think the path of gold is higher. Maintain bullish positions recommended in the February 6 report.

Silver:

May silver lost 71.2 cents on huge volume of 148,771 contracts. Volume was the highest since August 28, 2013 when 153,666 contracts were traded and September silver closed at $24.391. On February 26, total open interest declined by a massive 8,886 contracts, which relative to volume is approximately 140% above average. The massive decline of open interest can be attributed to the March contract, which enters 1st notice day tomorrow and open interest declined 14,281 contracts. Continue to hold long straddles or strangles and long call positions established at significantly lower levels.

S&P 500 E mini:

The March S&P 500 E mini lost 4.25 points on volume of 1,468,381 contracts. Total open interest increased by only 4,353 contracts. As this report is being compiled on February 27, the March E mini is trading 9.75 points higher, but has not taken out the high of 1856.75 made on February 24. On February 21, we recommended that clients purchase out of the money calls to offset any potential loss in long puts, but only for those clients who hold long equity positions.