Soybeans:

For the week, March soybeans lost 21.75 cents, May -28.75, July -29.75. The COT report showed that managed money added 23,650 contracts to their long positions and also added 3,418 contracts to their short positions. Commercial interests added 5,226 contracts to their long positions and added a massive 28,894 contracts to their short positions. As of the latest report, managed money is long soybeans by a ratio of 5.44:1, which is up slightly from the previous week of 5.23:1, and up substantially from the ratio of 2 weeks ago of 4.53:1.

Perhaps the biggest surprise in the USDA report on soybeans was the markets reaction to it. The carryout was reduced to 125 million bushels and though the estimated soybean crop in Argentina was reduced by 1 million bushels, it was increased in Brazil by 1 million bushels. “USDA raised its forecast for soybean crush by 10 million bushels to 1.615 billion bushels because of continued strong demand for soybean meal from end users, both foreign and domestic. Tighter supplies spurred USDA to raise its U.S. season-average soybean price for the 2012-13 marketing year to $13.55 to $15.05 per bushel, up a nickel on both ends of the range. It left the soybean meal price unchanged at $430 to $460 per ton,” said Fran Howard of Farm Journal. In short, the USDA said that the bottom of 1351 1/2 made on January 11 and the previous one made on November 16, 2012 of 13.56 is at the very low end of the trading range.

“The biggest changes in USDA’s WASDE report for soybeans occurred in Argentina and Brazil. Timely rains that are expected to improve soybean yields convinced USDA to increase its forecast for bean production in Brazil, where growers are expected to produce a record-high crop of 83.5 million metric tons. That’s up 1 million tons from last month’s WASDE forecast. Earlier this week, the Brazilian government released its own estimate for the country’s soybean production at 82.65 million metric tons.”

“Changes in the global outlook, primarily in Brazil, raised world output for soybeans to 269.5 million tons, up slightly from last month’s 269.41 million, and ending stocks to 60.12 million tons, up from last month’s 59.46 million tons. While the 2012-13 projected ending stocks of soybeans are stronger than last year’s estimated 55.25 million tons, they are more than 15% lower than 2010-11’s 69.92 million metric tons,”said Ms Howard.

Apparently, the market’s negative reaction to the report was primarily due to the largest crop in Brazil’s history, which has exceeded the U.S. crop for the first time. However, the March-May soybean spread has been performing in a way that is definitely not bearish. For example, on February 8, the March-May been spread closed at 15.75 cents premium to March, which is the highest price since December 18, 2012 when the spread closed at 16.00. As recently as February 4, the spread closed at 8.50 cents and March beans closed at $14.88/ 3/4, May 14.80 1/4. In short, as the market has declined, the spread between March and May beans has widened. This is bullish spread action. Soybeans remain on a short-term buy signal and an intermediate term sell signal.

Soybean meal: 

For the week, March soybean meal lost $5.80, May – $4.80, July – $4.90. The COT report showed that managed money added 5,665 contracts to their long positions and liquidated 3,702 contracts of their short positions. Commercial interests added 2,079 contracts to their long positions and added a massive 14,415 contracts to their short positions. As of the latest report, managed money is long soybean meal by a ratio of 3.72:1, which is up substantially from the previous week of 2.81:1 and the ratio of 2 weeks ago of 2.88:1.

The USDA report raised their projections for soybean meal exports adding 100,000 tons to the total. The USDA reported that commitments total 84%, while the five-year average for this time of year is 58%. Soybean meal has been acting in a bearish fashion since the beginning of the year. However, this is in keeping with its seasonal pattern, and  soybean meal prices will begin to perk up beginning in early March. The spread action also is very bearish. For example, on February 8 the March-May soybean meal spread closed at $2.10, which is the lowest close going back to late April 2012. On May 31, 2012, the spread closed at $3.50. Soybean meal remains on a short-term buy signal, but an intermediate term sell signal.

Soybean oil:

For the week, March soybean oil lost 1.56 cents, May -1.56, July -1.56. The COT report showed that managed money added 5,974 contracts to their long positions and liquidated 2,381 contracts of their short positions. Commercial interests liquidated 2,126 contracts of their long positions and added 3,899 contracts to their short positions. As of the latest report, managed money is long by a ratio of 1.08:1, which is a dramatic turnaround from the previous week when they were short by a ratio of 1.07:1 and the ratio of 2 weeks ago when managed money was short 1.25:1.

The USDA indicated that 73% of projected sales were committed versus 49%, which is the five-year average as for this date. The March-May soybean oil spread has deteriorated somewhat on the recent advance. On January 15, the spread closed at 35 points, and widened to 42 points on February 8. We consider this to be a minor negative. Soybean oil remains on a short and intermediate term buy signal.

Corn:

For the week, March corn lost 27.00 cents, May -29.00, July -29.75. The COT report showed that managed money added a massive 21,363 contracts to their long positions and also added 3,635 contracts to their short positions. Commercial interests added 15,055 contracts to their long positions, but added a massive 29,633 contracts to their short positions. As of the latest report, managed money is long corn by a ratio of 3.72:1 which is up slightly from the previous week of 3.62:1 and the ratio of 2 weeks ago of 3.30:1.

The big news from the USDA report on corn was that exports were lowered 50 million, which couldn’t have come as a big surprise to the market because exports have been abysmal. Ending stocks were raised to 632 million bushels, but many participants thought the number would come in about 5% higher. What we find interesting is that the March-May corn spread widened to a 0.25 cent premium to March on February 8. This is the highest price for the spread since January 14 when March corn closed at 7.24 and May 7.23. Although we follow the ethanol market closely, we rarely comment on it because it is not a tradable commodity. However, ethanol is on a short and intermediate term buy signal, and the April contract is inverted to the back months. We expect ethanol demand to increase in the coming months and the price structure of the ethanol market is supporting this hypothesis.This should boost corn demand.

Wheat:

For the week, March wheat lost 8.75 cents, May -10.75, July -15.50. The COT report showed that managed money added 9,194 contracts to their long positions and added a massive 18,086 contracts to their short positions. Commercial interests added 4,645 contracts to their long positions and liquidated 3,967 contracts of their short positions. As of the latest report, managed money is short by a ratio of 1.35:1 which is up slightly from the previous week of 1.30:1, and about equal to the ratio of 2 weeks ago of 1.37:1.

On February 8, March wheat was the strongest in the grain complex. We looked at the March-May wheat spread, and it surprised us that the spread is the narrowest since November 21, 2012 with March- May closing at 6.25 cents premium to May on February 8. On November 21, March closed at $8.59 3/4 and May 8.66.00. Another interesting  point is that on January 2, the March-May spread closed at 10.75 cents premium to May and the contracts closed at 7.56 1/4 (March) and 7.62 1/2 (May), which is nearly the same as the closing price on February 8 of $7.55 1/4 (March), and 7.66.00 (May). In short, the spread has narrowed, despite wheat being essentially unchanged from early January to February 8. This indicates that wheat is undergoing a change thjat may portend higher prices. It is important to note that commercial interests are the large spread traders in the market and they may be indicating a new trend is on the horizon. Managed money is heavily short, which could provide some real fireworks on the upside.

Of all the reports, we found the wheat report to be most interesting. Stocks were lowered to 691 million because of increased feed usage. Additionally, global stocks to usage is 26.2%, which is the lowest since 2008-2009 when it reached 26.1%. U.S. stocks to usage is 28.2%, which is down substantially from the 2011-2012 crop when stocks to usage was 33.3%, The big driver for wheat consumtion has been the expanded use of feed wheat, which is at its highest level since at least 2005-2006. On a global basis, U.S. wheat is among the most inexpensive and we think clients should temper any bearish inclinations and look to exit the market if short. Also, it appears the short side of wheat has been played out, and the next major move is likely to be higher. Wheat remains on a short and intermediate term sell signal.

Performance Year to Date:
March bean oil  +3.50%
March corn        +1.54%
March beans     +3.05% 
March meal       +0.72%
March wheat      -2.80% 

Crude oil:

For the week, March crude oil lost $2.05. The COT report showed that managed money liquidated 5,238 contracts of their long positions and liquidated 17 contracts of their short positions. Commercial interests added 17,350 contracts to their long positions and also added 11,379 contracts to their short positions. As of the latest report, managed money is long crude oil by a ratio of 8.84:1, which is down slightly from the previous week of 9.03:1, but up substantially from the ratio of 2 weeks ago of 7.44:1.

Crude oil has had an extraordinarily high long to short ratio for the past 3 weeks, however recently, the ratio has expanded even though crude oil’s performance since January 30 has been to the downside. We wrote about this in past reports, but we now have additional data to support our thesis of lower crude oil prices. From January 31 through February 7 open interest has increased 47,588 contracts while March crude oil has declined by $2.32. With a high long to short ratio, it would be normal to see open interest decline when prices decline, but instead, open interest has increased, which is bearish. This means there are huge numbers of speculative longs that have not liquidated, and will be forced to, as prices move lower.

However, there is another factor that plays into our bearish outlook for crude oil. The March-April spread closed on February 8 at 55 cents premium to April. The last time the spread was near this level occurred on December 24, 2012 when it closed at 57 cents premium to April. On December 24, 2012, the March contract closed at $89.17 and April 89.74. As recently as January 29,2013, the spread closed at 42 cents premium to April and on that day, March crude oil closed at $97.57 and April 97.99. In short, as the market has moved lower the contango is widening, which is bearish. It is important to note that at no time during the rally which began on December 11, did the market structure move to inversion, which in our view indicates that demand has been average at best.

Heating oil:

For the week, March heating oil gained 7.78 cents. The COT report showed that managed money added 7,772 contracts to their long positions and added 2,896 contracts to their short positions. Commercial interests liquidated 12,258 contracts of their long positions and also liquidated 4,182 contracts of their short positions. As of the latest report, managed money is long heating oil by a ratio of 2.74:1, which is about the same as the previous week of 2.75:1, but up slightly from the ratio of 2 weeks ago of 2.61:1.

Gasoline:

For the week, March gasoline gained .0052 while the April contract gained 5.09 cents. The COT report showed that managed money added 4,657 contracts to their long positions and liquidated 767 contracts of their short positions. Commercial interests liquidated 1,120 contracts of their long positions and added 9,891 contracts to their short positions. As of the latest report, managed money is long by a stratospheric 11.10:1, which is up substantially from the previous week of 9.73:1 and the ratio of 2 weeks ago of 8.77:1.

Natural gas:

For the week, March natural gas lost 2.9 cents. The COT report showed that managed money liquidated 3,084 contracts of their long positions and also liquidated 9,162 contracts of their short positions. Commercial interests added 15,837 contracts to their long positions and also added 13,423 contracts to their short positions. As of the latest report, managed money is short natural gas by a ratio of 1.25:1, which is down slightly from the previous week of 1.28:1, and the ratio of 2 weeks ago of 1.27:1.

Copper:

For the week, March copper lost 2.20 cents. The COT report showed that managed money added 9,691 contracts to their long positions and also added 1,489 contracts to their short positions. Commercial interests added 4,513 contracts to their long positions and also added 9,506 contracts to their short positions. As of the latest report, managed money is long copper by a ratio of 2.02:1 which is up from the previous week of 1.70:1 and the ratio of 2 weeks ago of 1.87:1.

Gold:

For the week, April gold lost $3.70. The COT report showed that managed money added 1,982 contracts to their long positions and liquidated 65 contracts of their short positions. Commercial interests liquidated 12,512 contracts of their long positions and also liquidated 8,930 contracts of their short positions. As of the latest report, managed money is long gold by a ratio of 3.28:1, which is up slightly from the previous week of 3.21:1, but down substantially from the ratio of 2 weeks ago of 5.10:1.

Platinum:

For the week, April platinum gained $27.00. The COT report showed that managed money added 1,011 contracts to their long positions and also added 339 contracts to their short positions. Commercial interests added 92 contracts to their long positions and added 1,765 contracts to their short positions. As of the latest report, managed money is long platinum by a ratio of 14.75:1, which is down from the previous week of 16.27:1, and down substantially from the ratio of 2 weeks ago of 17.76:1.

Palladium:

For the week, March Palladium lost $4.90. The COT report showed that managed money added 926 contracts to their long positions and also added 362 contracts to their short positions. Commercial interests liquidated 181 contracts of their long positions and added 1,701 contracts to their short positions. As of the latest report, managed money is long palladium by a ratio of 9.99:1, which is down from the previous week of 11.25:1 and the ratio of 2 weeks ago of 11.16:1.

Silver:

For the week, March silver lost 51.7 cents. The COT report showed that managed money liquidated 525 contracts of their long positions and also liquidated 1,329 contracts of their short positions. Commercial interests added 617 contracts to their long positions and also added 1,208 contracts to their short positions. The COT report showed that managed money is long by a stratospheric 10.34:1, which is up substantially from the previous week of 7.43:1 and the ratio of 2 weeks ago of 5.82:1.

Performance January 1 through February 8 
April platinum      +11.44%
March Palladium   +7.10%
March silver           +3.46%
March copper        +3.00%
April gold                -0.69%

Canadian dollar:

For the week, the March Canadian dollar lost 56 points. The COT report showed that leveraged funds liquidated 8,735 contracts of their long positions and also liquidated 1,162 contracts of their short positions. As of the latest report, leveraged funds are long the Canadian dollar by a ratio of 2.44:1, which is down from the previous week of 2.79:1, and down dramatically from the ratio of 2 weeks ago of 7.76:1.

Australian dollar:

For the week, the March Canadian dollar lost 91 points. The COT report showed that leveraged funds liquidated 3,089 contracts of their long positions and added 1,819 contracts to their short positions. As of the latest report, leveraged funds are long the Australian dollar by a ratio of 3.11:1, which is down slightly from the previous week of 3.35:1 and the ratio of 2 weeks ago of 3.26:1.

Swiss franc:

For the week, the March Swiss franc lost 1.16 cents. The COT report showed that leveraged funds added 1,201 contracts to their long positions and added 2,357 contracts to their short positions. As of the latest report, leveraged funds are long the Swiss franc by a ratio of 1.71:1, which is down substantially from the previous week of 2.24:1 and the ratio of 2 weeks ago of 2.33:1.

British pound:

For the week, the March British pound gained 81 points. The COT report showed that leveraged funds liquidated a massive 10,852 contracts of their long positions and added 2,496 contracts to their short positions. As of the latest report, leveraged funds are long the British pound by a ratio of 1.20:1, which is down from the previous week of 1.56:1 and the ratio of 2 weeks ago of 1.97:1.

Euro:

For the week, the March euro lost 2.99 cents. The COT report showed that leveraged funds added 7,736 contracts to their long positions and liquidated 7,842 contracts of their short positions. As of the latest report, leveraged funds are long the euro by a ratio of 1.66:1, which is up substantially from the previous week of 1.30:1 and the ratio of 2 weeks ago of 1.27:1. Note that leveraged funds got heavily long when the market was making a temporary top.

Performance Year to Date Against USD:
March euro   +1.29%
March Swiss  -0.37%
March Aud    -0.38%
March Cad     -0.73%
March pound -2.73%

S&P 500 E mini:

For the week, the S&P 500 E mini gained 5.70 points. The COT report showed that leveraged funds added 16,044 contracts to their long positions and liquidated 33,181 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 1.87:1, which is down slightly from the previous week of 2.00:1 and about the same as the ratio of 2 weeks ago of 1.86:1.

American Association of Individual Investors survey

Recent wk        2 wks ago    3 wks ago
Bullish   42.8%     48.0%         52.3%
Bearish  29.6%     24.3%         24.3%
Neutral  27.7%     27.7%         23.4%