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Soybeans:
For the week, August soybeans gained 27.50 cents and the new crop November contract gained 46.75 cents. The Commitment of Traders Report showed that in the managed money category, speculators added 4,629 contracts to their long positions and also added 1,760 contracts to their short positions. Commercial interests added 19,634 contracts to their long positions and also added 1,455 contracts to their short positions. As of the latest report, managed money speculators are long by a ratio of 30.84 to 1.
From here on, the weather is going to take on a much greater import in determining soybean prices than it has in the past. If the weather continues to be dry in key growing areas during the next couple of weeks, or longer, the market could explode to the upside because approximately 37% of new crop soybeans (which have not been harvested yet) have been sold. This means that only 67% of the crop remains, and this has to last for another 16 months. In the latest USDA report, estimated carry out for the 2012 2013 season is 130,000,000 bushels. If it is perceived that this number is going to be reduced, soybeans could take another leg higher. Unlike corn, the demand for soybeans has been robust and the perception of an additional shortfall may take the market to levels never seen before. I see a vital market for soybeans because the Brazilian harvest will not occur until late in the first quarter of 2013. This means that the United States is going to be the primary world supplier of soybeans.
Soybean meal:
For the week, August soybean meal gained $12.60 and new crop December gained $11.80. The Commitment of Traders Report showed that in the managed money category speculators liquidated 1,620 contracts of their long positions and also liquidated 673 contracts of their short positions. Commercial interests liquidated 2639 contracts of their long positions positions and also liquidated 4894 contracts of their short positions. This is the second report in a row that showed both managed money speculators and commercial interests liquidating their long and short positions. During the time frame covered by the two COT reports, soybean meal advanced $42.60 or 10.17%. This is clearly bearish open interest action in relation to price. The previous week’s Commitment of Traders Report was published in the July 9 post. As of the latest report, managed money speculators are long by a ratio of 116 to 1. The reason the ratio is high despite the liquidation is because managed money shorts liquidated a higher percentage of those positions than the percentage liquidation of long positions.
Although open interest action has been negative for soybean meal as evidenced by the COT reports, the fact remains, soybean meal is a very important feed, especially for aquaculture. The Chinese have the largest aquaculture operations in the world, and the only feed that is acceptable is either soybean meal and/or fish meal. Fish meal is a byproduct of anchovies primarily, but it includes other small fish as well. These are ground-up and used as animal feed, fertilizer, or used in aquaculture operations in China and worldwide. Corn and wheat cannot be digested by fish and as a result consumption of soybean meal (in conjunction with fish meal) is used exclusively as a feed for aquaculture. Soybean meal is a competitor to corn, and farmers always calculate the cost efficiency of using soybean meal versus corn based upon price and protein content. Also, soybean meal is used as a mixture with wheat because animals are unable to digest wheat very easily. As I mentioned in the previous paragraph on soybeans, the United States will be the prime supplier of soybeans to be crushed for soybean meal, until the new crop Brazilian harvest occurs late in the first quarter of 2013.
If soybean and soybean meal fundamentals become extremely tight as it now appears they will be, investors should begin monitoring the Peruvian ETF ticker symbol, EPU. Peru is the number one producer of fish meal in the world and produces about 2 1/2 times the production of Chile, its closest competitor. The Peruvian ETF does not look very good at this juncture, but investors should be monitoring it in conjunction with tightness in soybeans/ soybean meal. As an added kicker, Peru has one of the lowest debt to GDP ratios in the world, and is one of the largest silver producers in the world.
Corn:
For the week, September corn gained 45.25 cents and the new crop December contract gained 47.25 cents. The Commitment of Traders Report showed that managed money added 18,049 contracts to their long positions and liquidated 9,269 contracts of their short positions. Commercial interests added a massive 42,876 contracts to their long positions and added 24,960 contracts to their short positions. As of the latest report, managed money speculators are long by a ratio of 7.15 to 1. Corn and the other grain markets are being driven by weather, which makes them extremely dangerous regardless of what side the market you’re on. Do not short any of the grain markets.
In order to provide some historical context, I am listing the long to short ratios during the time that corn traded in the upper $7.00 range. The time frame I’m using is the April and June 2011 highs. The data clearly indicate that based upon previous corn market highs, the current ratio of longs to shorts is at the low-end of the scale. I listed the dates and ratios of other COT reports that had a higher ratio of longs to shorts than the ratio reflected by the contract high. The highest ratio I found occurred in the April 26, 2011 report when the ratio of longs to shorts reached 13.54:1. With the current ratio of 7.15:1, the market has a long way to go before the ratio is considered to be at stratospheric levels.
Contract High Date Contract High COT Ratio (long to short) COT Report Date
April 11, 2011 $7.83 3/4 12.01:1 April 12, 2011
12.46:1 April 5, 2011
12.45:1 April 19, 2011
13.54:1 April 26, 2011
June 10, 2011 $7.99 3/4 11.32:1 June 7, 2011
12.01:1 June 14, 2011
August 29, 2011 $7.65 1/4 8.16:1 August 30, 2011
Wheat:
For the week, September wheat gained 41.50 cents. The Commitment of Traders Report showed that managed money speculators added 6,357 contracts to their long positions and liquidated 1,653 contracts of their short positions. Commercial interests added 4,377 contracts to their long positions and also added 9,853 contracts to their short positions. As of the latest report, managed money speculators are long wheat by a ratio of 1.96 to 1
The next historical high that investors should be focusing on is the February 9, 2011 high of $8.93 1/4 for the March contract. I examined the COT report that covered the positions of managed money speculators during the February 9 high. On February 1, 2011, the long to short ratio of managed money speculators was 1.74:1, and the report of February 8, 2011 showed that managed money speculators were long by a ratio of 1.88:1. After this, the number of longs starts dropping as the market declined.
The next historical high occurred on August 21, 2008 when September wheat reached a high of $9.32 1/4. The current disaggregated reports that break down positions by category did not exist in 2008. During the August 2008 highs, there were significantly fewer longs in the non-commercial category than in the legacy reports of February 2011, and the most recent COT report using the legacy method. For example, on August 5, 2008 the long to short ratio was 1.08:1, August 12, 2008 1.08:1, August 19, 2008 1.10:1 and August 26, 2008 1.10:1. Using the same methodology that was in effect in 2008, the non-commercial category in the COT report of February 8, 2011, shows the long to short ratio was 1.47:1, and the current legacy report of July 10, 2012, the long to short ratio of non-commercial holders is 1.39:1.
In other words, based upon the most recent COT report, the ratio of long to short positions held by managed money has never been anywhere near this high going back to February 2011. Additionally, using the legacy reports that counted managed money speculators as part of the non-commercial category, we find the ratio of longs to shorts in the July 10, 2012 legacy report is nearly as high as it was in the report of February 8, 2011. Both of these ratios were significantly higher than the legacy reports that reflected the August 21, 2008 high of $9.32 1/4.
Based upon the historically high ratio of longs to shorts, combined with wheat priced significantly above its 50 day moving average of $6.92 1/4 (September chart) and 6.751/2 (continuation chart), investors must be extremely cautious. Stand aside.
Grain Performance July 9-July 13
September corn +6.51%
September wheat +5.15%
September soybean meal +2.46%
September soybeans +2.45%
Crude Oil:
For the week, August crude oil gained $2.65. The Commitment of Traders Report showed that managed money liquidated 2,247 contracts of their long positions and added 3,931 contracts to their short positions. Commercial interests added 6,772 contracts to their long positions and also added 9598 contracts to their short positions. As of the latest report managed money speculators are long crude oil by a ratio of 2.49 to 1.
Gasoline:
For the week, August gasoline gained 10.01 cents. The Commitment of Traders Report showed that managed money speculators liquidated 1,414 contracts of their long positions and also liquidated 2,269 contracts of their short positions. Commercial interests added 421 contracts to their long positions and also added 2,832 contracts their short positions. As of the latest report, managed money speculators are long gasoline by a ratio of 7.26 to 1.
Copper:
For the week, September copper gained 9.45 cents. The Commitment of Traders Report showed that managed money speculators liquidated 39 contracts of their long positions and added 3,021 contracts to their short positions. Commercial interests liquidated 534 contracts of their long positions and also liquidated 57 contracts of their short positions. As of the latest report, managed money speculators are short copper by a ratio of 1.15 to 1.
Gold:
For the week, August gold gained $13.10. The Commitment of Traders Report showed that managed money speculators liquidated 10,393 contracts of their long positions and added 5,539 contracts to their short positions. Commercial interests added 329 contracts to their long positions and liquidated 2,227 contracts of their short positions. As of the latest report, managed money speculators are long goal by a ratio of 3.31 to 1.
Silver:
For the week, September silver gained 44.9 cents. The Commitment of Traders Report showed that managed money speculators liquidated 106 contracts of their long positions and added 693 contracts to their short positions. Commercial interests added 447 contracts to their long positions and liquidated 858 contracts of their short positions. As of the latest report, managed money speculators are long silver by a ratio of 1.36 to 1.
Euro:
For the week, the September Euro lost 32 points. The Commitment of Traders Report showed that leveraged funds added 9,170 contracts their long positions and also added 28,768 contracts to their short positions. As of the latest report, leveraged funds are short the Euro by a ratio of 2.7 to 1.
S&P 500 E mini:
For the week, the S&P 500 E mini was essentially unchanged having lost .05 point. The Commitment of Traders Report showed that leveraged funds added 9,272 contracts to their long positions and added a massive 89,852 contracts to their short positions. As of the latest report, leveraged funds are short the S&P 500 E mini by a ratio of 2.34 to 1.
There is a tremendous amount of uncertainty regarding the immediate direction of the equity markets. On Thursday, July 12 the S&P 500 cash index generated an intermediate term sell signal. As of yet a short-term sell signal has not been generated. As of July 13, the S&P 500 E mini is down .35% for July. This compares to the E mini being down .27% in the same period during 2011. Looking back to 1983, the strongest rally in the July 1-July 13 time frame occurred in 2010 when the S&P 500 E mini increased by 6.12%. The worst occurred in 2002 when the E mini was down 7.38%. Historically, July is a dismal month for performance, as is August September and October.
In order to place the upcoming performance for July and August in perspective, I am providing the following stats with respect to the S&P 500 E mini’s performance from July 13 through August 13 starting from the year 2000 and through 2011. With the exception of 2009, performance for the July 13-August 13 time frame is dismal. Investors should keep this in mind when making investment decisions.
Year Performance (July 13-August 13)
2000 – 1.82%
2001 -1.81%
2002 -3.52%
2003 -1.28%
2004 -4.26%
2005 +0.42%
2006 +0.30%
2007 -6.48%
2008 +3.59%
2009 +15.89%
2010 – 0.07%
2011 -10.23%
12 year average performance: -0.77%
This past week saw the 50 day moving average of the Singapore Straits Index and the German DAX Index cross below the 200 day moving average. As of this post, the indices below have completed the 50 day moving average cross below the 200 day moving average. The fact that important global markets are in downtrends to the extent that the 50 day moving average has crossed below the 200 day moving average, is troubling as far as US equity markets are concerned. That is unless you believe the U.S. market will decouple from the rest of the world. As it stands now, the 50 day moving average is below the 150 day moving average for the S&P 500 cash index and the S&P 500 E mini. When you add this to the dismal performance of the global markets, investors should be speaking with their investment advisor or broker about protecting themselves on the downside.
London FTSE 100
French CAC 40
Spain Ibex 35
German DAX Index
Italy FTSE Milan Index
Brazilian Bovespa
Australia All Ordinaries Index
(Hong Kong) Hang Seng
(China) Shanghai Composite Index
Singapore Straits Index
Tokyo Nikkei
Bombay Sensex 30
Wishing all of you the best of trading and investing.
G.
