Note: The Commitment Of Traders Reports issued by the United States, Commodity Futures Trading Commission are tabulated from Wednesday through Tuesday. These reports are released on Friday at 3:30 pm New York Eastern Daylight Time, or Saturday 1:00 am IST Mumbai time. For more detailed information, please go to the website located at www.cftc.gov
Corn and Wheat:
For the week, May Chicago corn advanced $.28 and closed at $6.73 per bushel. The market moved into backwardation with May corn selling at a premium to the back months. Additionally, corn is at a 1 cent premium to May wheat, which closed at $6.72 per bushel. This is a bullish development for corn. The Commitment of Traders Report showed that in the managed money category, speculators added 1,705 contracts to their long positions and added 5,217 contracts to their short positions. Commercial interests liquidated 483 contracts of their long positions, and added 12,318 contracts to their short positions.
For the week, May Chicago Wheat advanced $.29. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 2,058 contracts of their long positions, and added 10,329 contracts to their short positions. Commercial interests added 172 contracts to their long positions and liquidated 11,649 contracts of their short positions. I am looking for a spot in which I can recommend short wheat positions, however, with large speculators adding to their short positions, it appears that wheat may have further to go on the upside. It is interesting to note that large wheat speculators added to their short positions and commercial interests liquidated their short positions.
In order to place the performance of the current corn market in perspective (+3.37% January 1 through March 15), I have researched the performance of March corn from January 1 through March 15 going back nearly 40 years. I am providing all the years where performance exceeded 2012
Year Performance (+) January 1-March 15
1973 3.38%
1974 5.97%
1978 6.84%
1983 13.09%
1988 6.52%
1991 4.23%
1992 4.59%
1995 4.35%
1996 5.63%
1997 18.51%
2000 11.27%
2004 19.63%
2005 4.18%
2008 19.52%
2011 5.37%
2012 3.37%
Average Performance for 1973-2012 (16 years) = +8.56%
The purpose of providing the above stats is to show readers that there have been 15 other years where performance exceeded the current year of 2012 in the identical time frame. Hopefully, this will provide perspective and a frame of reference regarding the performance of the current market. The average performance for 39 years (1973-2012) in the March 1 through March 15 time frame is 1.14%. Although the current year of 3.37% is outperforming the 39 year average, it is significantly behind the 16 year average of 8.56%, which represents the best performing years.
As I mentioned at the beginning of the corn commentary, May corn is selling at a premium to the back months. The most interesting aspect of this is that May 2012 corn is selling at a 2 3/4 cent premium to July 2012 corn. This is an extremely rare occurrence, and may indicate that the market could move significantly higher. There have only been 6 previous years going back to 1973, when May corn sold at a premium to July corn in the same crop year. Those years were, 1973, 1975, 1984, 1986, 1996, and 1997. Two of those years were major bull markets, 1973 and 1996. The table below tells the story. I am providing the premium for May over July as of March 16 of each year.
Years Premium of May Corn over July Corn on March 16
Same Crop Year
1973 +3 1/4 cents
1975 +1/3/4 cents
1984 +3 cents
1986 +2 cents
1996 + 10 cents
1997 +1 1/2 cents
2012 +2 3/4 cents
There has been a lot of talk ever since the last crop report that the ending stocks numbers as reported by the USDA are incorrect. There seems to be a consensus that the stocks report on March 30 will report a significantly lower number. Undoubtedly, this has been fueling a good part of the rally. Additionally, corn prices prices in China have reached new records. In my view, it is important to watch how the May July corn spread trades between now and the issuance of the USDA stocks report on March 30. If the spread continues to widen, there may be a major surprise coming from the report. Of particular interest is how will the spread perform when May and July corn decline. It would be very bullish if the spread continues to widen when May and July corn decline (May corn declines less July corn).
Soybeans:
For the week, May Chicago soybeans advanced 36 1/4 cents per bushel to close at $13.74 per bushel. The Commitment of Traders Report showed that in the money managed category, speculators added 15,484 contracts to their long positions, and liquidated 2,562 contracts of their short positions. Commercial interests added 11,393 contracts to their long positions, and added 24,405 contracts to their short positions.
To place the current soybean rally in perspective, I am providing performance comparisons for the time frame of January 1 through March 15 for the March contract going back to 1973. There have been only five other years where the performance was equal to, or greater than the performance of soybeans in 2012.
Year Performance (+) January 1-March 15
1973 53.53%
1977 16.14%
1997 22.81%
2004 20.00%
2005 19.29%
2012 12.18%
Average performance for 1973-2012 (6 years) = + 23.99%
Average Performance for 39 years = + 2.05%
It is readily apparent that the size of the rally in soybeans during the first quarter of 2012 is rather a rare occurrence when looking back upon 39 years of history. The rally of 2012 is even greater than the rally of January 1, 2008 through March 15, 2008 when soybeans advanced 10.23%. On March 3, 2008, March soybeans topped out at its contract high of $15.70. By March 14, soybeans dropped $2.30 to close at $13.40. When soybeans topped out, they moved rapidly to the downside in a compressed period of time. In 2008, it took the market nearly a month to rise $2.30, but that advance was lost in 10 trading sessions. This is a cautionary note regarding the current market.
Since the soybean bull market began on January 13, 2012 through March 16, 2012, the leader of the soybean complex has been soybean meal. Soybean oil has been a major laggard. See the table below.
Soybean complex performance January 13 through March 16
May soybean meal +20.70%
May soybeans………+15.22%
May soybean oil…… +7.02%
Sugar #11:
For the week, May New York sugar advanced 1.75 cents to close at 25.41 cents per pound. The advance for the week put May sugar at a premium to the back months. This is a bullish formation. The commitment of traders report showed that in the managed money category, speculators liquidated 26,236 contracts of their long positions, and liquidated 1,862 contracts of their short positions. Commercial interests added 10,967 contracts to their long positions and liquidated 16,064 contracts of their short positions. It appears that large speculators liquidated their longs at the bottom of the move.
Crude oil:
For the week, April New York crude oil lost $.34 for the week to close at $107.06. The Commitment of traders Report showed that in the money managed category, speculators added 7,984 contracts of their long positions, and added 5,587 contracts of their short positions. Commercial interests liquidated 10,864 contracts of their long positions, and also liquidated 10,316 contracts of their short positions.
Gasoline:
For the week, April gasoline added 2.45 cents to close at $3.3569 per gallon, which is the highest closing price for April gasoline and it took out the high close made on March 13 of $3.3546 per gallon. The Commitment of Traders Report showed that in the money managed category, speculators liquidated 3,047 contracts of their long positions and added 296 contracts to their short positions. Commercial interests added 9,854 contracts to their long positions, and added 4,893 contracts of their short positions.
Gold:
For the week April New York gold lost $55.40 to close at $1655.50 per ounce. This was the lowest close for April gold since January 13, 2012 when it closed at $1633.60 per ounce. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 7,000 contracts and added 1,223 contracts of their short positions. Commercial interests liquidated 725 contracts of their long positions, and also liquidated 3,228 contracts of their short positions. This week, gold closed below its major short and long-term moving averages. On the gold continuation chart, the moving averages are as follows in dollars and cents per ounce: 50 day 1703.45, 150 day 1713.83, 200 day 1680.15 If gold continues to trade in the mid 1600 dollar range, the 50 day moving average will soon cross under the 200 day moving average. This is negative, if for no other reason that speculators will rationalize using this moving average crossover (a.k.a. the death cross) to further liquidate long positions.
Silver:
For the week, May New York silver lost $1.60 per ounce to close at $32.60 per ounce. The Commitment of Traders Report showed that in the money managed category speculators liquidated 2,445 contracts of their long positions, and also liquidated 1,152 contracts of their short positions.
Euro:
For the week, the June Chicago Euro advanced 66 points to close at 1.3173. The Commitment of Traders Report showed that leveraged funds added 4,621 contracts to their long positions, and also added 7,166 contracts to their short positions.
S&P 500 E mini:
For the week, the June S&P 500 E mini advanced 31.70 points to close at 1398.50. This is the highest close for the E mini since early June 2008. The Commitment of Traders Report showed that leveraged funds added 37,644 contracts to their long positions, and added 24,387 contracts of their short positions.
The rally that started on October 4, 2011 has continued through mid-March. To put the rally in perspective, I’m listing the only other years going back to 1984 (4 previous years) that nearly equaled or exceeded the current rally covering timeframe of January 1 through March 15.
Year Performance January 1 through March 15
1986 + 10.76%
1987 + 19.43%
1991 +12.93%
2012 +11.89%
At a later date I will analyze how these markets performed subsequent to March 15. History shows that in 1987, we witnessed the greatest crash since October 1929. There is a possibility that history may repeat itself.
Last week, I said that I would provide some additional information with respect to the performance of the major indices, and in particular the S&P 500. The low volume story accompanying the rise of the indices has been rehashed to the point of boredom. However, the supply demand side for stocks has not been discussed nearly as much. Bloomberg Businessweek came out with a terrific story titled: Market Shrinks First Time Since ’09 on US Buybacks Offerings about how companies have been massively buying back their stock, thereby shrinking supply. Below, I quote from the article.
“Amgen Inc., Hewlett-Packard Co. and 1,971 other US companies repurchased 397 billion of stock last year, while they issued $169 billion of new equity, data compiled by Birinyi Associates Inc. and Bloomberg show. The combination reduced the Standard & Poor’s 500 index divisor, a measure of outstanding shares by 0.6% last quarter, the first drop since March 2009.”
“Shrinking supply supports prices and shows valuations are so low that executives would rather buy back shares then spend the cash to expand, according to Columbia Management Investment Advisers LLC and USAA Investment Management Co. Bears say dwindling growth prospects will limit gains and deter investors who pulled money from stock funds for eight straight months through December, the longest stretch in at least two decades.”
“Having that equity base shrink and starting from the relatively pessimistic point usually sets up pretty well in the long term,” Laton Spahr, who helps oversee 325 billion as a money manager at Columbia Management, said in a January 11 phone interview from Minneapolis. “It gives you some hope that valuations have perhaps bottomed.”
After reading the above, the first question I asked myself was; Do companies tend to buy back their shares at the top or the bottom of the market? A couple of paragraphs down, I got the answer.
“Buybacks aren’t a signal that stocks are undervalued, said Andrew Lapthorne, the global head of quantitative strategy at Societe Generale SA in London. S&P 500 companies spent more than 35 percent of their net cash flow on repurchases at the end of 2007, the highest level since at least 1995, just as the gauge began a 57 percent retreat from its October 2007 peak, according to data compiled by SocGen.”
In other words, companies, like novice investors tend to buy at the top. My conclusion from the stock buyback frenzy is that in the short-term, it will boost prices, but longer-term, it will negatively impact the companies. Despite the fact that Mr. and Mrs. John Q public have been selling stocks like crazy, the shrinkage of the supply of stocks due to buybacks is offsetting the selling. When you combine this with the most massive global money printing campaign in history, it is no wonder why stocks continue to levitate higher.
Interest Rates:
For the week, the June 10 year treasury note lost a massive 64 points to close at 128-19. This is the lowest close for notes since late October 2011. The Commitment of Traders Report showed that leveraged funds liquidated 47,629 contracts of their long positions, and added 47,281 contracts to their short positions. Apparently, large speculators are doing 180° turn with respect to their positioning in the market.
The money printing may be artificially propping up asset prices, but inflation is increasing, despite the tepid numbers put out by the Federal Reserve. As I said in an previous post, inflation is tame as long as you do not consume food, use petroleum products, pay for healthcare and college. The rise in interest rates is saying there is something amiss. If this continues for much longer, the stock market will have its day of reckoning.
