Soybeans:

For the week, January soybeans lost 75.50 cents and March lost 67.25. The COT report showed that managed money liquidated 6,199 contracts of their long positions and added 1,943 contracts to their short positions. Commercial interests liquidated 12,755 contracts of their long positions and also liquidated 12,600 contracts of their short positions. As of the latest COT report, managed money is long soybeans by 13.66:1, which is down from the previous week of 16.68:1, and nearly the same as the ratio of 2 weeks ago of 13.98:1. 

The USDA raised its bushel per acre yield 1.5 bushels from the October report, which was the largest increase from October to November on record. On a percentage increase basis, it was the second-largest on record, and came as a genuine shock to the market. Everyone expected the yield was going to be raised, but no one thought the yield would be outside of the high end of the range. In short, the report showed that production increased by a total of 111 million bushels and total use increased by 101 mb, which caused the carryout to be raised 10 mb to 140 million bushels. 

Aside from the yield increase, the second big driver for lower prices was the announcement by the USDA that global production for the 2012-2013 season would amount to 60.2 million metric tons, which is up 2.5 mmt from the October report. The October 2011 report showed that global stocks were 54.79mmt. The estimate of  crop production of 2.971 billion bushels compares to the final crop of 2011-2012 of 3.094 billion bushels. The Brazil crop was unchanged on the November report at 81mmt, which is up from last year’s report of 66.5 mmt. 

Until the Brazilian crop is harvested late in the first quarter, supplies will remain relatively tight. Going forward, a couple of questions come to mind. Will the current export pace of soybeans decline due to the prospects of a large Brazilian crop resulting in countries buying on a hand to mouth basis? Alternatively, will the export pace pickup due to relatively inexpensive soybeans? Since the United States is currently the prime supplier of soybeans to the world, will farmers part with their inventory now that it is priced under $15.00? Approximately 71% of the current soybean crop is sold versus an average for this time of year of 53%. Last, will weather for Brazil and Argentina be conducive to creating a bumper crop?

In the Weekend Wrap of November 4, we analyzed lows made in October, and whether new lows occurred in November. This was performed on the period of 2000-2011. We originally found 3 years where the low in October was exceeded by a new low in November. This was in error for the year 2008. During the October 1 through December 31 time frame for 2008, the low actually occurred on December 5, not November 21 as originally reported in last week’s Weekend Wrap. See the table below. The biggest discrepancy between the October and November low occurred in 2005 when soybeans made a low that was 20.5 cents lower than its October low. This is approximately 3.6% lower and if this figure is used as a possible downside measurement, we could expect a low of approximately 14.30 1/2.in January soybeans.

Date                           Cents below October low
November 8, 2004       10.5
November 28, 2005     20.5

To find out how often soybeans made their lows in November, we researched 1972 through 1999, (2000-2011 for November, see above paragraph) and found only 5 years when soybeans made their lows in November. They were November 12, 1996, November 22, 1985, November 18, 1988, November 16, 1978, and November 5, 1973. Significantly more lows were made in the month of December. See the table below. Please note that in 7 out of 13 years, December lows were made between December 12 and December 16.

Lows made in December for January soybeans: October 1-December 31, 1972-2011.
December 31, 1974
December 15, 1975
December 31, 1979
December 12, 1980
December 16, 1981
December 16, 1983
December 31, 1984
December 24, 1990
December 12, 1991
December 13, 1999
December 31, 2001
December 5, 2008
December 14, 2011

We highlighted last year’s date of December 14, 2011 because in the 4th quarter of 2011, soybeans moved in a seasonally countertrend manner, much the same as they are moving this year. For example, from October 1 through December 31, 2011 (the time that soybeans are strongest),  January soybeans topped out on October 14 at $12.90 and bottomed on December 14 at 11.04 1/2, or a decline of $1.85 1/2, or -13.75%. If we use the period of October 14, 2011 through November 9, 2011 to understand the magnitude of the decline last year (January 2012 soybeans lost 82.45 cents or 6.51%) and compare this to the same time frame for 2012, we find that the move in 2012 is much less severe than in 2011. For example, from October 14, 2012 through November 9, 2012, January 2013 soybeans lost 70.75 or -4.65%, which is a significantly smaller than the same period last year. 

From the low made on December 14, 2011 of 11.04 1/2, March soybeans rallied to a high of 13.07 on February 28, a rally of $2.02 1/2, or approximately a gain of 18%. From March 1 through April 11, 2012, May soybeans rallied another dollar dollar to make a new high for the move at $14.12 1/2.

The point of all this is to emphasize the similarity between the countertrend seasonal moves in 2011 and 2012. It is not uncommon to see a bottom occur at approximately the same date 2 years in a row, especially when they are trading in a similar pattern as is the case for 2011 and 2012. Clients should mark their calendars to follow soybeans very closely during the 1st half of December because there is a reasonable probability that soybeans in 2012 will bottom around the 2011 date of December 14. Stand aside.

Soybean meal:

For the week, December soybean meal lost $26.20, January -24.90, March -22.70. The COT report showed that managed money liquidated 1,225 contracts of their long positions and added 969 contracts to their short positions. Commercial interests liquidated 1,579 contracts of their long positions and also liquidated 4,202 contracts of their short positions. As of the latest report, managed money is long soybean meal by a ratio of 4.91:1, which is down from the previous week of 5.46:1 and the ratio of 2 weeks ago of 5.22:1.

Soybean meal will follow the path of soybeans, and it will be interesting to see whether the explosive pace of exports continue, especially since we expect corn prices to weaken in the coming weeks. Last week, soybean meal under performed soybeans by losing 5.51% versus soybeans, which lost 4.95%. Stand aside.

Corn:

For the week, December corn lost 0.75 cents and March lost 0.50. The COT report showed that managed money added 2,144 contracts to their long positions and also added 4,248 contracts to their short positions. Commercial interests increased their long positions by 13,223 contracts and also added 14,849 contracts to their short positions. As of the latest report, managed money is long corn by a ratio of 6.61:1, which is down from the previous week of 7.23:1 and the ratio of 2 weeks ago of 10.53:1.

The USDA report for corn was neutral for the most part. US stocks to usage is 5.8% versus 7.9% in the November 2011 report. USDA raised stocks by 28 million bushels to 647 million and increased usage by 17 million bushels. Global carryout was pegged at 117.99 mmt versus 131.54 mmt last year. Global stocks to usage ratio is 13.7%, which is the lowest in more than two decades.

The USDA has previously stated that any adjustments to acreage would not be released until January report. Many in the trade have been skeptical of current corn acreage, and it has been speculated that the USDA will cut 1-1.5 million acres in its report in January. If this were to be the case, corn would blast off. In the meantime, there is the ruling on the ethanol mandate by the EPA on November 13. Additionally, from a technical standpoint, corn has not been able make much headway on the upside. Corn has not been able to close above its 50 day moving average since mid-September. As of Friday’s close the 50 day moving average on the corn continuation chart is $7.55. We think that December corn will break down to 7.32, which indicates to us a likelihood of a retest of the 7.05 area. If this is unable to hold, a move is likely to the 200 day moving average of $6.90. Stand aside.

Wheat:

For the week, December wheat gained 22 cents and March gained 23. The COT report showed that managed money liquidated 2,151 contracts of their long positions and also liquidated 1,913 contracts of their short positions. Commercial interests added 646 contracts to their long positions and also added 8,117 contracts to their short positions. As of the latest report, managed money is long by a ratio of 1.69:1, which is about the same as last week of 1.68:1 and slightly below the ratio of 2 weeks ago of 1.81:1.

On November 9, the USDA reported that the carry out for the 2012-2013 season would be 704 million bushels which is down 39 million from the previous season. Like soybeans, the big driver of wheat prices is the global supply and demand picture. For example, according to the USDA, global stocks to usage is pegged at 25.8%, which is the lowest in over 4 years. World wheat production is estimated at 651 mmt, which is down from 696 mmt from the previous season. The USDA estimated that global wheat carryout for the 2012-2013 season would be 174.18 mmt, which is up slightly from the October report of 173.00 mmt, but down significantly from a year ago when carryout was 198.17 mmt. On November 8, the long December 2012 wheat- short December 2012 corn widened to $1.61 1/4, which is the highest for the spread since June 25 when it reached $1.65 1/4. This is more evidence of underlying strength in wheat versus corn.

Although, there has been tepid demand for U.S. wheat due to it being priced at a premium, the demand situation in Europe is much more robust. For example, Paris milling wheat has been reaching new contract highs as has London feed wheat. The export ban by the Ukraine is near to being in place, and it is unlikely that Ukraine will export wheat after December 1, after they have fulfilled their commitment to export 5.5 mmt, which is expected to be completed by the end of November. According to the Ukrainian Agricultural Policy and Food Minister, Ukraine has completed exports of 4.4 mmt as of November 7. In short, the global wheat balance sheet is tightening, and conceivably additional production cuts are in the offing for Australia, Argentina and the European Union. Current dry conditions in the US is adding fuel to the fire.

On November 8, December wheat generated a short and intermediate term buy signal. As is typical, a countertrend move usually occurs, and this is a buying opportunity. The market could pull back to the 8.70 area, which would represent good value based upon its trading range during the past 3 months. One note of caution…On November 13, the EPA issues its policy on the ethanol mandate. If there is any retrenchment of the current policy, corn could take a spill, and wheat would likely move lower in sympathy. Therefore, it might be wise to wait after until after November 13 before entering the market.

Crude oil:

For the week, December crude oil gained $1.21. The COT report showed that managed money liquidated 1,341 contracts of their long positions and also liquidated 2,218 contracts of their short positions. Commercial interests liquidated 8,450 contracts of their long positions and also liquidated 15,396 contracts of their short positions. As of the latest report, managed money is long by a ratio of 2.10:1, which is about the same from the previous week of 2.06:1, and the ratio of 2 weeks ago of 2.34:1. Stand aside.

Heating oil:

For the week, December heating oil gained 5.81 cents. The COT report showed that managed money liquidated 2,594 contracts of their long positions and also liquidated 2,553 contracts of their short positions. Commercial interests added 4,642 contracts to their long positions and also added 5,412 contracts to their short positions. As of the latest report, managed money is long heating oil by a ratio of 4.09:1, which is up from the previous week of 3.44:1 and the ratio of 2 weeks ago of 3.61:1. Stand aside.

Gasoline:

For the week, December gasoline gained 12.56 cents. The COT report showed that managed money liquidated 4,093 contracts of their long positions and also liquidated 407 contracts of their short positions. Commercial interests liquidated 10,056 contracts of their long positions and also liquidated 11,052 contracts of their short positions. As of the latest report, managed money is long by a ratio of 9.75:1, which is nearly the same as the previous week of 9.77:1, but significantly lower than the ratio of 2 weeks ago of 12.09:1. Stand aside.

Natural gas:

For the week, December natural gas lost 5.1 cents. The COT report showed that managed money liquidated 21,019 contracts of their long positions and also liquidated 1,022 contracts of their short positions. Commercial interests liquidated 13,681 contracts of their long positions and also liquidated 15,959 contracts their short positions. During the latest report, managed money is long by a ratio of 1.08:1, which is down from the previous week of 1.17:1, and the ratio of 2 weeks ago of 1.17:1.

Natural gas is in a trading range. Stand aside.

Copper:

For the week, December copper lost 3.60 cents. The COT report showed that managed money liquidated 2,766 contracts of their long positions, but added 2,126 contracts to their short positions.Commercial interests added 873 contracts to their long positions and liquidated 1,009 contracts of their short positions. As of the latest report, managed money is long copper by 1.07:1, which is down from the previous week of 1.24:1, and down significantly from the ratio of 2 weeks ago of 1.83:1.

The copper market looks terrible and the 200 day moving average is below the 50. Stand aside.

Gold:

For the week, December gold gained $55.70. The COT report showed that managed money liquidated 20,721 contracts of their long positions, and also liquidated 462 contracts of their short positions. Commercial interests added 2,428 contracts to their long positions and liquidated 15,019 contracts of their short positions. As of the latest report, managed money is long gold by a ratio of 9.53:1, which is down from the previous week of 10.70:1 and down significantly from the ratio of 2 weeks ago of 12.48:1.

In order for gold to move significantly higher, it must close over $1735, and the 50 day moving average of $1741. We recommend that clients stand aside.

Silver:

For the week, December silver gained $1.742. The COT report showed that managed money liquidated 2,101 contracts of their long positions and added 371 contracts to their short positions. Commercial interests added 427 contracts to their long positions and also added 580 contracts to their short positions. As of the latest report, managed money is long by a ratio of 5.76:1, which is down from the previous week’s ratio of 6.58:1 and down substantially from the ratio of 2 weeks ago of 9.72:1

In order for silver to have a sustained move higher, it must close over $32.90 and its 50 day moving average of $33.26. Stand aside.

Euro:

For the week, the December euro lost 1.15 cents. The COT report showed that leveraged funds added 5,399 contracts to their long positions and also added 8,237 contracts to their short positions. As of the latest report, leveraged funds are short by a ratio of 3.28:1, which is down from the previous week of 3.70:1, and the ratio of 2 weeks ago of 3.67:1.

The December euro is trading below its 50 day moving average of 1.2891 and its 200 day moving average of 1.2833. Although we issued a short-term sell signal on November 5, the euro has not yet generated an intermediate term sell signal. Stand aside.

S&P 500 E mini:

For the week, the December S&P 500 E mini lost 29.60 points. The COT report showed that leveraged funds added 24,232 contracts to their long positions, but liquidated 21,073 contracts of their short positions. As of the latest report, leveraged funds are short by a ratio of 1.50:1, which is down slightly from the previous week of 1.61:1, and the ratio of 2 weeks ago of 1.59:1.

Based upon the American Association of Individual Investors, investors feel strongly as bulls or bears with the neutral category being the lowest in many months. See the table below.

            Last wk      2 wks ago  3 wks ago
Bulls         38.5%    35.7%         29.3%
Bears        39.9%   41.0%         43.1%
Neutral    21.6%    23.3%         27.7%

The S&P 500 cash index closed at 1379.85, which is below the 200 day moving average of 1380.98. Relative to its 50 day moving average of 1433.50, the S&P 500 cash index is massively oversold and is due for a bounce. Based upon the sentiment that we have seen in the political and financial press recently, there appears to be a new spirit of cooperation based upon the election results of last Tuesday. While we do not think the financial cliff is going to be resolved easily, it does seem that both parties have gotten more realistic about their demands. At the same time, investors are looking at their portfolios and deciding whether or not they want to take on market risk and the risk of higher taxes in 2013. Apple Computer, which is the standardbearer for equities performance is stumbling badly. If Apple continues its move south, the entire market is likely to follow. Maintain long puts.