The Weekend Wrap will be truncated due to the CFTC releasing the COT report on Monday.
For the week, January soybeans gained 35.50 cents, March + 35.00, May +31.25.
The recent USDA report showed that approximately 994 million bushels have already been committed versus the USDA export projection of 1.345 billion bushels. This means that only 26% of the current crop remains to be sold until the end of the season on August 31, 2013. Exports only need to average 10 million bushels per week in order to meet the USDA projections for the current season. The big unknown is the size of the Brazilian and Argentine crops. If there are no weather problems, the Brazilian crop will exceed the U.S. crop this year. The key driver for soybean prices is going to be the critical growing period for Brazil and Argentina, which is from December 15 through mid-February. If weather problems begin to surface, we would expect to soybeans to move sharply higher. Stand aside.
For the week, December soybean meal gained $4.00, January +4.40, March +5.10.
The USDA projects that 7,167.000 tons of soybean meal will be exported for the 2012-2013 season. Thus far, commitments total approximately 4,220,000 tons, or approximately 59% of the total export projection. From now until the end of the season, exports can average as little as 64,000 tons per week in order to meet the USDA projection. As a result, soybean meal exports are on track to match the 2009-2010 season. On November 23, 2009, March 2010 soybean meal closed at $303.80, while March 2010 soybeans closed $10.47 3/4 and March 2010 soybean oil closed 40.22. The heavy stocks of soybeans during the 2009-2010 season led to soybeans making a low in the first quarter of $9.00 for the March contract and 9.11 for the May contract on February 4, 2010. During the 4th quarter of 2009 soybean meal topped out at $316.60 on December 15, and made a low on February 4, 2010 at 265.50. We will be monitoring soybean meal closely to see if it matches the pattern of trading witnessed in the 4th quarter 2009 and the 1st quarter 2010. Stand aside.
For the week, December corn gained 18.50 cents, March +8.75, May +20.00.
During the 4th quarter of 2011, December corn made its low on October 3, 2011 of $5.72 1/4. On December 15, 2011, March 2012 corn made a low of 5.76 1/4 while attempting to retest the October 3 low, but failed to break through it. After December 15, 2011, March corn rallied to $6.64 1/4 on January 3. This was the highest price for March corn through February 28, 2012. Interestingly, December corn made its low of 7.05 on September 28, just a couple of days shy of the low made on October 3, 2011. We will be monitoring corn to see if it fits the 2011 pattern. As indicated in previous reports, corn has been showing a surprising amount of buoyancy, and if export sales begin to pick up, prices should follow. It appears that buyers have been acquiring U. S. corn on a hand to mouth basis, but it is also likely that stocks in Brazil and Argentina are running extremely low. This could direct some future sales to the U.S. until the Brazilian and Argentine corn crops are harvested. Corn remains on a short and intermediate term sell signal. Stand aside.
For the week, December wheat gained 9.75 cents, March +7.75, May +7.75.
Although export sales for the most recent week of approximately 23 million bushels was the highest since August 5, sales need to average 17.8 million bushels per week in order to reach the USDA export projection. U.S. wheat is not competitive on the world market, and exports have to pick up dramatically in order to see wheat prices advance above their key moving averages. During the 4th quarter of 2011, wheat bottomed on December 16 2011 at $5.77 1/4 and proceeded to rally to $6.83 3/4 on February 1, 2012. This is the highest price through February 28. Conditions have been extremely dry in the western wheat belt, and if this does not change during the next couple of months, and/or there are extremely cold conditions during winter dormancy, yields could fall sharply. At this juncture, there is no reason to be involved in wheat on the long or short side.
Performance Nov 19-Nov 23 Year to Date
Bean Oil + 4.25% -7.05%
Soybeans +2.66% +17.07%
Corn +2.48% +27.08%
Wheat +1.19% +17.78%
Meal +1.04% + 36.23%
It is somewhat of a surprise that on a year to date basis, wheat is outperforming soybeans, despite the rapid pace of soybean exports and a tight balance sheet until the Brazilian and Argentine harvest late in the first quarter of 2013.
This past week saw an explosive increase in soybean oil exports of 124,000 tons, with rumors of additional sales. Although stocks of soybean oil are plentiful, exports thus far exceed sales at this time last year by over 300%. However, despite the rapid pace of exports over last year, soybean oil prices are nearly equal to this time in 2011. For example, on November 23, 2011, January 2012 soybean oil closed at 49.58, while the January 2013 contract closed at 49.32 on Friday. Additionally, according to the latest COT report, which was compiled on November 13, managed money is net short soybean oil by 41,834 contracts, or a short to long ratio of 2.10:1.
The USDA estimates that exports for the 2012-2013 season will total 544,000 tons and total commitments as of the most recent report, released on November 23 show that 449,320 tons are committed. In other words, exports only need to average approximately 2,000 tons per week to reach the USDA estimate because approximately 82.5% of the projected export total is already committed. In short, it is almost a given that exports will be revised sharply higher.
Another interesting point about soybean oil is that all months made contract lows on November 12, 2012. The January and March contract lows were 46.89 and 47.35 respectively. The previous low during 2012 occurred on June 15 when the July contract reached 47.76. Soybean oil made a major low on November 25, 2011 when the January contract reached 48.35, which was retested on December 14, 2011 when the January contract traded one tick lower at 48.34. In short, soybean oil reached a lower low in November of 2012 than on November 25 2011 and December 14, 2011, even though exports in 2012 are dramatically ahead of those in November and December 2011. It wasn’t until October 5, 2010 that soybean oil decisively broke below the November 12, 2012 lows when December soybean oil made a low of 43.41. Please note that last year, major lows for soybean oil occurred occurred in November and mid December 2011. It is highly likely the contract lows made on November 12, 2012 will be solid support, at least during the next month or two.
Another important point to consider is that the low of November 12 for January (46.89) was not violated on November 16 when January soybean oil made a secondary low at 46.94 on heavy volume of 178,792 contracts. This was the second highest volume day for 2012. This is another confirmation that the lows for soybean oil are likely in place. Volume on November 12 was 160,244 contracts and though volume on November 16 exceeded that of November 12, soybean oil was unable to forge a new low. The highest volume for soybean oil in 2012 occurred on April 13 when January soybean oil closed at 57.69 and total volume traded was 179,838 contracts, or approximately 1000 contracts above November 16. Keep in mind, on November 16, both soybeans and soybean meal made new lows, but soybean oil did not.
We are entering a period of seasonal strength for corn, wheat and the soybean complex. As we discussed the Weekend Wrap of November 11, we think it is likely that the soybean complex will bottom out during the month of December. Bullish factors added together portend higher soybean oil prices: (1) exports at a breakneck pace, (2) heavy short interest among managed money speculators, (3) soybean oil prices are at the very low end of their two-year range, (4) coming seasonal strength in the grain and soybean complex, (5) a major divergence occurred on November 16 when soybeans and soybean meal made new lows for the move, but soybean oil did not despite its heavy volume. Interestingly, on November 16, the volume in soybean oil exceeded that of soybeans by approximately 8,500 contracts. Although soybean oil has not generated a short or intermediate term buy signal, clients should monitor its action versus soybean meal and soybeans during the next couple of weeks, if soybeans and soybean meal retest their November 16 lows. If soybean oil begins to consistently outperform soybean meal and soybeans, managed money shorts likely will get nervous, especially if they see soybeans and soybean meal bottoming out.
For the week, January crude oil gained $1.18.
The latest Energy Information Administration (EIA) report showed that stocks were over 43 million barrels above year ago levels, and that stocks are approximately 42 million barrels above the five-year average. Crude oil has been been building a base for the past couple of weeks, and although it certainly can go higher, the fundamentals don’t justify it. Unless there is a major political event in the Middle East, it appears that crude oil will struggle to move above the $89-91 level. At this juncture there is no reason to be involved on the long or the short side.
For the week, January heating oil gained 8.3 cents.
Heating oil stocks are currently 9.5 million barrels below last year’s level and nearly 18 million barrels below the five-year average. Heating oil looks to go higher and may attempt a retest of the October 21 high of $3.21.
For the week, December natural gas gained 11.00 cents.
Natural gas had another terrific performance and closed the highest level since October 19 when December natural gas closed at $3.947, which was the top of the move. However, December natural gas is overbought relative to its 50 day moving average of 3.66 and the 50 day moving average on the continuation chart of $3.47. On a seasonal basis, natural gas tends to top out in October and decline through the end of November, then bounce in December. Last year, in the 4th quarter, natural gas topped out at 3.98 the week of October 31, 2011 and proceeded to decline to 2.35 during the week of January 23, 2012. The market has been acting well, but it is reaching the very high end of its trading range during the past year, and therefore caution is in order. Stand aside for now.
For the week, December gold gained $38.30.
The performance of gold was nothing short of spectacular during the holiday shortened week. Gold closed over its 50 day moving average of 1743 for the first time since October 22. The market is following its seasonal pattern of weakness in November and strength should continue through the end of the year, and likely into January. Despite the outstanding performance, gold has not yet reversed the short term sell signal generated on October 22. We would prefer to watch how gold trades when the stock market is sharply lower, and/or the dollar is sharply higher. This will help us gauge the true strength of gold. Stand aside.
For the week, December silver gained $1.746.
Like gold, silver had a terrific week, and has been outperforming gold on the upside. After silver topped out on October 1 at $35.445, we were concerned that its trading could mimic silver’s performance during the 4th quarter of 2011, when silver topped out at 35.70 on October 28, and proceeded to decline $27.192 on December 28, 2011. It appears likely that silver will test the October 1 high and perhaps find resistance at that point. If the silver market’s rally is to continue, it should find support at the 50 day moving average of 33.22. Like gold, silver has not reversed the short term sell signal generated on October 19. We want to see how silver behaves on a day when the stock market is sharply lower, and/or the dollar is sharply higher. This will help us gauge the strength of the silver market.
For the week, the December Australian dollar gained 1.40 cents.
The Australian dollar had a terrific week, and closed at the highest level since September 19 when it closed at 1.0497. We are seeing a period of seasonal strength that should continue through the end of 2012 and likely into mid-January. Stand aside.
For the week, the December euro gained 2.40 cents.
Despite the sharp move higher, the euro has not generated a short-term buy signal. The real question is: is the euro rally for real or is it another one of the many fake outs that we have witnessed during the past year. Stand aside.
S&P 500 E mini:
For the week, the December S&P 500 E mini gained 45.50 points.
The S&P 500 E mini had one of its major rallies since the decline began on September 14 after the announcement of quantitative easing Act III. Undoubtedly, if news is favorable about the much ballyhooed fiscal cliff, the market will likely rally. However, as stated before, the fact remains that everyone knows taxes will be going up in 2013, and as a consequence, the selling of equities should continue through the end of the year as investors seek to book profits at a lower capital gains tax rate. The amount of selling during the next 30 days should not be underestimated. The financial press has been talking about China’s economy is turning around, but the Shanghai Composite Index begs to differ. On Friday, the Shanghai Composite Index closed at 2027.38, which is a mere 32 points from 1995.17, which is nearly a four-year low. With respect to long put positions, each client has to examine their situation in order to determine whether or not to continue holding this position. Unless, there is some tangible evidence that the economy is improving above and beyond the pace of the past year, the September 14 high of 1468 will more than likely be the top of the market.
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