Hedge Funds Add Wagers in Longest Streak Since 2009: Commodities(Source:Bloomberg)
Hedge funds raised commodity bets in the longest bullish streak in three years as speculation that policy makers will increase economic stimulus drove prices toward the biggest monthly rally since October. Money managers raised their net-long positions across 18 U.S. futures and options by 3.4 percent to 1.17 million contracts in the week ended July 24, U.S. Commodity Futures Trading Commission data show. Wagers gained for seven weeks, the longest increase since June 2009. Corn bets climbed to the highest since September 2011, and traders are the most bullish on natural gas since October 2006.
Investors added bets even as commodities fell 0.4 percent in the week to July 24. The bulls were proved right after prices rebounded 1.8 percent in the following three days as European Central Bank President Mario Draghi pledged to protect the euro on July 26. German Chancellor Angela Merkel and French President Francois Hollande echoed his comments the next day. A U.S. government report on July 27 showed the world’s biggest economy grew at a slower pace in the second quarter, increasing pressure on the Federal Reserve to boost aid measures. “Some of these issues that have been weighing against commodities, particularly industrial metals and energy, have probably over-emphasized the negative,” said Bill O’Neill, the chief investment officer for the Europe, Middle East and Africa at Merrill Lynch Wealth Management, which oversees more than $1.8 trillion. “The fundamental backup is the policy easing.”
Wheat Market Recap Report (Source:CME)
September Wheat finished up 14 at 898, 13 off the high and 18 1/2 up from the low. December Wheat closed up 14 at 911 1/4. This was 18 3/4 up from the low and 12 1/2 off the high. September Chicago wheat traded slightly higher into the close but well off session highs. Kansas City and Minneapolis followed higher. Chicago wheat saw sharply higher gains early in the session after Russia's state forecaster cut it's 2012 grain outlook to 77-80 million tonnes due to this year's drought. It is also being reported that Russia will sell grain from state intervention stocks to cool rising domestic grain prices. This is supportive to wheat signaling the tight supply outlook for the Black Sea region. Scattered showers and cooler temperatures will provide relief for spring wheat areas in the Black Sea but drier conditions are expected to persist in southern Russia and Ukraine next week. Outside markets offered support today on rumors that the ECB will begin a new bond buying program soon. The US Dollar sank on the news which rallied commodity prices. September Oats closed up 7 1/2 at 377. This was 8 up from the low and 3 off the high.
Corn Market Recap for 7/27/2012(Source:CME)
September Corn finished up 17 1/4 at 798 1/2, 2 1/2 off the high and 22 up from the low. December Corn closed up 17 at 793 1/4. This was 21 3/4 up from the low and 2 1/2 off the high. December corn traded slightly higher into the close today and settled just off session highs. The higher trade is linked to a slightly warmer and drier forecast next week in the central and southwestern Midwest. The corn market also reacted positively after a well-known crop scout pegged the Iowa state corn yield at 117 bushels/acre and a satellite crop forecaster saw the US corn yield as 122 bushels/acre. More reports of poorly pollinated corn circulated around the market today sending bears to the sideline for now. Demand remains weak in the corn market which offers pressure and Taiwan Mills bought 60,000 tonnes of Brazilian corn overnight. Traders set aside the bearish news and shifted focus back to the ongoing drought in the US. Outside markets were supportive as the US Dollar sank and Crude Oil advanced as investors anticipate further monetary stimulus from world central banks. September Rice finished up 0.22 at 15.6, equal to the high and 0.05 up from the low.
88%. An Alarming Corn Statistic(Source:CME)
The severity of this year’s drought in the United States can be reflected in all sorts of data. One of the more alarming statistics gives you a sense of its geographic reach: 88 percent of the nation’s corn crop is in regions impacted by drought, according to the USDA. The corn crop, initially expected to yield a record 166 bushels per acre, has been cut back to 146, with many analysts expecting that number to fall further in the next USDA supply/demand report on August 10.
GRAINS-Soybeans, corn face 1st weekly drop since mid-June
SINGAPORE, July 27 (Reuters) - Chicago soybeans rose recouping some of previous session's deep losses triggered by rains in the parched U.S. grain belt, while corn dipped for a fourth day out of five this week.
"Grains are coming down mainly due to rain forecast which will benefit soybeans," said Lynette Tan, investment analyst at Phillip Futures in Singapore. "The damage to corn has been done, so the downside in corn will be less."
Thailand extends rice intervention to end-September
BANGKOK, July 27 (Reuters) - Thailand has extended a scheme to help farmers through intervention in rice markets to the end of September due to the lingering impact of severe flooding in the country last year.
Under the scheme, which had temporarily ended as timetabled on June 30, the country pays farmers 15,000 baht ($470) per tonne for paddy, compared with around 9,000 baht in the open market.
Iowa corn yield potential sinks as drought worsens
FORT DODGE, Iowa, July 26 (Reuters) - Corn yield prospects in central and northeast Iowa were highly variable as drought and periods of extreme heat this summer diminished production potential, scouts on a crop tour said Thursday.
Plants were tall and mostly green in areas that have higher quality soils which hold moisture better, while crops in sandier soils were brown and shriveled under the worst U.S. Midwest drought in five decades, scouts on the MDA EarthSat July Crop Tour observed.
Fast planting boosts US spring wheat prospects-tour
FARGO, North Dakota, July 26 (Reuters) - Spring wheat potential in the northern U.S. Plains was 8.2 percent higher than 2011 as an early planting protected the crop from harm when temperatures surged during the summer.
The 2012 U.S. hard red spring wheat crop was projected to yield 44.9 bushels per acre, up from 41.5 bushels per acre in 2011 and up 7.7 percent from the tour's five-year average of 41.7 bushels per acre, scouts on an annual crop tour said on Thursday.
Argentine wheat sowing nears end, crops healthy - exchange
BUENOS AIRES, July 26 (Reuters) - Argentine farmers have nearly finished 2012/13 wheat plantings and crops are generally in good shape apart from some dryness in western areas, the Buenos Aires Grains Exchange said on Thursday.
The South American country is the world's No. 6 supplier of wheat and the leading supplier to neighboring Brazil, but growers have dedicated less land to the grain in recent years due to poor profit levels they blame on government policy.
Drought afflicts 86 percent of U.S. Midwest, crops wilt
July 26 (Reuters) - The most extensive U.S. drought in five decades intensified this week across the Midwest and Plains states that produce most of the country's corn, soybeans and livestock, a report from climate experts showed on Thursday.
And the drought is worsening in the South, which was just recovering from last year's drought - the worst Texas had seen in a century.
W. Europe maize mostly healthy; dry Italy a risk
PARIS, July 26 (Reuters) - Maize crops in western Europe are mostly developing well, with the return of warm, sunny weather this week helping crops in France and Germany, although crop stress in Italy after a hot spell could cut yields there, analysts and growers groups said.
Western European maize (corn) is in better shape than crops in the United States, where the Midwest is enduring its worst drought in decades, and in eastern Europe, where crops in European Union members Bulgaria, Hungary and Romania, and further east in Ukraine have been stressed by hot, dry conditions.
Russian wheat crop below 47 mln tonnes-Geosys
PARIS, July 26 (Reuters) - Russia's wheat harvest is likely to be below 47 million tonnes this year, as drought that has damaged part of its crop is seen cutting yields further in the productive northern region, French farm data supplier Geosys said in the lowest forecast to date.
A Reuters poll of analysts on June 28 put the median wheat crop estimate at 50.5 million tonnes with the lowest forecast, by Russia's farm ministry, at 47.5 million tonnes.
Sugar Traders Are Most Bearish Since April: Commodities(Source:Bloomberg)
Sugar traders are the most bearish in three months on speculation that drier weather will accelerate harvesting in Brazil, the world’s largest producer. Ten of 16 analysts surveyed by Bloomberg said they expect raw sugar to drop next week and three were bullish. A further three were neutral, making the proportion of bears the highest since April 13. Sugar output in Brazil’s center south, the biggest producing region, rose 2 percent in the first half of this month, industry group Unica said July 25. Cane-growing areas will be mostly dry through the start of August, according Somar Meteorologia, a Sao Paulo-based weather forecaster. Prices rebounded from a 21-month low last month and entered a bull market on July 9 after rain in May and June delayed Brazil’s harvesting and exports. Sugar is now poised for its worst weekly performance since March as the drier weather eased concern about the crop and refocused attention on the prospects for a glut.
Czarnikow Group Ltd., which traded the commodity in 90 countries last year, is forecasting a second consecutive surplus in the season that starts Oct. 1. “The harvest in Brazil is catching up and that is a good bearish signal for the market,” said Jonathan Bouchet, a trader at Boman Capital SA, a Geneva-based hedge fund. “The weather in South America at the moment is adequate to harvest and ship, which will increase supplies and keep pressure on prices.”
SOFTS-Sugar, cocoa ease, ECB plege supports
LONDON, July 27 (Reuters) - Softs markets were broadly steady as the European Central Bank's pledge to protect the euro zone leant support to the commodities complex, boosting investor confidence. Sugar futures nudged lower in early trading, digesting Thursday's sharp fall, as drier weather in Brazil aided harvest progress and eased port congestion.
Brazil's coffee crop 20 pct sold - Safras
SAO PAULO, July 26 (Reuters) - Sales of Brazil's 2012/13 coffee crop have reached 20 percent of this season's expected output that should total 54.9 million 60-kg bags, local crop analyst Safras e Mercado said on Thursday.
The rate of sales of the crop by producers by July 20 is five percentage points behind sales at the end of June last year. Safras did not provide mid-July sales data for last season.
Brazil sugar vessel lineup eases as rains recede
SAO PAULO, July 26 (Reuters) - The lineup of ships waiting to load sugar in Brazil fell to 82 from 87 a week earlier as rains let up over the main ports and striking sanitary inspectors had limited effect on shipments of bulk commodities, Williams shipping agents said in a report.
Harvest of the 2012/13 crop in the important center-south region picked up steam in early July, with mills churning out nearly a third of the sugar produced so far this season in the first two weeks of this month, according to industry association Unica.
Guatemala coffee farmers worried fungus will hit next crop
GUATEMALA CITY, July 26 (Reuters) - A fast-spreading strain of leaf rust, one of the world's most devastating coffee diseases, could hit Guatemala's next coffee crop and damage up to 10 percent of production, the president of the country's coffee growers' association Anacafe said on Thursday.
Since the last harvest, which ended in April, growers have been battling a new form of leaf rust fungus, or roya, that kills leaves on coffee trees, sapping them of nutrients so the weakened plants produce fewer beans.
India's 2011/12 cotton imports to treble on thin supply
MUMBAI, July 26 (Reuters) - Tight domestic supplies of cotton and lower prices abroad have prompted Indian textile mills to ramp up imports, which are likely to treble in the year ending Sept. 30, 2012, industry officials said on Thursday.
Mills in the world's second biggest cotton producer have already imported 500,000 bales and have signed contracts for around 1 million bales at 75-80 cents per lb, compared with the local price of about 88 cents, dealers said.
Oil Trades Near Week High Before Central Banks Meet on Economy(Source:Bloomberg)
Oil traded near the highest level in a week in New York on speculation that U.S. and European policy makers will act to boost growth and concern that unrest in the Middle East may spread and disrupt supplies. Futures were little changed, heading for the first monthly gain in three. The European Central Bank and the U.S. Federal Reserve are scheduled to meet separately this week to discuss the economy. The Syrian government’s use of “indiscriminate violence” will hasten its collapse, U.S Defense Secretary Leon Panetta said. The Middle East produces about a third of the world’s crude. Enbridge Energy Partners LP (EEP) said it’s unsure how soon it can resume an pipeline that supplies oil to Chicago-area refineries after a leak. “The market is riding high on the talk of stimulus,” said Jonathan Barratt, the chief executive officer of Barratt’s Bulletin, a commodity-markets newsletter in Sydney. “We also have some geopolitical concerns.”
Oil for September delivery was at $90.01 a barrel, down 12 cents, in electronic trading on the New York Mercantile Exchange at 11:16 a.m. Sydney time. The contract climbed 0.8 percent to $90.13 on July 27 for a fourth day of gains and the highest close since July 20. Prices are up 5.9 percent this month. Brent crude for September settlement was at $106.45 a barrel, down 2 cents, on the London-based ICE Futures Europe exchange. The European benchmark’s premium to West Texas Intermediate was at $16.44. It closed at $16.34 on July 27, the widest gap in more than two months.
Morning Crude Oil Market Report (Source:CME)
September crude oil prices took on a slightly higher track during the initial morning hours, helped in part by a rebound in outside market sentiment. Yesterdays comments from ECB bank President Mario Draghi provided a favorable shift in risk appetites, and that along with a sell off in the US dollar has offered support crude oil prices. There were reports earlier this morning, suggesting that Euro zone officials and the ECB are working on a plan to purchase Italian and Spanish debt, and that has provided an added lift to risk assets this morning.
OIL-Oil rises towards $106 on euro zone, QE hopes
LONDON, July 27 (Reuters) - Brent crude oil rose to around $106 per barrel, buoyed by a European Central Bank pledge to protect the euro zone and hopes for a fresh economic stimulus in the United States.
"Financial markets see a benign mix of gently rising risk appetite as worries over an imminent euro zone disaster ease and prospects for another U.S. stimulus increase," said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt.
Australia's fuel trade jumps as plug pulled on refineries
SINGAPORE, July 26 (Reuters) - Australia is set to become Asia's biggest importer of fuels, opening up trading opportunities in one of the world's most profitable energy markets, as ageing Caltex and Shell oil refineries near Sydney shut and other plants look vulnerable.
The trend will reverberate across energy markets since Australia burns top-quality fuels and a rise in imports means more competition for Europe -- Asia's top buyer of such grades.
Oil prices wil be driven by the externals this week By Dominick Chirihella - Sun 29 Jul 2012 04:42:30 CT (Source:CME)
Last week was all about jawboning out of Europe. First from ECB President Draghi followed up by comments from Germany's Merkel reinforcing Draghi's main comment that the ECB will do everything to support the euro. Support for this type of comment from Merkel is very important as Germany is where the money is. For now the jawboning was enough to send many risk asset markets into a modest end of the week short covering rally. However, we can't lose sight that these type of comments have been coming out of Europe for the last three years and so far the sovereign debt issues are still not solved.
The big question is will the bold comments finally be converted to actions.. especially this coming week as the ECB holds its monthly meeting on Thursday August 2. Will the ECB initiate a bold solution that puts the EU problems on the back burner once and for all which has not been the case for the last several years. Will they simply lower short term interest rates and issue the usual support of the euro comments or will their actions include stimulus and some form of bond backing or buying of bonds from the troubles EU member states? Whatever the ECB decides to do this week the market is now expecting actions that will support the debt problems and drive down the bond yields of the problem countries as well as send the euro into a much longer lasting rally that goes well beyond a simple modest short covering rally like we saw the last two trading days of last week. With the market now trading over the last few session with a strong ray of hope that the ECB and the EU will finally get a handle on the problems any disappointment next week will result in a huge push to the downside in the euro as well as in global equity markets.
Who said August is a quiet and sleepy time for global risk asset markets? Yes many participants are at the peak of the summer vacation season coupled with the London Summer Olympics at its peak but that is not going to prevent the markets from potentially active and volatile trading over the upcoming week and possibly for the rest of the summer. In addition to what is setting up to be a major ECB meeting on Thursday the US Federal Reserve FOMC will meet on Tuesday and Wednesday with many expecting the Fed to embark on a new round of quantitative easing of some form. The US economy has slowed to just a 1.5% growth rate a decline of 0.5% from the first quarter. The employment situation is not getting any better and the plethora of economic data that has hit the media airwaves over the last month or so has been supportive of further slowing of the US economy.
Is there enough negative data to support the Fed taking action now (as a recent WSJ article suggested) or will the Fed take a wait and see of what comes out for the ECB on Thursday while it awaits more data points like Friday's latest nonfarm payroll data? A new round of easing out of the US Fed is not a slam dunk at this meeting in my opinion. I think there are many reasons why it will be prudent for the Fed to wait another month or two before initiating a new round of easing that many believe will have limited success in bolstering the US economy and spurting the private sector hiring process. I do not think the Fed will act at this meeting and save their next so called silver bullet until the end of August at the Jackson Hole symposium (possibly mentioned in Bernanke's speech) or until the mid September FOMC meeting.
On top of the market volatility from the outcomes of the two the world's two major central bank meetings this week the US Labor Department will release the latest nonfarm payroll data and the headline unemployment number. This data is not only important for the QE followers but it will play into the upcoming election in the US. The current market consensus is for a 100,000 new net jobs created with the unemployment rate holding steady at 8.2%. The last several months the jobs data has come in well below the market expectations. In addition to the end of the week jobs data there is a full schedule of macroeconomic data out of the US this week...Chicago PMI, Consumer Confidence, construction spending, auto sales and factory orders all of which could be market moving data points as the market evaluates the data versus how it may impact the Fed's decision regarding more QE.
So what happens to oil this week. Both the WTI and Brent markets recovered a modest portion of their earlier week losses (see below for a more detailed discussion) but still lost value on the week across the entire oil complex. Aside from the very dynamic situation in Syria the geopolitical risk in the rest of the middle east region has been mostly quiet and will likely remain quiet for the next week or so. The main exposure area that could bolster oil prices will be a significant deterioration in the situation in Syria especially regarding the chemical weapons stockpiles in that country.
On the fundamentals side the global oil complex is comfortably balanced with supply still outstripping demand as we saw with the across the board builds in oil inventories in the US this past week. The current oil fundamentals do not support the current price levels and as such the current fundamentals are not the main price drivers of the global oil complex. I do not expect this situation to change in the short to even medium term.
Which brings me back to the macro relationships of oil and the so called externals or financial and economic data points that are currently the primary price drivers for the oil complex as well as the broader class of risk asset markets. How oil trades this week will be directly impacted by the outcome of the FOMC meeting as well as the ECB meeting and Fridays jobs reports. Oil market participants are now back in the perception trade or what will the forward fundamentals be if the US and EU central banks embark on more easing as well as more stimulus from China. All of these are money printing actions that will eventually have an impact on inflation and thus be viewed as bullish for oil and other commodities. The macro markets are all once again highly correlated and oil will likely move very much in sync with the US dollar, euro and global equities. This week (and possibly beyond) oil will move more directly with the externals and less so from the its own current fundamentals and geopolitics.
In spite of the short covering rally on Thursday and Friday the oil complex still ended the week in negative territory with RBOB gasoline leading the way lower. WTI declined more than Brent this week as US crude oil inventories continue to build even with refinery run rates at the highest level in several years (93% of capacity). The September WTI contract decreased by about 1.43% or $1.31/bbl while the September Brent contract ended the week with a decrease of 0.34% or $0.36/bbl. The Sep Brent/WTI spread widened by about $0.95/bbl for the week as the normalization process is still interrupted by lower loadings out of the North Sea. I still expect the spread to gradually continue to narrow over the next 3 to 6 months as the surplus in the US mid-west is also starting to recede from a combination of exports of crude oil out of the region through the Seaway pipeline coupled with refinery utilization rates at the highest level in months.
On the distillate fuel front the Nymex Sep HO contract decreased by 1.16% or $0.0338/gal on the week as distillate fuel inventories surged higher for the third week in a row versus an expectations for a more modest build. Gasoline prices decreased strongly on the week after a much larger than expected build in gasoline stocks. The Sep Nymex gasoline price decreased 4.97% or $0.1463/gal this past week.
Nat Gas futures finally came off of its highs declining on the week on an injection number that came in right at the consensus level. The September Nat Gas futures contract decreased by 1.98% or $0.061/mmbtu on the week but is still trading above the key psychological level of $3.00/mmbtu.
Nat Gas prices are under pressure on expiration day for the August Nymex futures contract and after a weekly injection report that came in at the market consensus level. The most interesting fact is the market has been holding above the $3/mmbtu level once again. For the moment it seems to be the line in the sand for this market and if it holds today we could potentially see a bit of a jump in prices next week. The latest NOAA six to ten day and eight to fourteen day temperature forecasts are marginally more supportive than the forecasts from earlier in the week insofar as the area of the country that is expecting to experience above normal temperatures. The current forecast is showing above normal temperatures for most of the US with the exception of the west coast which is expecting below normal temperatures. Cooling demand will remain a positive for Nat Gas for the next several weeks.
On the nuclear front the level of outages this year continues to exceed both last year and the five year average and the gap is widening a tad. Currently there is 8,200 MW of nuke outages versus last year at 2,600 MW and the five year average at 4,100 MW. The combination of the call for Nat Gas to replace the lost power generation from nuclear along with warmer than normal temperatures should result in a modest increase in Nat Gas consumption over the next several weeks.
The main negative looming over the Nat Gas market remains the economic favorability of coal over Nat Gas. With prices at current levels the economics are positive for coal and have been for most of the last three weeks of trading. Some utilities have switched back to coal as I discussed yesterday and with the forward curve still in a modest contango through February the likelihood of the economics moving back to being favorable for Nat Gas is getting lower every day. As has been the debate for the last several weeks... will cooling demand and nuke outages being enough to offset the loss of coal switching demand and thus result in injection underperforming for the rest of the injection season. At the moment the market sentiment suggests that this market may still have room to go higher.
Overall I still view Nat Gas futures prices as overvalued versus the current fundamentals. There is still an exposure of the industry prematurely hitting maximum storage capacity especially if some of the increases in demand do start to recede as describes above. Also do not lose sight of the simple fact that even if the industry does not prematurely hit storage limitations there will be a record amount of Nat Gas in storage prior to the start of the upcoming winter heating season. there will not be a shortage or supply related issues anytime soon ...barring some unforeseen tropical activity in the US Gulf of Mexico.
On the financial front equity markets around the world were mostly higher on the week. The financial markets were mostly impacted by the expectation of some new bold action by the ECB after Draghi's comments on Thursday. Global equity values increased as shown in the EMI Global Equity Index table below and is now marginally in positive territory for the year.
The EMI Index increased by 1.9% on the week and is in now back in positive territory for the year also by 1.9%. Over the last week the Index increased in value in most all of bourses with three bourses still in negative territory for the year. Over the last several months the global equity markets have been struggling to stay in positive territory except for Germany which is soaring higher based on the falling euro which is a major benefit to this export driven economy.
The euro surged higher (mostly during the second half of the week and after Draghi's comments) on the week while the US dollar declined modestly. Last week the global equity markets were a positive price driver for oil and most commodity markets during the second half of the week.
I still think the oil price is overvalued. I am keeping my view at neutral for oil as the market seems to have switched from being primarily driven by geopolitical risk but has moved to being mostly driven by the prospects for additional quantitative easing to concerns over the evolving debt situation in Europe as well as the slowing of the global economy. WTI seems to be working its way back into the $85 to $95/bbl trading range while Brent is moving back to the $100 to $110 trading range. There are a lot of dynamics that will impact oil prices in the short term and the ranking of the price drivers are fluid and very susceptible to changing as we saw after Draghi's comments yesterday. The only constant for oil prices in the short term is above normal levels of volatility.
I am keeping my view at neutral with a view toward the upside as the hot weather that has persisted across major portion of the US and has subsided only slightly. On the other hand the economics of coal switching now favors coal which will result in a reduction in Nat Gas demand. Finally Nat Gas at current price levels is overvalued and is still susceptible to a round of selling.
Gold Climbs to Five-Week High on Stimulus Speculation(Source:Bloomberg)
Gold futures rose to a five-week high on speculation that central banks in the U.S. and Europe will add to stimulus programs in an effort to spur faltering economies. European Central Bank President Mario Draghi will hold talks with Bundesbank President Jens Weidmann in the coming days on measures including bond purchases, two central bank officials said. Yesterday, Draghi said policy makers will do whatever is needed to save the euro. The U.S. economy cooled in the second quarter, government data showed today. “It seems the ECB is pulling out at all stops to protect the euro,” William O’Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey, said in a telephone interview. “The GDP numbers provided some support as expectations of some form of easing remain alive.”
Gold futures for December delivery rose 0.2 percent to settle at $1,622.70 an ounce at 1:40 p.m. on the Comex in New York. Earlier, the price reached $1,633.30, the highest for a most-active contract since June 19. This week, the metal rose 2.5 percent, the most since June 1.
