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WEEKLY MARKET SUMMARY
13 October, 2014
For the Week of October 6, 2014
BONDS:
The uptrend in the Treasury market is probably viewed as the most definitive fundamental and
technical trend throughout the futures markets. While bullish sentiment might be reaching epic
levels, the flow of economic data, lingering Ebola concerns and patently weak global price signals
clearly leave the bull camp with most if not all of the cards.
While Import and Export prices aren't typically a major economic indicator, seeing US Import and
Export prices decline along with ongoing weakness in energies has to leave the Fed confident in
an extension of their dovish stance. As is usually the case, significant weakness in equities has
the tendency to make the macroeconomic outlook even more damaged, and therefore the action
in equities over the coming trading sessions might take on added importance for the Treasury
market.
December 30-Year Bonds and 10-Year Notes pushed into new contract high territory early this
week, and were supported by a “risk off” tone in outside markets. It also appeared that the
Treasury complex reacted to a round of S&P downgrades late Friday on France, the European
Financial Stability Facility (EFSF) and Finland, as well as the weekend message out of the IMF
pointing towards an uneven economic recovery.
In the meantime, seeing Chinese export data for September come in ahead of expectations and
bullish reversal action in US equity markets to start the week seemed to put the brakes on gains
in the Treasury market. It is also possible that Treasuries have come under pressure on reports of
intervention by the New York Federal Reserve. Markets in Canada and Japan were closed on
Monday, and the US Bond market was closed in observance of the Columbus Day Holiday on
Monday as well. The US economic calendar will be relatively quiet early in the week.
The Commitments of Traders Futures and Options report as of October 7th for U.S. Treasury
Bonds showed non-commercial traders were net long 23,443 contracts, an increase of 5,080.
Non-commercial and non-reportable traders combined held a net long position of 7,794 contracts,
for an increase of 4,462 in their net long positioning. The buying trend of the speculator is seen as
a supportive force, and further gains after the report window closed provide an added positive
influence until support levels are violated.
The Commitments of Traders Futures and Options report as of October 7th for US Treasury 10
Year Notes showed non-commercial traders were net short 51,954 contracts, an increase of
60,619 which represents a change from a net long to net short position. Non-commercial and nonreportable traders combined held a net short position of 261,815 contracts, for an increase of
33,528 in their net short positioning. Further gains in December 10-Year Notes after the report
window closed are likely the result of short-covering, which has helped drive prices into a new
contract high.
CURRENCIES:
The Dollar seemingly rejected the mid-week washout and showed signs of regaining its
dominance to finish out the week in close proximity to the pivotal 86.00 zone. Residual weakness
in equities, soft US Import and Export prices and ongoing weakness in energy prices left a
WEEKLY MARKET SUMMARY
13 October, 2014
deflationary tone in place, and deflationary slowing fears typically funnel money towards the
Greenback and away from the Euro. Renewed vigor in Hong Kong protests are another issue that
might have lent some fresh buying interest in the Dollar.
The Dollar showed some slight retrenchment at the start of this week in the wake of slightly better
than expected Chinese Trade data. Another issue that might have applied some pressure to the
Dollar is the news of a Russian troop pullback from the Ukraine. With oil prices starting out the
new trading week sharply lower, there seems to be some hope that the global economy is set to
benefit from increased disposable income and that in turn might be cause to deflate the Dollar
somewhat.
On the other hand, the net spec and fund long positioning in the Dollar weighed in at 59,328
contracts, but that positioning might be overstated given the slide in the Dollar after that report
was compiled. A thin US economic report slate in the first two sessions of the week might allow
the bear camp a chance to control prices directly ahead.
The Commitments of Traders Futures and Options report as of October 7th for US Dollar showed
Non-Commercial traders were net long 49,456 contracts, a decrease of 6,729 contracts. The
Commercial traders were net short 59,327 contracts, a decrease of 5,522 contracts. The Nonreportable traders were net long 9,872 contracts, an increase of 1,207 contracts. Non-Commercial
and Non-reportable combined traders held a net long position of 59,328 contracts. This
represents a decrease of 5,522 contracts in the net long position held by these traders.
The trade thinks the ECB is poised to increase their QE action ahead, and it is also possible that
lower oil prices and word of a Russian troop pullback in the Ukraine has given rise to some fresh
short-covering buying in the Euro early this week. In fact, with the Non-reportable Net Short
position in the Euro hitting a new record level at 55,901 contracts last week, the prospect of more
short-covering is pretty high. However, talk of more coordinated stimulus among EU members
from meetings late last week may serve to thicken resistance in the Euro up at 1.2722.
The Commitments of Traders Futures and Options report as of October 7th for Euro showed NonCommercial traders were net short 144,000 contracts, an increase of 11,483 contracts. The
Commercial traders were net long 199,901 contracts, an increase of 19,142 contracts. The Nonreportable traders were net short 55,901 contracts, an increase of 7,660 contracts. NonCommercial and Non-reportable combined traders held a net short position of 199,901 contracts.
This represents an increase of 19,143 contracts in the net short position held by these traders.
A quasi gap upmove in the Yen early this week seems to be the result of slightly better than
expected Chinese export figures, and it is also possible that some of the gains were technical
short-covering on the rise above significant resistance of 93.00. Given the technical action to start
and a lack of competition in the currency markets, there might not be significant resistance in the
December Yen until the 94.00 level!
The Swiss is catching a lift from short-covering and from the quasi recovery action in the Euro.
However, the primary reason for the rally in the Swiss is probably hope for a clearing of economic
clouds in the wake of Russian troop pullbacks in the Ukraine. Solid support in the December
Swiss moves up to 1.0485 and there is little resistance seen until the 1.0520 level.
With the Bank of England suggesting that economic travails in the Euro zone are taken into
consideration on their policy decisions, but that news from the Euro zone will not “dictate” their
WEEKLY MARKET SUMMARY
13 October, 2014
policy, the trade has seemingly moved to reduce the odds of hawkish BOE action directly ahead.
With oil prices breaking out down again and UK stocks starting off the week under pressure, the
path of least resistance in the Pound remains down.
A series of lower highs, ongoing declines in oil prices and the lack of a definitive bounce in the
Canadian in the wake of a slide in the Dollar seem to suggest that the prevailing trend in the
Canadian Dollar remains down. In fact, one might have expected the Canadian to have drafted
more support from Chinese trade data but instead, the Canadian started the new week out within
close proximity to last week’s lows.
STOCKS:
US equity markets experienced choppy trading at the end of last week, with the December S&P
500 posting a new low for the move early Friday. Outside market sentiment was held back by
ongoing global growth concerns. One of the hardest hit sectors was technology following
downwardly revised guidance from Microchip Technologies, which also warned about falling
demand in China. This weighed especially hard on the NASDAQ, which fell to its lowest level
since August 12th. The major S&P sector indices were mixed with very active trading volume, and
perhaps an added factor behind the volatility was a steady stream of news headline flow from a
number of Fed member speeches.
Global equity markets traded lower early this week, and were pressured by a confirmed Ebola
case in the US and downside follow-through from last week’s trading. China's Shanghai
Composite traded lower with early weakness coming in the coal sector. However, seeing
September Chinese export data a bit stronger than expected helped shares bounce from their
worst levels. The major European indices saw a gap-lower open Monday morning, but that
weakness appeared to meet up against some bargain-hunting interest and an added measure of
support coming off the improved Chinese trade figures. Seeing stability in European shares after
a round of ratings downgrades late last week provides support to US shares the December S&P
500 up more than 15 points from Sunday evening’s new low for the move at 1881.50.
The December S&P 500 fell to its lowest level since May 23rd at 1881.50, but clawed its way back
toward the 1900.00 level. A measure of bargain-hunting in European shares off a gap lower open,
an uptick in China trade data and a better than 2% gain in a basket of European mining and
resource-related shares provide early support. The Commitments of Traders Futures and Options
report as of October 7th for S&P 500 Stock Index showed non-commercial traders were net short
6,387 contracts, an increase of 4,363. Non-commercial and non-reportable traders combined held
a net long position of 21,394 contracts, for a decrease of 3,396 in their net long positioning. The
selling trend of the speculator is seen as a negative force and is probably understated given
added selling pressure after the report window closed.
After a gap lower open, in the December E-mini Dow and holding a 100-point deficit Sunday
evening, the index was able to stage an impressive turnaround. It is possible that recent downside
in the index may have been over-exaggerated, especially with a modest improvement in Chinese
economic data. Perhaps a measure of support for the Dow comes ahead of an active flow of US
third-quarter earnings over the coming week. The Commitments of Traders Futures and Options
report as of October 7th for the E-mini Dow Jones Index showed non-commercial traders were
net long 18,267 contracts, a decrease of 8,542. Non-commercial and non-reportable traders
combined held a net long position of 17,429 contracts, for a decrease of 8,772 in their net long
WEEKLY MARKET SUMMARY
13 October, 2014
positioning. The selling trend of the speculator and continued drop in open interest into Friday’s
close puts their positioning near oversold levels.
Early weakness in the December NASDAQ survived a test of the August 8th low at 3819.50,
which was followed by a nearly 30-point rally. It is possible that technology shares within the
NASDAQ see a measure of bargain-hunting interest ahead of the upcoming earnings cycle. The
Commitments of Traders Futures and Options report as of October 7th for the E-mini NASDAQ
showed non-commercial traders were net long 69,966 contracts, a decrease of 586. Noncommercial and nonreportable traders combined held a net long position of 78,311 contracts, for
a decrease of 1,224 in their net long positioning.
GOLD, SILVER & PLATINUM:
The gold market forged a surprisingly tight range at the end of last week, and that was a little
surprising considering the potential adversity from renewed strength in the Dollar. It is also a little
surprising that gold was able to hold most of its gains this week despite a lack of positive demand
news. However, the trade is becoming more hopeful of stronger Indian festival demand ahead, as
Indian premiums are seemingly signaling a pick-up in demand is already underway. However, the
bull camp in gold and silver will have to be watchful any return to the highs in the Dollar, as that
could throw the recent short covering tilt into the ditch.
Gold and silver both started the week on a positive track, and most of that upside action was
probably the result of a weaker Dollar. However, some gold players might have been cheered by
news that Chinese exports increased by 15.3%, while imports rose by a less robust 7% as that
news was probably the main force behind the setback in the Dollar to start the new trading week.
It is also possible that the metals markets saw the second highest Chinese imports of crude oil on
record during September as a positive sign of commodity demand, as that news downplays the
threat of slowing in China that has been worrying the trade for weeks.
However, we suspect that news of a troop pullback by Russia from the Ukraine limited the gold
and silver rally. Another issue that might hold back precious metals prices is news that both gold
and silver derivative holdings declined on Friday afternoon by 58,987 ounces and 1.86 million
ounces, respectively. News reports of the first Ebola infection on US soil over the weekend and
another sharp slide in oil prices to start out the week might weigh on metals prices, as that action
hints at more deflationary fears ahead.
While PGM prices have started out on a positive footing because of a weaker Dollar, lingering
fears of slack demand loom in the backdrop in the wake of a sharp downside extension in oil
prices. While Chinese import and export data tempers some of the fear of significant slowing in
China, the overall global macroeconomic view may still be suspect.
The PGM sector might be slightly held back by news of a Russian troop pullback early in the week
as some might see that news as a potential long-term bullish item. An end to tensions in the
Ukraine and an unwinding of sanctions could be seen as a development that is supportive to all
physical commodity markets. The positioning reports released over the weekend showed
moderate net spec long positioning in both platinum and palladium, and that could leave the
markets vulnerable to long liquidation in the event that last Friday's lows fail to hold.
The Commitments of Traders Futures and Options report as of October 7th for Gold showed NonCommercial traders were net long 66,968 contracts, a decrease of 115 contracts. The
WEEKLY MARKET SUMMARY
13 October, 2014
Commercial traders were net short 64,457 contracts, an increase of 589 contracts. The Nonreportable traders were net short 2,511 contracts, a decrease of 703 contracts. Non-Commercial
and Non-reportable combined traders held a net long position of 64,457 contracts. This
represents an increase of 588 contracts in the net long position held by these traders.
The Commitments of Traders Futures and Options report as of October 7th for Silver showed
Non-Commercial traders were net long 2,987 contracts, an increase of 151 contracts. The
Commercial traders were net short 11,681 contracts, a decrease of 1,515 contracts. The Nonreportable traders were net long 8,695 contracts, a decrease of 1,665 contracts. Non-Commercial
and Non-reportable combined traders held a net long position of 11,682 contracts. This
represents a decrease of 1,514 contracts in the net long position held by these traders.
The Commitments of Traders Futures and Options report as of October 7th for Platinum showed
Non-Commercial traders were net long 24,655 contracts, an increase of 777 contracts. The
Commercial traders were net short 25,107 contracts, an increase of 1,121 contracts. The Nonreportable traders were net long 452 contracts, an increase of 344 contracts. Non-Commercial
and Non-reportable combined traders held a net long position of 25,107 contracts. This
represents an increase of 1,121 contracts in the net long position held by these traders.
The Commitments of Traders Futures and Options report as of October 7th for Palladium showed
Non-Commercial traders were net long 22,944 contracts, an increase of 1,501 contracts. The
Commercial traders were net short 24,496 contracts, an increase of 1,073 contracts. The Nonreportable traders were net long 1,552 contracts, a decrease of 427 contracts. Non-Commercial
and Non-reportable combined traders held a net long position of 24,496 contracts. This
represents an increase of 1,074 contracts in the net long position held by these traders.
COPPER:
The copper market showed some technical prowess late last week with its capacity to reject an
initial probe below the $3.00 level on the charts. A rise in the Dollar and weakness in global
equities provided the pressure for a quasi-downside breakout, but a recovery in US stocks and the
realization of a noted weekly decline in Shanghai copper stocks might have prompted some
shorts to cover, rather than holding onto those shorts going into a weekend where the calls for
fresh central bank action might be forthcoming.
The copper market has also started out the week on a positive track as slightly better than
expected Chinese export data overnight has provided some measure of confidence to the bull
camp. Some modest gains might result in short covering given the rather significant net spec and
fund short reading in the latest COT positioning report.
Gains in Shanghai copper prices, weakness in the US Dollar, news of a Russian troop pullback in
Ukraine and marginally higher US equities leaves copper with a number of modestly supportive
outside market developments. Some might even suggest that sharply lower oil prices is indirectly
supportive of physical commodities like copper, as that action might eventually free up consumers
disposable income and help the world economy gain some traction.
The Commitments of Traders Futures and Options report as of October 7th for Copper showed
Non-Commercial traders were net short 25,201 contracts, an increase of 1,512 contracts. The
Commercial traders were net long 34,107 contracts, an increase of 1,328 contracts. The Non-
WEEKLY MARKET SUMMARY
13 October, 2014
reportable traders were net short 8,907 contracts, a decrease of 184 contracts. Non-Commercial
and Non-reportable combined traders held a net short position of 34,108 contracts. This
represents an increase of 1,328 contracts in the net short position held by these traders.
ENERGY COMPLEX:
November WTI Crude Oil prices began the new trading week under pressure, weighed down by
weekend headlines from Kuwait’s oil minister suggesting that OPEC was unlikely to cut output to
contend with lower pricing. Iraq was the latest member nation to cut their official selling price,
following Saudi Arabia and Iran. This seemed to provide further evidence that a price war among
the cartel was the future course, as they battle to hang onto market share. An added source of
concern hanging over the crude oil market is ideas of slowing global growth. However, the latest
trade data out of China saw a notable uptick in oil imports in September, and that could provide
the crude oil market with a source of stability. The supply side of the ledger continues to grapple
with last week’s bearish EIA data that showed a much larger than expected build in US supplies,
and combined with building global oil supplies remain another negative hanging over the crude oil
market. In the meantime, downside action in crude oil pricing has shown little concern over
reports of ISIS gaining more control of the Syrian border town of Kobani. This is a situation that
could bring the latest round of US-led airstrikes under scrutiny, and could inspire more aggressive
action to stymie ISIS. The Commitments of Traders Futures and Options report as of October 7th
for Crude Oil showed non-commercial traders were net long 299,755 contracts, a decrease of
3,324. Non-commercial and nonreportable traders combined held a net long position of 328,265
contracts, for an increase of 940 in their net long positioning. It is possible that these figures are
understated given the price decline to $83.59 after the report window closed. In the meantime,
November RBOB Gasoline prices pushed into a new low for the move to start the week and flirt
with their contract low of $2.1119. The US gasoline market continues to struggle against sharp
downside action in both WTI and Brent Crude Oil, a building supply situation and faltering
demand. The building supply backdrop was highlighted in last week’s EIA data that showed an
unexpected build in US supplies, at the same time that average demand runs more than 1%
below year-ago levels. Added to that negative outlook is a global economy that is showing
mounting evidence of slowing further. Finally, an oversold the natural gas market contends with
Tropical Storm Gonzalo that is expected to intensify into a hurricane this week. However, the
storm is expected to take a northerly track later in the week and avoid key US natural gas
operations. The market remains under pressure from US weather maps that forecast aboveaverage temperatures over the western two-thirds of the country into October 26th, and that fails
to provide any lift to heat-related demand.
BEANS:
The close under 923 1/2 turns the chart pattern bearish and leaves the soybean market
vulnerable to long liquidation selling next week. The USDA report was considered bullish against
trade expectations, so the lower close is especially negative. Yield was pegged at 47.1 bushels
per acre, as compared with trade expectations at 47.6 bushels/acre and a range of 46.9 to 48.8.
Soybean production was pegged at 3.927 billion bushels as compared with trade expectations
near 3.976 billion with a range of 3.880 to 4.104 billion. Ending stocks came in at 450 million
bushels as compared with trade expectations at 472 million. World ending stocks came in at
90.67 million tonnes vs. trade expectations at 90.76 million, and was up from 90.17 million last
month and is a record high. The trade was looking for US soybean harvested area to come in at
83.621 million acres, down from 84.058 million in the September report; the USDA did lower
WEEKLY MARKET SUMMARY
13 October, 2014
acreage to 83.4 million acres. The USDA confirmed trader suspicions of lower acreage and a
"stair-step" approach to yield. The focus could shift to weather, which looks negative, and to
reports from the field that might indicate even higher yield next month. With world supply at a
record high, finding bullish news during the weeks ahead could be difficult. A resumption of the
downtrend leaves 884 1/2 as next downside target for November Soybeans, with resistance found
at 929 1/2 and 935 1/2.
CORN:
The bullish report pushed December Corn up to the highest level since September 16th but the
sharply lower close, especially after a bullish USDA report is seen as a bearish development. The
USDA confirmed less acreage and higher demand, but the upside may have been limited by
expectations for higher yield next month. The USDA pegged corn yield at 174.2 bushels per acre,
which compares with pre-report expectations for 174.7 bushels per acre. US ending stocks came
in at 2.081 billion bushels, which was up just 79 million from last month, while traders expected
ending stocks near 2.13 billion bushels, up from 2.002 billion in September. Production was
revised up to 14.475 billion bushels as compared with trade expectations of 14.500 billion
bushels. Feed usage was adjusted up by 50 million bushels. World ending stocks came in at
190.58 million tonnes as compared with trade expectations near 192 million. Traders were looking
for a drop in US harvested area to around 83.158 million acres, down from 83.839 million in the
September report. Harvested acreage was adjusted down to 83.1 million. Finding new buyers may
be a bit difficult for next week with an active harvest period ahead. Traders will assume higher
yield next month, the weather looks drier ahead, and the corn market still needs to absorb 75% of
the harvest. December Corn resistance is at 343 1/4 and at 349 1/2. Keep 308 1/2 as the next
downside target.
WHEAT:
The USDA report was considered bullish against trade expectations, but the market gave back
much of the gains late as weakness in the other grains helped to pressure. World ending stocks
for 2014/15 were pegged at 192.59 million tonnes, compared with 196.38 million last month. In
August, the USDA estimate was 192.96 million tonnes. In the US, wheat ending stocks came in at
654 million bushels from trade expectations at 704 million with a range of 625-736 million. Feed
usage was revised higher by 15 million bushels with traders expecting a revision lower, and
exports were revised higher by 25 million bushels. World wheat production was adjusted higher by
1.17 million tonnes to a record high of 721.12 million, and feed usage was revised higher. The
report shows better than expected demand, and helps confirm that a major low may be in place at
the September lows. December Wheat support is 494 1/2, with 522 1/2 and 535 3/4 as next
resistance.
HOGS:
December hogs closed 122 lower for last Friday’s session, but managed to close 137 higher for
last week. Ideas that the hog market is in transition from tightness to more abundant supply
helped to pressure, and weakness in cattle added to the negative tone as speculators were active
sellers even with futures at a stiff discount with the CME Lean Hog Index at 110.60, which was up
14 cents from the previous session and up from 109.73 the previous week. This leaves February
hogs at a discount of 18.00 cents as compared with a discount of near 4.00 cents last year and
WEEKLY MARKET SUMMARY
13 October, 2014
the 5-year average premium of nearly 1.00 cent. Last year, the CME Lean Hog Index was near
93.00 at this time of the year before pushing down to near 80.00 by the end of the year.
The hog market has already priced-in a big break going into the first quarter. Pork production is
expected to drop just 140 million pounds from the fourth quarter to the first quarter of 2015, which
would match the smallest decline in 17 years. Last year, production fell 489 million pounds and a
250-350 million pound drop is seen as normal. Similar years were 2008, 2006, 2001, and 1998. In
2008, February hogs fell from 72 cents in the fall to 53.87 by January. In 2006, the market slid
from 68.30 in early December to 54.22 by February 2nd. In February of 2001, futures peaked at
59.92 in December and fell to 52.50 into February. In 1998, February futures were near 70 in the
fall and fell to 50.95 by February 12th.
Slaughter for the week was 2.136 million head, down 6.4% from last year while pork production
was down 4% from last year. The USDA estimated hog slaughter came in at 378,000 head Friday
and 56,000 head for Saturday. USDA pork cutout values released after the close Friday came in
at $121.35, down $1.63 from Thursday and down from $122.76 the previous week. The
Commitments of Traders reports as of October 7th showed Non-Commercial traders were net
long 85,063 contracts, a decrease of 1,582 contracts for the week and the long liquidation selling
trend is bearish. Non-Commercial and Nonreportable combined traders held a net long position of
75,050 contracts, down 742 for the week. The market is transitioning from a tight supply situation
to one which is closer to year-ago levels.
CATTLE:
Follow-through technical selling emerged to pressure the cattle market late last week after a
sweeping reversal last Thursday. December cattle closed 57 lower for the week after posting a
new all-time and contract high, and that weekly reversal is seen as a bearish technical
development. The futures markets seem to be running ahead of cash prices, and the reversals
last week could spark a sell-off to buy as cash markets will need to absorb another tightening
period into early next year.
The USDA estimated cattle slaughter came in at 100,000 head Friday and 12,000 head for
Saturday. Slaughter for the week was 562,000 head, down 7.7% from last year while beef
production was down 5.3% from last year. USDA boxed beef cutout values were up 64 cents at
mid-session Friday and closed 61 cents higher at $247.67. This was up from $238.32 the prior
week and is the highest beef market since September 15th. Cash markets traded $164-$165 in
Nebraska, up $2.00-$3.00 from the previous week while Kansas traded $164.00. For 2015, the
USDA is showing a drop of 2.3% in production to 23.8 billion pounds, but pork production is
expected to exceed beef production for the first time since 1952.
The Commitments of Traders reports as of October 7th showed Non-Commercial traders were
net long 128,254 contracts, an increase of 5,682 contracts and the buying trend is seen as a
supportive short-term force. The record net long from this group was 156,812 from April. NonCommercial and Nonreportable combined traders held a net long position of 103,536 contracts,
up 4,635 for the week. Commodity Index traders held a net long position of 88,961 contracts. This
represents a decrease of 696 contracts in the net long position held by these traders.
WEEKLY MARKET SUMMARY
13 October, 2014
COCOA:
The market has already recovered nearly half of the September through October downdraft and
may need some actual positive fundamental news to continue the advance. Last week's
consolidation pattern and inability to reach new lows left cocoa vulnerable to a rebound, but few
traders were counting on the severity of last Friday's updraft. Increased concern for an El Nino
weather event developing late this year as well as fresh fears of Ebola sparked an aggressive run
to the upside as December Cocoa closed last week’s trade with a gain of 101 points.
Furthermore, cocoa was able to gain ground in spite of a late-week recovery in the Dollar which
weighed on other commodity prices. Continued fears that Ebola will spread into Ivory Coast and
Ghana were seen as major reasons for shorts to cover going into the weekend and while there
were news headlines over a second case of Ebola in Dallas over the weekend, neither of those
two nations have reported any cases so far. The US Climate Prediction Center's upgrade of an El
Nino by the end of 2014 is gaining some traction, but a large portion of West African production
will already be harvested before it would potentially have an impact. Talk of cocoa's oversold
condition after falling 240 points in October and over 350 from the late September high helped to
fuel short-covering. There were expectations that cocoa's net spec long would see a sizable drop
in the COT update, but an over 15,000 contract decline may have been a much larger decline
than the market was counting on. The Commitments of Traders reports as of October 7th showed
non-commercial traders were net long 63,982 contracts, a decrease of 14,446 for the week and
an aggressive long liquidation trend. Non-commercial and non-reportable traders combined held a
net long of 68,957 contracts, down 15,672 for the week.
COFFEE:
The market may still need some back-and-fill type action to correct the overbought condition, but
coffee seems to have the positive fundamentals to attract significant fund and spec buying ahead.
December Coffee closed last week’s trade 1,390 points higher (or up 6.7%) and for the most part
managed to overcome a negative turnaround in the Brazilian Real. There is rain in the forecast for
Brazilian growing areas, but "when" is still a question for the market. There is still no rain with
above normal temperatures for the next five days. In addition, whether or not flowers will survive
before the rains come has also become a key question. While there have been very early
optimistic forecasts, a sub-40 million bag Brazilian crop for the 2015/16 is very much on the table
if these current weather difficulties end up causing further long-lasting damage. In addition, the
potential development of an El Nino weather event late this year could negatively impact
Vietnamese and Indonesian production. At this point, Colombia looks to be the only major coffeeproducing nation that "should" see higher upcoming output, so the market may be facing up to a
global supply deficit going forward. The Commitments of Traders reports as of October 7th
showed non-commercial traders were net long 45,953 contracts, an increase of 5,035 for the
week and the buying trend is seen as a supportive force. Non-commercial and non-reportable
traders combined held a net long position of 48,381 contracts, up 5,520 for the week. Commodity
Index traders held a net long position of 43,715 contracts, down 1,240 for the week.
COTTON:
While the USDA report was understood as supportive for the cotton market, the "big picture" still
leans bearish and harvest progress will weigh on prices. The USDA left acreage unchanged last
Friday, but took down the yield to 790 pounds per acre vs. 803 pounds last month and this was
expected by traders. Production came in at 16.26 million bales, down from 16.54 million last
month. Total use was left unchanged, but the risk going forward seems to be lower export
WEEKLY MARKET SUMMARY
13 October, 2014
demand. As a result, ending stocks fell to 4.90 million bales vs. 5.20 million last month while the
average farm price declined to 55.00 to 65.00 vs. 58.00 to 70.00 last month. On the world level,
global inventories increased once again to a new record high of 107.11 million bales vs. 106.29
million last month. Australian production declined by 0.20 million to 2.30 million bales, while Indian
production increased by 1 million to 31 million bales. Chinese imports declined by 7 million bales,
but this still looks hefty given the rhetoric out of the country pertaining to imports. Traders could
assume that another 2-3 million bales are at risk in this area. Chinese ending stocks declined to
62.16 million bales vs. 62.91 million last month. Looking ahead, last week's rally seemed to clean
out some of the new shorts in the market and fund positioning is a bit healthier as a result. The
Commitments of Traders Futures and Options report as of October 7th for Cotton showed noncommercial traders were net short 6,159 contracts, a decrease of 6,479. The Commercial traders
were net long 10,242 contracts, a decrease of 9,205. Non-commercial and non-reportable traders
combined held a net short position of 10,242 contracts, for a decrease of 9,206 in their net short
positioning. The mid-south region will see showers early in the coming week, which will delay
harvest. Texas is drier, and all growing regions of the US should begin to pick up harvest again by
late this week or early next week.
SUGAR:
Sugar saw a much quieter finish to the week after last Thursday's volatile outside-day down, but
the market was unable to shake off a negative tone from outside markets as well as the ongoing
strength of the US Dollar. The sugar market saw follow-through selling from Thursday's reversal
to close moderately lower Friday, but did manage to close 11 higher for the week in spite of being
over 60 points below Thursday's 1-month high. Talk of the overbought condition helped to
pressure, and traders also took note of the jump in the US stocks/usage ratio from 8.5% to 12.8%
in Friday's USDA Supply/Demand update that was due in part to an expected increase in Mexican
imports. A slump in the Brazilian Real was also a source of headwinds for sugar prices, as it will
make export firms from that nation more aggressive with marketing their supplies to foreign
customers. The recent drop-off in Brazilian output is helping to underpin prices, and a "wild card"
factor may be developing in Asia as a potential start to an El Nino weather event late this year
could have a negative impact on Thai sugar production. The Commitments of Traders reports as
of October 7th showed non-commercial traders were net long 13,166 contracts, an increase of
15,173 for the week which points to aggressive short-covering. Non-commercial and nonreportable traders combined held a net long position of 505 contracts. These traders have gone
from a hefty net short to a net long position as short-covering was active. Commodity Index
traders held a net long position of 278,089 contracts, down a significant 2,253 in just one week.
Please contact us at 1.877.690.7303 or via email at [email protected] for any questions or
comments on this report or would like more information about ADMIS research.
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consider whether such trading is suitable for you in light of your financial condition. This report includes information from
sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been
made and we do not guarantee its accuracy or completeness. The author of this report did not have a financial interest in
any of the contracts discussed in this report at the time the report was prepared. Any reproduction or retransmission of
this report without the express written consent of ADM Investor Services, Inc. is strictly prohibited. The information and
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Archer Daniels Midland Company. Copyright © ADM Investor Services, Inc.
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WEEKLY MARKET SUMMARY
13 October, 2014
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