Energy prices were the focus this week with oil prices up for the seventh straight day Friday breaking out to the highest levels of the year. WTI futures rose 7.56% this week, the biggest weekly gain since March. Brent was up +6.11%, Gasoline was down -1.93% and heating oil down -4.73% giving back some of last week’s gain on the Marathon refinery fire. Lumber gave back another 2%. Oats gave back 2% of last week’s rally 8%. Precious metals were mixed with gold up slightly and silver down a tad as yields barely pulled back.

We have demand issues in many commodities but also eyes on the weather with drought and war conditions affecting individual commodities. Wheat fell another 4.7% with Russia’s increased production.

Week Ending September 1, 2023

Commodities

Weekly Commodity Highlights

Why Interest Rates Matter to Commodity Prices

With the surge interest rates and tightening of credit it has only significantly more expensive to finance commodity trade. The 2-yr note yield fell five basis points to 4.51% but remains significantly higher on the year. This from McKinsey in January has got infinitely more difficult:

“High interest rates, volatile prices and the war in Ukraine have made it significantly more expensive to finance commodity trade, forcing the industry to hunt for an extra $300bn to $500bn in working capital to keep raw materials moving around the world. Changing trade patterns have made the global flow of raw materials less efficient and more costly to finance and are also likely to push up the price of commodities for consumers, according to… McKinsey. ‘Since the end of 2020, we have seen a doubling of the working capital requirements in the commodity trading sector,’ said Roland Rechtsteiner, McKinsey partner and lead author of the report. ‘We could see a similar increase by the end of next year, if [further] changes in trade flows materialize.’”

January 29 – Financial Times (Leslie Hook)

The 2-yr note yield declined 21 basis points this week to 4.73% while the 10-yr note yield fell 23 basis points to 3.82%. There could be residual activity around the week’s inflation reports before PCE lands post the next Fed meeting. The strong data and inflation falling is buoying the view that the economy will avoid a hard landing and that the Fed is close to being done raising interest rates.

Sovereign yields were lower and led by US 2s decline post-CPI and a cumulative ½% lower since the July 6th peak and toward where they were three weeks ago. The lower yields pressured on the dollar this week, as the ECB and Bank of England are seen as having further to go with their rate-hike cycles.

COT on Commodities

Money managers in commodities covering the week to Aug 22: Showed broad selling reducing the gross long by 36k contracts while the gross short jumped 98k. Crude oil selling accelerated driven by long liquidation in Brent and fresh short selling in WTI. Elsewhere gold length was cut 45% to a March low at 26k, silver flipped back to a net long while copper short covering cut the net short by 17%. The agriculture sector remained under selling pressure, led by corn, wheat, coffee, cotton and cattle. via Ole S Hansen @Ole_S_Hansen

Metals

Copper

Highlights

• December copper at $3.85 a pound, up for the week 2.4%, traded at highest level since August 10th.
• Both LME and Shanghai copper warehouse stocks increased overnight with LME copper warehouse stocks building for 6 straight sessions and increasing in 32 out of the last 35 sessions.
• News that a top European copper producer has suffered losses in the hundreds of millions of euros from what appears to be a scam.
• Chile announced its July year-over-year copper production increased by nearly 1%.
• Fear of softening Chinese copper consumption has been facilitated following disappointing Chinese economic data, renewed concerns of collapse in the Chinese property development sector and from escalating retaliatory trade restrictions flowing from both Chinese and US officials.
• August 7 – Bloomberg: “Chinese copper inventories are nearing critical levels, according to Goldman Sachs…, suggesting that supply constraints could become more influential in driving prices given that the bulk of global stockpiles are held in China. China’s stockpiles of refined metal are at a record low in terms of demand cover, accounting for just four days of usage versus an average of eight days last year, the bank said… Goldman called that position ‘extreme’ and said the sharply lower growth rate in the supply of mined copper could worsen the situation further.”
• Freeport McMoRan CEO suggested last month that demand for copper is much stronger than what classic economic indicators signal, and he also indicated that without significantly higher copper prices, expanding supply to meet demand for the clean energy revolution will be extremely difficult.

• Copper market focus is nearly always locked onto China and its copper demand prospects and until Chinese infrastructure specific stimulus programs are announced expect copper to back and fill on the charts.

Copper is the third most widely used industrial metal worldwide, and China is the largest consumer of the metal, accounting for more than 50% of the global consumption.

• Another internal headwind, the Congo became the 2nd biggest copper exporter replacing Peru as that diversifies supply flow away from South America.
• China imported 407,294 tonnes of copper in April, a 12.5% reduction compared to the corresponding period of the previous year. Still, tight limited a steeper decline.
• Talk of oversupply of nickel and zinc ahead creates bearish headwinds for copper prices, but that news is offset by weekly declines in Shanghai aluminum and lead supplies.
• Chile’s state-owned Codelco said the output in 2023 is estimated to sink as much as 7% after the 10.6% decline in 2022.
• The copper trade is concerned the US will implement fresh sanctions against China and tensions between the US and China could drift toward trade war status.
• Demand favors the bull camp and supply factors favor the bear camp.

Technical

Copper followed through with its break to the upside out of the pennant through the 50wma after it rebounded sharply off the tenkan and failed three times there in the past month. A bullish weekly hammer formed on copper prices, suggesting demand above $4.00. Rebounding from the two-week low of $3.98 touched on April 4th. The flattening Weekly Kijun acted as a magnet with the cloud twist. We closed right at the bottom of the previous bull flag from 2021. Copper had been a leader in the risk on movement for commodities.

Precious Metals

• Gold futures for December delivery settled $1,967.10 an ounce on Comex after trading as high as $1,980.20. For the week, prices were 1.4% higher after posting an August loss of more than 2%.
• December silver at $24.56 an ounce, settling nearly 1/4% higher for the week.
• December copper at $3.85 a pound, up for the week 2.4%.
• October platinum $968.70 an ounce, with prices up 2.2% for the week
• December palladium $1,227.40 an ounce, for a weekly fall of 0.1%

Platinum

• October platinum $968.70 an ounce, with prices up 2.2% for the week
• December palladium $1,227.40 an ounce, for a weekly fall of 0.1%
• Investors have turned away from platinum, with ETF holdings recently posting large outflows and reducing the year-to-date increase. Given the massive washouts in platinum and palladium this week, it is likely that palladium has finally capitulated with a major range down failure to fresh contract lows this morning. Like gold and silver, without positive Chinese economic prospects and a return to risk-on sentiment, the bear camp holds firm control.

“The World Platinum Investment Council raised its 2023 forecast deficit for platinum to a record high as investors bet on the metal’s supply declining. Platinum consumption will outstrip supply by 983,000 ounces in 2023, WPIC wrote in its quarterly report… That would be the biggest shortfall in records going back to the 1970s, and compares with a deficit of 556,000 ounces the council projected in March.”

May 14 – Bloomberg (Eddie Spence):

Gold

Highlights

• Gold futures for December were up 1.4% for the week, after posting an August loss of more than 2%. Friday settles at $1,967.10 an ounce on Comex after trading as high as $1,980.20.
• Gold futures trended lower since July 20 but made a bottom on August 21. Much of the weakness was linked to a strong U.S. dollar and continued hawkish comments from Federal Reserve officials.
• Gold ETF holdings saw another inflow Thursday of 31,603 ounces, while silver ETF holdings saw another large outflow of 3.2 million ounces.
• Gold ETF holdings year-to-date are down 4.2% while silver ETF holdings year-to-date are down 4.4%.
• Gold and other physical commodities got support Friday from interest rate cuts at 5 of China’s largest banks and from the Chinese central bank reduction on the amount of cash reserves required at Chinese foreign exchange banks.
• Gold has work to do after it’s much heralded rally over $2000 has given back. It started back in the first half of March, and from a technical viewpoint this puts it in a consolidating or bearish posture. The banking crisis has eased, but it has not gone away entirely, and the pressure to raise rates seems to be softening, despite concerns expressed by Fed members that inflation is still too strong.
• Gold surged to $2,072.19 early in May, just shy of its record high of $2,072.49, following the Fed’s hint that its hiking cycle may be ending.
• World Gold Council also indicated that global gold demand fell in the first quarter of 2023 despite strong ongoing central bank demand. First quarter gold demand fell by 13% compared to year ago levels and that contraction would have been very severe if central bank purchases of 228 tons were not registered.
• Goldman earlier in March labeled gold as “the” investment hedge of preference and predicting gold to trade to $2050.
• Gold is highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion and vice versa.

Technical

Gold futures successfully back tested the median after another rejection at the Tenkan (orange) moved towards the flat cloud and twist. Needs to get impulse off this ABC so double bottom gains more weight and it follows silver break higher. The yellow metal is consolidating after it accelerated after breaking the weekly triangle higher. Gold has bounced after support at its uptrend line since the August 2021 bottom and Kijun. To be bullish we need to stay above the triangle. Murrey Math resistance, watch Fibs & Chikou.

PBOC Buying Gold

• “China raised its gold reserves for a ninth straight month in July as central bank purchases continue to underpin prices of the precious metal. Bullion held by the People’s Bank of China rose by 740,000 troy ounces… That’s equivalent to about 23 tons. Total stockpiles now sit at 2,137 tons, with around 188 tons added in a run of purchases that began in November.” Bloomberg
• China added to its gold reserves for an eighth consecutive month. People’s Bank of China holdings of bullion rose by 680,000 troy ounces last month, according to official data released Friday. That’s equivalent to 23 tons.
• Total stockpiles now sit at 2,330 tons, with around 183 tons added in the run of buying from November. China has been an enthusiastic buyer of gold, partly due to its desire to chip away at the dominance of the dollar in global market.
• China added to its gold reserves for a sixth straight month, China raised its gold holdings by about 8.09 tons in April, according to data from the State Administration of Foreign Exchange on Sunday. Total stockpiles now sit at about 2,076 tons, after the nation increased reserves by about 120 tons in the five months through March.
• China’s end-April foreign currency reserves rose to $3.2048 trillion, up by $20.9 billion from the month before, the data showed. Rise in the foreign-exchange reserves was a result of US dollar depreciation and rise in global financial asset prices, the foreign-exchange regulator said in a statement.
• The People’s Bank of China raised its holdings by about 18 tons in March. Total stockpiles now sit at about 2,068 tons, after growing by about 102 tons in the four months before March. Nations have been building up stockpiles of bullion amid heightened geopolitical risks and high inflation. – Bloomberg April 7
• PBOC in December added to its gold reserves for a second straight month, adding 30 tonnes of gold worth. Brings China’s holdings to a total of 2,010 tons.
• PBOC in November added 32 tonnes of gold worth around $1.8 billion to its reserves, the first time it has disclosed an increase since September 2019.
• China has the world’s sixth-largest official national gold reserves after countries including Russia, Germany and the United States, which is the biggest with 8,133.5 tonnes
• The World Gold Council (WGC) said in October that central banks globally bought 399 tonnes of gold in the third quarter of 2022, by far the most ever in a single three-month period.

Silver

Highlights

• December silver at $24.56 an ounce, settling nearly 1/4% higher for the week.
• Silver ETF holdings saw another large outflow of 3.2 million ounces, while silver ETF holdings year-to-date are down 4.4%.
• Gold and other physical commodities got support Friday from interest rate cuts at 5 of China’s largest banks and from the Chinese central bank reduction on the amount of cash reserves required at Chinese foreign exchange banks.
• The silver market has not seen distinctly positive physical/industrial demand news for quite some time, a Bloomberg article overnight predicts significant tightening in the silver market because of a surge in demand from the manufacture of solar products.
• Unfortunately for the bull camp, consistent gains in gold and silver only look to be the result of a single bullish theme (dollar weakness) and therefore gains could be hard-fought.
• Both gold and silver are facing demand headwinds from signs Investors continue to step away from gold and silver.

Technical

Silver bounced off the bottom trend line and was energizes in the sphere of influence. Back over 50wma after spitting tenkan, now providing support after reversed. Closing under outer channel which is now resistance. Major support is 50wma and tenkan.

Industrial Metals

“McKinsey & Co. joined the growing chorus warning that metals considered key to the clean-energy transition face shortages in coming years, potentially suppressing the adoption of electric cars, wind turbines and solar panels. These deficits likely will slow global decarbonization efforts by raising supply-chain costs and, consequently, the prices of lower-carbon products, McKinsey said…”

July 5 – Bloomberg (Lars Mucklejohnrons)

The London Metal Exchange at the end of 2022 showed the smallest available warehouse stockpiles in at least 25 years. Available inventories of aluminum fell 72% decline, zinc shrank by 90%.

“After a substantial stretch when battery makers were desperate for mineral supplies, the shoe is suddenly on the other foot. In the past few months, previously red hot cobalt and lithium prices have cooled dramatically. The chill is coming from both sides: supply and demand. Supply bottlenecks are easing while China’s demand for electric vehicles, and global demand for many consumer electronics, have ebbed as well. Cobalt has fallen out of favor the most: prices in February were down 61% from January last year… Lithium carbonate prices rose rapidly for most of last year, but the metal has seen a sharp correction of 21% since November. China’s EV subsidy cut in December is a big factor…”

February 28 – Wall Street Journal (Megha Mandavia)

Aluminum

Highlights

• Alcoa released its second-quarter earnings as global aluminum prices continue a pullback. The largest US producer has seen shares drop 24% this year amid weak fundamentals.
• Aluminum consumption lagged due to sluggish recovery from China, the world’s biggest metals user.
• Investors will be focused on Alcoa’s latest forecast on aluminum shipments, as well as any commentary Chief Executive Officer Roy Harvey may have regarding a buildup of worldwide metal stockpiles coming from Russia. Harvey in April warned that Russian-origin metal threatened to distort the global benchmark price as more customers refuse to take delivery of it in the wake of the nation’s ongoing conflict with Ukraine.
• The aluminium ingot social inventories across China’s eight major markets stood at 595,000 mt as of June 1, down 62,000 mt from a week ago and 287,000 mt from a year ago. The destocking was led by south China, where cargo arrivals continued to decline and consumption picked up a little. Arrivals in Wuxi fell as much as 20-30%, driving down local stocks rapidly. Limited arrivals and improved consumption allowed stocks in Gongyi to fall after building up in the previous week.
• China’s annual aluminum production in 2022 increased by 4.5% from a year earlier to a record high of 40.21 million tonnes thanks to newly launched capacity and softened power supply constraints. 
• On the supply side, last year’s output cuts at key European smelters, including Alcoa’s San Ciprian smelter and Hydro’s plant in Slovakia, lent further optimism to bulls.

• Aluminum hit an all-time high of around 4,100 USD/T in March 2022 in the aftermath of Russia’s invasion of Ukraine. Aluminum is down roughly 40% from that record high in March amid persistent fears of a demand-sapping global recession triggered by an aggressive tightening campaign from major central banks.
• In 2022 Aluminum and zinc on the LME had their worst year since 2018, with prices down 15% and 16%, respectively.
• Tin was the worst performer, falling by more than a third and registered the biggest annual decline since at least 1990.
• The world’s top aluminium producer, China’s primary aluminium production in November climbed 9.4% from a year earlier with 3.41 million tonnes as looser power restrictions allowed some regions to ramp up output and as new smelters started operation.
• China is the biggest producer, accounting for 60% of production, followed by Russia and then Europe and the U.S.
• On the supply side, LME has decided against banning Russian metal from trading and storing in its warehouses because many traders are still planning to buy the metal in 2023.
• The car industry is the world’s largest aluminum consumer, with nearly 67 million vehicles per year, according to SkyQuest.

Technical (Alcoa)

We analyze Alcoa as a surrogate to Aluminum given its high beta relationship and more liquid aspect as an investment vehicle. $AA retested the 50Wma and 50% confluence after earnings. From there the Chikou rebalanced it closed under the tenkan. We have support below at 0/8 sphere of influence under the tenkan confluence.

Tin

“Tin jumped the most in nine months after a key mining region in Myanmar, the world’s third-biggest supplier, moved to curtail digging of the material used in electronics and cans. An economic planning committee in a northern area of the country controlled by the United Wa State Army — Myanmar’s largest ethnic armed organization — ordered a general halt to mining operations…”

April 17 – Bloomberg:

Agricultural Commodities

Orange Juice

• The move is in line with FLOJ being the third best performing commodity in the first half of the year, up nearly 25% first half of the year, they were up 30.8% in the first quarter.
• The reason is supply, the U.S. Department of Agriculture estimates Florida production will fall to only 15.65 million boxes of oranges this season.
• In the 2021-2022 season Florida growers produced 41.2 million boxes. For perspective twenty years ago, the average output for the state was around 200 million boxes.
• The region was hit back-to-back hurricanes Ian and Nicole last fall and a citrus greening disease. A hard freeze in January only exacerbated the issue.

Some background:

Rice

“From China to the U.S. to the European Union, rice production is falling and driving up prices for more than 3.5 billion people across the globe, particularly in Asia-Pacific – which consumes 90% of the world’s rice. The global rice market is set to log its largest shortfall in two decades in 2023, according to Fitch Solutions. And a deficit of this magnitude for one of the world’s most cultivated grains will hurt major importers, analysts told CNBC. ‘At the global level, the most evident impact of the global rice deficit has been, and still is, decade-high rice prices,’ Fitch Solutions’… Charles Hart said.”

April 18 – CNBC (Lee Ying Shan)

Lumber

Lumber prices are a leading indicator for the strength of the home building industry. They were a leading indicator of the supply-chain problems and inflation that followed pandemic lockdowns.

Highlights

• Lumber futures dipped below $490 per thousand feet, as investors took a pause after a nearly 10% rally in June that pushed prices to their highest level in five months.
• Traders expressed concerns that prospects of interest rate hikes continued to depress real estate activity. Stubbornly high inflation and a tight labor market have raised worries that the Federal Reserve will keep rates elevated even after the recent turmoil in the banking sector.
• Supply disruptions caused by wildfires in Canada, previous production cutbacks in British Columbia during a period of low lumber prices, and a slowdown in European wood shipments to the US are expected to provide some support to the market.
• Fundamentals in the lumber complex had supported tight supplies and prospects of a rebound in-home construction and demand recovery.
• The legacy benchmark fell roughly 80% since its May 2021 peak of around $1,700, when supply chain issues compounded strong demand when it went off the board at $344.
• Worth noting that before 2018, the price never eclipsed $493.50.
• In January 2023, nearby March random-length lumber futures were sitting at the $417.70 level, with the new physical futures at $525.00.
• In March 2020, random-length lumber futures fell to $251.50 per 1,000 board feet as the global pandemic gripped markets across all asset classes. When commodities exploded higher over the following months lumber rose to $1,711.20 as supply chain and other issues created a shortage. In an almost perfect bullish storm for the lumber market, historically low interest rates caused a housing boom, increasing the demand for lumber when supplies were low. 
• The Federal Reserve’s aggressive tightening cycle pushed 30-year mortgage rates to levels not seen since 2001, leading to slower home construction and souring sentiment among homebuilders.
• The war in Ukraine and the tightening sanctions against Russia and its ally Belarus, which account for more than 10% of the global export of lumber, had squeezed global supplies.

The CME replaced the random length with the physical futures, but they have yet to achieve the critical mass necessary for success. On the final day the old futures contract— ticker LB—traded 12 times adding $5 per thousand board feet to end, forever, at $344, about 80% lower than the peak price notched in 2021. The outgoing futures, which represent a railcar full of two-by-fours delivered to the British Columbia interior, are being replaced by a contract—ticker LBR— that sends a truck’s worth of wood to Chicago. The plan is intended to boost trading from untradeable thin and reduce wild price swings and improve the contract as the barometer of wood prices and building activity.

The existing legacy contract is freight on board (FOB) originating in Prince George, BC. It’s a reflection of the mill price of western spruce pine fir lumber, which legacy 110,000 board feet futures contract is derived from. The new mini lumber is FOB Chicago, so the premium of $105 represents the additional from delivering to the mill in Chicago. That’s the reason the premium in the mini. Secondly, the new contract has the ability for producers to deliver western SPF, eastern SPF, domestic and Canadian Doug Fir, and U.S. Hem Fir. Depending on the species and delivering mill, the FOB is anywhere from $80 to $105 premium to the legacy contract delivered to Chicago. Lastly, the new contract is sunset out of existence with the official and permanent expiration on May 15, 2023. – Greg Kuta, the President of Westline Capital Strategies,

Grains

Russia will return to grain deal only if its conditions are met, Lavrov tells UN chief.

Russia will return to the Black Sea grain deal only if the West fulfils its obligations to Moscow, Russian Foreign Minister Sergei Lavrov told U.N. Secretary-General Antonio Guterres on Thursday Aug 24

“In response to a question from the U.N. Secretary-General about the prospects for resuming the “Black Sea initiative”, Sergei Lavrov reiterated Moscow’s position…about its readiness to return to participation in it only if all obligations to the Russian side are actually fulfilled,” the Russian foreign ministry said.

Wheat

Highlights

This Week:

• Chicago wheat futures dropped this week from a high near 6.28 to a low near 5.96. Pick up in north hemisphere harvest offered resistance.
• There was talk that Russia wheat crop could exceed 90 mmt and exports could be a new record of 50 mmt vs 46 last year.
• US south plains weather remains mostly dry for planting of the 2024 winter wheat crop. Early in the week weather forecast suggested rains for NE, KS and MO. Friday the rains were forecasted only in MO.
• US wheat export commit is down 23 percent from last year.
• USDA est World wheat crop near 793 mmr vs 790 last year.
• Exports are estimated near 209 mmt vs 218 last year. This leaves a carryout of 265 mmt versus 268 last year.
• US exports are estimated at 19 mmt or only 9 pct.

Prior Weeks:

US WASDE End Stocks August:

WASDE Corn End Stocks Aug: 2202M (exp 2170M; prev 2262M)

WASDE Soybean End Stocks Aug: 245M (exp 262M; prev 300M)

WASDE Cotton End Stocks Aug: 3.10M (exp 3.50M; prev 3.80M)

WASDE Wheat End Stocks Aug: 615M (exp 600 M; prev 592M)

Yield

🌽Corn 175.1 (-2.4)
🌱Soybeans 50.9 (-1.1)
🌾Wheat 49.8 (+0.2)

Ending Stocks

🌽Corn -60 Million bushels
🌱Soybeans -55 Million bushels
🌾Wheat +23 million bushels

• Russia lowered their export tax to 3,729 roubles per mt from 4,270 for the period ending Sept 5th.
• Taiwan bought 104k mt of US milling wheat at various prices for Oct shipment.
• Russian Pres. Putin and the Turkish leader are scheduled to have an in person meeting soon to discuss a variety of issues including Russia’s possible return to the Black Sea Grain Initiative.
• Domestic wheat prices in India continue to surge despite talks of 7-9 mmt imports from Russia via direct govt-to-govt negotiations.
• Friday a US State Dept official said they believe there are viable overland and territorial water routes for Ukrainian grain exports.
• Winter wheat production was increased 21 mil. bu. to 1.227 bil. roughly 17 mil. above expectations. By class production was HRW – 585 mil. up 8 mil., SRW – 440 mil. up 18 mil. and white – 202 mil. down 5 mil.
• Spring wheat production was cut 29 mil. bu. to 450 mil., just above my models forecast of 456 mil. All wheat production at 1.734 bil. was in line with expectations.
• Exports were cut 25 mil. bu. to 700 mil. resulting in ending stocks rising 23 mil. bu. to 615 mil., 20 mil. above expectations.
• Global 2022/23 ending stocks slipped 1 mmt to 268.3 mmt. 2023/24 global stocks slipped 1 mmt to 265.6 mmt, in line with expectations. Noted global production changes were China down 3 mmt to 137 mmt, Canada down 2 mmt to 33 mmt, and Ukraine up 3.5 mmt to 21.5 mmt.
• USDA data is viewed as slightly friendly MGEX wheat, while neutral to slightly negative Chicago and KC. So far Ukraine has been able to harvest 17.7 mmt of wheat, while barley harvest is nearly 5 mmt as of Aug. 10th.
• The US FAS estimates EU wheat production at 134.6 mmt, vs. the official USDA forecast of 138 mmt. Ukraine’s wheat harvest volume has so far reached 12.5 mmt.
• India’s food secretary acknowledge they were considering lowering or eliminating their wheat import tax, they currently have no plans to import wheat from Russia.
• SovEcon had raised their Russian production forecast .3 mmt to 87.1 mmt, vs. the USDA forecast of 85 mmt.
• The Ukrainian Ag. Ministry est. grain harvest has reached 11 mmt, of which 8 mmt has been wheat.
• Russia has declared buyers of Russian grain will need to pay in rouble’s instead of US$.
• Russia’s Ag. Ministry also claims their wheat exports to African nations in the first half of 2023 has tripled to 9 mmt. Russian Pres. Putin continues to pledge support by providing free grain to several African nations.
• Tunisia, which is already a major wheat importer, agriculture ministry said its grain harvest is down 60% this season. The North African nation primarily produces durum wheat but has faced severe hot, dry conditions earlier this year.
• This month’s USDA Stocks and Acreage report was a shocker with huge acreage changes in corn and beans and a more minor increase in acres for all wheat, up over 900,000 from the March Intentions report. Most of the increase was in Spring wheat, which was up 500,000 from March Intentions and will put some pressure on Minn compared to KC and Chicago, especially if spring conditions improve a few percent this afternoon as expected.

Technical

Wheat spat the 50wma hard and has followed up with a dead cat bounce that failed at the Tenkan. Resistance at the tenkan and Kijun with the 50 and 61.8% Fibs above. It had been drawn higher by the flat weekly cloud which unraveled the shorts which when done we sailed back through -1/8 like butter. The contract keeps failing to stabilize after it continued its sharp impulsive collapse. This came about after a failure at retesting the 8/8 move and high after it spat 8/8, and the minimum target. It had completed a measured 4/8 correction off highs then broke key support at 38% then 50% and 50wma confluence in the freefall.

Corn

Highlights

This Week:

• Corn futures dropped this week from a high near 4.97 to a low near 4.77.
• Managed funds continue to add to net short going into US harvest.
• Record Brazil corn exports continue to reduce demand for US exports.
• Hot and dry US Midwest weather has not attracted new speculative buying.
• Some fear the US 2023/24 corn demand will not increase from 2023/24 and could suggest a yield near 170 would not be bullish.
• US new crop export commit is running 5 pct below last year.
• Brazil could see lower planted acres due to lower projected farm income and higher cost.
• Matif corn is near 2 weeks low and weekly close could be the lowest since that start of the Ukraine war.
• Low US Mississippi river and Panama canal river levels could slow grain movement.

Prior News:

WASDE August Forecast:

U.S. Department of Agriculture reported export data for July 13. U.S. exporters had sold 4.5 million tonnes of corn for delivery in 2023-24. The lowest for the date since 2019, ahead of 2019-20.

That covers only 8% of USDA’s 2023-24 U.S. corn export forecast of 53.3 million tonnes (2.1 billion bushels), below the five-year average of 13%. That average is skewed upward by the latest three years when China was heavily buying and includes 25% coverage by this date in 2021. via Reuters

• Canada stated that they have joined the US is their dispute with Mexico regarding Mexico’s proposed ban on GMO corn imports.
• Russia lowered their corn export tax to 1,932 roubles/mt, down from 2,495.
• In August, the USDA raised the U.S. 2022/23 corn carryout 55 mil bu. to 1.457 bil. bu. as a result of lower exports, FSI usage and a modest 10 mil. bu. increase in imports.
• 2023 production was cut 209 mil. bu. to 15.111 bil. as the average national yield was cut by 2.4 bpa to 175.1.
• New crop usage was cut 95 mil. bu. with exports down 50 mil., feed down 25 mil., while FSI was cut 20 mil. Ending stocks at just over 2.2 bil. were slightly above expectations.
• World stocks for 2022/23 were 1.6 mmt to 297.9 mmt.
• Brazil’s production was increased another 2 mmt to 135 mmt. Global 2023/24 ending stocks declined 3 mmt to 311.1 mmt, vs. expectations of holding steady.
• 2023 production in Ukraine was increased 2.5 mmt to 27.5 mmt, which was offset by a 3.7 mmt reduction in the EU and a 3 mmt reduction in China.
• Mexico is the top U.S. corn buyer and is No. 2 in soybeans, but top soy customer China has been dragging its feet as Brazil’s record soy harvest continues arriving at Chinese ports.
• “China’s recent lack of participation in U.S. corn trade is stark but unsurprising given China entered Brazil’s corn market late last year. China has 272,000 tonnes of new-crop U.S. corn booked for 2023-24 compared with nearly 3 million tonnes on the same dates in 2020 and 2022 and 10.7 million in 2021.” Reuters
• No. 3 U.S. corn buyer Japan has purchased 746,000 tonnes of new-crop corn, near the recent average for the date, though standard customers Colombia and South Korea have nothing.
• Canada has bought nearly 300,000 tonnes of new-crop U.S. corn so far, a record for mid-July.

Technical

Corn flew right to the 50wma with all that energy built from the double bottom and penetration of the tenkan and Kijun. From there we saw an almighty spit as it was thwarted under the 7/8 fail under the weekly cloud. Spot corn has closed a gap on the weekly chart. Next support is its 3/8 around $4.80. Dec-23 blew through the previous bottom near $5.85, the midpoint between last summer’s contract high and the May low.

Earlier in the year Corn had topped out at the highest since 2012 in Chicago at +1/8 and corrected with impulse back to break the Tenkan which it swiftly did a spit of a spit after bouncing off 720, which also the price successfully retested the high from April 2021.

Soybeans

Highlights

This Week:

• Soybean futures dropped this week from a high near 14.09 to a low near 13.69.
• Some feel that late season rains could help US yield. On Thursday, GFS weather model suggested good rains across the Midwest in the second week of the forecast. Friday the GFS suggest 50 pct coverage of .30-1.00 inch of rain favoring the east. EU weather model suggest 35 pct coverage of .25-.75 inches again favoring the east.
• US soybean export commit is down 24 pct from last year and the lowest in 4 seasons.
• Brazil north and central weather is dry as farmers start planting the 2024 crop.
• USDA announced another 132 mt of soybeans sold to China.
• China 5 largest Banks cut their interest rates to help support their economy. This could help China economy and commodity imports.
• EIA data suggested that US renewable diesel production capacity has doubled versus last year. US Jan -June US biodiesel feedstocks were near 6.7 mmt vs 5.1 last year, Soyoil 2.7 vs 2.2. Used waste 1.6 vs 1.2 and canola .7 vs .2.
• Global stocks for 2022/23 were steady at 103.1 mmt, in line with expectations. 2023/24 global stocks are expected to rise to 119.4 mmt, down 1.6 mmt from July.
• Chinese imports for 2022/23 were increased 1 mmt to 100 mmt. Pretty neutral all around for soybeans with another 4 – 6 weeks of weather to monitor.

Prior Weeks:

August WASDE Forecast

U.S. Department of Agriculture reported export data for July 13. U.S. exporters had sold 4.9 million tonnes of soybeans for delivery in 2023-24. The lowest for the date since 2019, ahead of 2019-20.

New-crop soybean sales account for 10% of USDA’s 2023-24 export target of 50.35 million tonnes (1.85 billion bushels). The five-year average is 16% and is skewed by last year’s 24% as buyers scrambled to secure U.S. supply amid historic drought-related losses in Brazil. via Reuters

• Mexico is the No. 2 U.S. soybeans buyer, but top soy customer China has been dragging its feet as Brazil’s record soy harvest continues arriving at Chinese ports.
• China had purchased 1.87 million tonnes of new-crop U.S. soybeans, the lowest mid-July, non-trade-war-year volume in at least 16 years. Soy sales to unknown destinations, often presumed to be China, are also well below average at 1.6 million tonnes, similar to the same date in 2017.
• Brazilian Pres. Lula met with Chinese leader Xi in Beijing last month. In a joint statement the 2 countries acknowledge that cooperation in agricultural trade is strategically significant. Both sides pledged to promote agriculture, trade, and supply chain resiliency while also working to strengthen environmental protections to deal with climate change.

Technical

Beans have rallied hard off the spit of that channel as marked. July-23 soybeans surged thru its 100 day MA, trading up to a 2-month high. It spat $14.71, the 100-week MA. Spot soybeans have surged nearly $2 off last month’s low. Energy has been built after soybeans rejected new lows at the bottom of trendline finally got the legs to break above the 50wma, however that has all unraveled and clearly after the fall got the market short on exhaustive selling and here, we are back under said 50wma. The weekly cloud and Murray mingle around the $14.9/bushel benchmark.

Recall beans broke down from the bull pennant framed by +4/8 and +1/8 with the Kijun unable to sustain support right at the breakout. Support at the 50wma gave way to under the futures pivot at $15/bushel benchmarks and at the close of the week was a magnet to the recovery bounce. Pressure came from futures spitting the Weekly +4/8 over $17.50/bushel three times. The market needs to rebalance that energy.

Energy

For complete Oil and Natural Gas Coverage please visit our dedicated publications ‘Around the Barrel’ and ‘Into the Vortex.’ – Weekly Analysis and Outlook for Energy Traders and Investors

The energy complex closed the week with WTI futures up 2.78% for the week after rising 4.55% the week prior. Gasoline -3.59% after rising 5.12% the week prior, Brent rose +2.00% after rising +4.69% the week prior, and heating oil rose +3.81% after rising +7.75% the week prior. (Prices w/w at 16:00 ET close)

Crude oil futures continued their move higher at week’s end after it bounced off its 50-day moving average (71.29) last week towards resistance from near its 200-day moving average (77.18).

BDI Freight Index

For a Complete Macro and Micro Market Overview Visit TC Traders Market Weekly:

Five Factors in a Constructive Strategy for Investing in Commodities

Investing in commodities is something that needs to be done within a constructive strategy to understands risks and opportunity. There are many factors to consider individually depending on one’s access, location and financial position. Five factors to consider are monitoring the market, monitoring supply and demand dynamics, diversification, long-term focus and dollar cost averaging.

Focus on yourself and what YOU CAN INFLUENCE, set your trading plan and goals in be set for 2023.

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