Commodity Traders Outlook: Oats and Silver Prices Rally, Wheat and Lumber Fall

Another week of volatility in commodity markets as China’s weakness dampens demand expectations. WTI and Brent crude oil futures were down again however heating oil and gasoline were sharply higher with the Marathon refinery fire a risk to supplies. Lumber gave back 3% of last week’s 8% rally. We have demand issues in many commodities but also eyes on the weather with drought and war conditions affecting individual commodities. Oats rose over 8%, taking Dec back above the $5 mark for the first time in the contract since June 30 2022. Precious metals are lagging with the higher yields & US dollar.

Futures Volatility

Week Ending August 25, 2023


Commodities

Weekly Commodity Highlights

W/E 8 25 2023

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.

The bulk of the commodities in the BCOM Index (weight > 2.5%) trade in a price supportive backwardation. The dotted line reflects the 1 year financing cost, the reason gold is tracking that level closely @Ole_S_Hansen

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

  • Copper for September delivery HGU23 rose by 1 cent, or 0.3%, and settled at $3.78 per pound.
  • LME copper warehouse stocks continue to rise consistently which continues to erode the tight supply argument which was the primary basis for the copper rally last fall and early winter.
  • 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.”
  • Inflow to both LME and Shanghai copper warehouse stocks. However, with China announcing a stimulus plan intended to stimulate sales of automobiles and electronics, the copper trade has likely found some measure of speculative buying.
  • Freeport McMoRan CEO suggested 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 sees a fresh low in exchange monitored warehouse stocks. Down 7k tons on the week to 237k tons, a 39% YoY decline and lowest since December @Ole_S_Hansen
  • Copper market was significantly overbought from the late May to early June rally of $0.40 and lingering disappointment with respect to the Chinese recovery.
  • 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.
In the three weeks to June 20, speculators bought 46k lots of copper. The fastest pace of buying since Dec 2019 driven by China stimulus hopes, falling stocks and a break above the 200DMA before being forced to reduce on Friday when the metal suffered a 2.1% loss.

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.
  • “Widespread anti-government protests are disrupting copper output in Peru, the world’s second-biggest producer, triggering predictions of a further surge in prices for the metal which has already rocketed in recent months as China’s resource-hungry economy reopens. Demonstrators demanding early elections and the resignation of President Dina Boluarte have thrown up roadblocks across the country and attacked mines, causing production slowdowns and closures in the Latin American nation’s copper operations, which account for about 10% of global supply.” February 7 – Financial Times (Joe Parkin Daniels and Harry Dempsey)
via Reuters
  • Commodity trader Trafigura and Goldman Sachs last year both warned that global copper stocks have fallen to record lows with current inventories enough to supply world consumption for just 4.9 days
  • Analysts at Goldman Sachs Group Inc. predicted copper will hit a record high of $11,000 a ton within 12 months, while BNP Paribas says prices will drop to $6,465 a ton by the middle of next year as the market swings into a huge surplus.
  • Glencore estimated a supply shortfall of 50 million tonnes in 2023.

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.

Weekly Copper Outlook
Copper Supply Crunch

Precious Metals

  • Gold futures for December delivery fell by $7.20, or 0.4% Friday to settle at $1,939.90 per ounce on Comex, marking a back-to-back loss after a brief string of gains, Dow Jones Market Data show. Gold prices from logging their first weekly gain after four straight weeks of losses.
  • Silver futures for September delivery SI00 gained 35 cents, or 1.5% Friday to settle at $24.58 per ounce after rising 4% Wednesday.
  • October platinum PL00 rose by $5.20, or 0.6%, to settle at $948 per ounce
  • Palladium for September delivery PA00 declined by $15.50, or 1.3%, to $1,229 per ounce.

Platinum

  • October platinum PL00 rose by $5.20, or 0.6%, to settle at $948 per ounce
  • 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

Four weeks of ETF selling accelerated last month when holdings were cut by 17 tons, the most since November, reducing total holdings to a three-month low at 2899 tons. Another peak rate delay following Powell’s testimony driving XAUUSD below support towards $1900 via Ole S Hansen @Ole_S_Hansen

Global gold ETFs net inflows US$1.9bn (32t) in March, the first inflows for ten months. However recent inflows were not enough to prevent a net quarterly outflow of US$1.5bn (29t). via @KrishanGopaul

Highlights

  • Gold futures for December delivery GC00 settled at $1,916.50 an ounce on Comex after posting losses in each of the previous nine sessions. Prices based on the most-active contract tallied a nearly 1.6 % weekly fall, according to Dow Jones Market Data.
  • 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 outflows continued to signal waning investment interest and with the US rate hike the path of least resistance in gold from the rates impact has likely shifted down.
  • Gold is primarily supported by a single force of a weaker dollar and with much better-than-expected US data on Thursday, the dollar rebounded impressively.
  • Without a major surprise geopolitical flight to quality incident, the path of least resistance remains down in gold and silver. (We will see next week if the Coup/No Coup in Russia affects next week)
  • The ECB rate hike and the Fed’s prediction of 1 more minor rate hikes this year combined sent longs to the sidelines last week.
  • 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.
  • Around the top of gold this year gold ETF holdings increased 363,091 ounces, bringing them 0.5% higher on the year. This was their biggest one-day increase since April 2022 and their fifth straight day of growth.
  • 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 Weekly

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.
Gold in Perspective

Silver

Highlights

  • September silver SIU23 closed at $22.73 an ounce, ending less than 0.1% lower for the week.
  • Silver ETF holdings continues to see outflows bringing the year-to-date decline over 0.6%.
  • Without a major surprise geopolitical flight to quality incident, the path of least resistance remains down in gold and silver.
  • 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.
  • Signs of low supply had supported prices, as New York’s COMEX inventories fell 70% in the last 18 months to just over 1 million tonnes. London Bullion Market Association stockpiles fell for the 10th straight month to a record-low 27.1 thousand tonnes in November.

Technical

Silver Weekly Outlook

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.

Alcoa

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.
Lumber Cash Prices

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.

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

Wheat

Highlights

  • Prices were mixed with MGEX and KC up $.01 – $.03, while Chicago was $.08 – $.10 lower. Dec-23 Chicago held support above $6.12. Dec-23 KC made a new weekly high before pulling back.
  • An inside trading session for Dec-23 MGEX as prices consolidate near $8.
  • 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.
  • Russian attacks on Ukrainian port infrastructure have been happening after damaging grain terminals in Odesa last Friday. Russia and Ukraine are both among the world’s top wheat exporters.
  • French farm office FranceAgriMer reported that 58% of the country’s soft wheat crop has been harvested as of July 17, up from 33% a week earlier. That’s well behind 2022’s pace of 79%.
  • Taiwan issued an international tender to purchase nearly 4.0 million bushels of grade 1 milling wheat from the United States that closes on July 27. The grain is for shipment starting in early September.
  • 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

Wheat spat the 50wma hard and has followed up with a dead cat bounce that failed at the Tenkan. Rsistance 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

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

Highlights

  • Prices closed mixed for the session with an inside trading day for Dec-23 as it settled near the midpoint of this week’s range.
  • The BAGE held their Argentine production forecast steady at 34 mmt while harvest has advanced to 97% complete.
  • 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.
  • After the close Pro Farmer forecast US corn production at 14.960 bil., 151 mil. below the Aug-23 USDA with an average yield of 172 bpa.
  • 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 Futures Outlook

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

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

Highlights

  • The soybean complex was higher across the board with beans up $.12 – $.15, meal steady to up $2, while oil was 100 – 120 higher.
  • Nov-23 reached a new monthly high as additional weather premium was added. Next resistance is $14, followed by the July high at $14.35.
  • Oct-23 meal reached a new monthly high, stopping just short of resistance at $420. Next resistance for Oct-23 oil is this month’s high at 67.15.
  • With fresh news scarce the market was largely driven by technical factors and the need for additional weather premium. As temperatures cooled across the Midwest there were isolated pockets of rain that formed around the high-pressure ridge in the past 24 hours. There is still little to no meaningful rain thru the end of the month in major production areas.
  • After the close Pro Farmer forecast US bean production at 4.110 bil., 95 mil. below the Aug-23 USDA with an average yield of 49.7 bpa. The USDA reported the sale of 121k tons (4.5 mil. bu.) to China.
  • Egypt’s GASC bought 124k mt of vegetable oil in today’s tender which included 15k mt of soybean oil priced at $1,010/mt and 109k mt of sunflower oil which sold for $970/mt.
  • Old crop ending stocks rose 5 mil. bu. to 260 mil. bu. as imports were increased by this amount.
  • New crop 2023 production fell 95 mil. bu. to 4.205 bil. roughly 30 mil. bu. below expectations.
  • The average yield slipped to 50.9 bpa, just above the 51.1 bpa suggested by the updated crop ratings.
  • USDA did raise soybean oil usage for biofuels 100 mil. lbs. to 11.7 bil. and meal exports .20k to 14.2k tons. Demand for 2023/24 MY was cut 25 mil. bu. thru lower exports leaving ending stocks at 260 mil. bu., 10 mil. above expectations.
  • 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.
  • 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

Soybeans Weekly Outlook

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).

WTI Weekly KnovaWave Shape
US Natural Gas KnovaWave Weekly Grid

BDI Freight Index

Baltic Dry Index Weekly

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.


-comment section below data-

Real Time Economic Calendar provided by Investing.com.

Subscribe and Follow

Find us at www.traderscommunity.com

Follow our contributors on Twitter @traderscom @thepitboss16 @knovawave @ClemsnideClem

Note these charts, opinions, news, estimates and times are subject to change and for indication only. Trade and invest at your own risk.

Trade Smart!