Commodity Traders Weekly Outlook: Energy and Grain Futures Sell off in New Year

Commodities in the first trading week of the year saw a lot of continued trends, namely natural gas futures got wrecked again, losing another 16% after losing 11% for the week, and down 33% for December. Gasoline, WTI, Brent Oil and Heating oil were all lower. Wheat, Corn, Wheat and Oats all dropped between 6 and 2%. for the week. The common denominator with natural gas was milder weather. Copper, gold and cotton were the best performer for the week. The Bloomberg commodity index dumped 4.2% for the week.

Natural Gas Slide Continued

January 8 – 14, 2023


Commodities

Weekly Commodity Highlights

  • Bloomberg Commodities Index dropped 4.2% (up 6.7% y-o-y).
  • Spot Gold rose 2.3% to $1,866 (up 3.8%).
  • Silver slipped 0.5% to $23.83 (up 6.5%).
  • WTI crude sank $6.49 to $73.77 (down 7%).
  • Gasoline slumped 8.7% (down 2%),
  • Natural Gas sank 17.1% to $3.73 (down 5%).
  • Copper rallied 2.6% (up 3%).
  • Wheat dropped 6.1% (down 2%),
  • Corn fell 3.6% (up 8%).
  • Bitcoin rallied $400, or 2.4%, this week to $16,980 (down 59.2%).
Weekend January 6, 2022

Metals

Copper

Highlights

  • March copper settled at $3.911 a pound, up 9 cents, or 2.4%, for the session for a weekly rise of 2.6%.
  • Chinese government eased curbs on property and developer borrowing at the same time they have “vowed” to boost domestic prospecting of strategic minerals and energies. The Chinese government moved to relax extremely stringent “3 red lines” policy that was directed at the Chinese real estate sector.
  • Peruvian copper production rose 15.3% in November from year ago levels.
  • Chile, the world’s top copper producer, saw production fall 6.9% in November to 449,000 tonnes.
  • While daily Chinese infection numbers are highly suspect following the government’s decision to stop releasing the numbers, the World Health Organization yesterday indicated that new cases in the last 24 hours reached 37,017.
  • Markets are so far ignoring surging infections in Chinese equity markets, global commodity markets and most specifically in copper.
  • We watch for negative Chinese contractions in broad-based industrial measures compounded by the surging Covid crisis and could be compounded by the upcoming Chinese lunar new year holiday.
  • Fitch Solutions revised up its copper price forecast to $8,500 a tonne in 2023 from $8,400, as demand edges higher alongside a comparatively weaker supply outlook.
  • 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
  • Glencore estimates a supply shortfall of 50 million tonnes in 2023.
  • Analysts at Goldman Sachs Group Inc. predict 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.

Technical

Copper broke to the upside out of the pennant to test the 50wma after it rebounded sharply off the tenkan but has failed three times here in the past month. The flattening Weekly Kijun acted as a magnet to close right there. Copper had been a leader in the risk on movement for commodities.

Weekly Copper Outlook
Copper Supply Crunch

Precious Metals

  • Spot Gold rose 2.3% to $1,866 (up 3.8%).
  • Silver slipped 0.5% to $23.83 (up 6.5%).

Gold

Highlights

  • February gold, the most actively traded contract, rose $29.10, or 1.6%, to settle at $1,869.70 per ounce on Comex, according to FactSet data Friday, 2.4% higher for the week.
  • Gold rose this week as a softer U.S. dollar helped bolster precious metals prices
  • Chinese November net gold imports through Hong Kong declined by roughly 10% versus October and reached a 6-month low. 
  • Indian gold jewelry retailers are projected to see revenues jump by as much as 25% this fiscal year reportedly because of rising disposable incomes and pent-up demand from the Covid period.
  • Gold is highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion and dent its appeal, and vice versa.

“China’s central bank said… it had added 32 tonnes of gold worth around $1.8 billion to its reserves, the first time it has disclosed an increase since September 2019. The additions bring China’s reported holdings at the end of November to 1,980 tonnes, worth around $112 billion. 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 last month 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.”

December 7 – Reuters (Peter Hobson and Siyi Liu):

“Central banks bought a record 399 tonnes of gold worth around $20 billion in the third quarter of 2022, helping to lift global demand for the metal, the World Gold Council (WGC) said… Demand for gold was also strong from jewelers and buyers of gold bars and coins, the WGC said in its latest quarterly report, but exchange traded funds (ETFs) storing bullion for investors shrank… Buying by central banks in the third quarter far exceeded the previous quarterly record in data stretching back to 2000 and took their purchases for the year to September to 673 tonnes, more than the total purchases in any full year since 1967…”

November 1 – Reuters (Peter Hobson):

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.

Gold in Perspective

Silver

Highlights

  • March silver delivery gained 56 cents, or 2.4%, to $23.982 per ounce, though finished 0.2% lower for the week.
  • Not surprisingly, the swift gains in silver resulted in a very aggressive corrective setback with investors above $24.00.
  • Signs of low supply have 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

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%.

Aluminum

Highlights

  • 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 with3.41 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.
  • Aluminum is down roughly 40% from a record high of approximately $4,000 in March amid persistent fears of a demand-sapping global recession triggered by an aggressive tightening campaign from major central banks.
  • Alcoa, the largest US aluminum producer, has warned investors that high energy and raw material costs and a fall in aluminum prices are putting pressure on margins.
  • 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. From there as the Chikou rebalanced it closed at the tenkan. We have support below at 2/8 sphere of influence under the tenkan confluence.

Alcoa

Agricultural Commodities

Lumber

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

Highlights

  • Lumber futures have collapsed since high in early March giving back all of the 2021 and 2022 rally and some its lowest level since June 2020.
  • Chicago lumber futures fell under the psychological $400 per thousand board feet mark, down more than 68% year-to-date and is off 79% from its record high reached in May 2021, as higher interest rates continued to depress real estate activity.
  • The Federal Reserve’s aggressive tightening cycle has briefly pushed 30-year mortgage rates to levels not seen since 2001, leading to slower home construction and souring sentiment among homebuilders.
  • The price keeps drifting lower despite expectations low inventories and diminished production have put a floor under prices.
  • 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, have squeezed global supplies.
  • Sawmill curtailments, with Interfor, Canfor, and West Fraser Timber announcing cutbacks, added to concerns about tight supplies.
  • On-the-spot wood prices have plunged, too. Pricing service Random Lengths said Friday that its framing composite index, which tracks cash sales is down from $1,334 in March, just before the Federal Reserve raised interest rates for the first time since 2018.
Lumber Futures

Grains

Wheat

Highlights

  • Wheat prices moderate step lower Friday following technical selling. Most contracts finished the session with losses ranging between 0.5% and 1%. March Chicago SRW futures eased 3.75 cents to $7.43, March Kansas City HRW futures fell 8.25 cents to $8.3150, and March MGEX spring wheat futures dropped 6.75 cents to $9.0225.
  • Wheat exports totaled 1.7 million bushels of old crop sales plus another 3.6 million bushels in new crop sales for a total of 5.3 million bushels. That was below all trade estimates, which ranged between 7.3 million and 24.8 million bushels.
  • Cumulative totals for the 2022/23 marketing year are trending slightly below last year’s pace so far, with 391.8 million bushels.
  • Wheat export shipments were slow last week, with 3.0 million bushels. The bulk of that grain is bound for Mexico, with Canada and the United Arab Emirates accounting for the modest remainder.
  • Australian wheat production seen reaching record levels of around 1.543 billion bushels as harvest begins to wrap up. Recent rains increased yield potential but lowered quality in some fields, which now may be used as animal feed, according to one Sydney-based trader.
  • China plans to sell 5.1 million bushels of its imported wheat reserves on an auction to be held on January 11, according to a notice posted by the country’s National Grain Trade Center. China has offered a series of wheat sales in recent months to boost local supplies and tamp down high prices.
  • Egypt issued a tender to purchase as much as 2.2 million bushels of wheat from optional origins that closes on January 10. The grain is for shipment in February.
  • Taiwan issued an international tender to purchase 1.7 million bushels of grade 1 milling wheat from the United States that closes on January 13. The grain is for shipment in March.
  • The Philippines likely passed on its international tender to purchase 4.0 million bushels of animal feed wheat from optional origins, which closes on Thursday. Prices were regarded as too high. The grain would have been for shipment in February and March.
  • Preliminary volume estimates were for 42,077 CBOT contracts, which was moderately below Thursday’s final count of 55,774.
  • The harvest for top exporter Russia was the highest on record in the current marketing year, extending competition into North America.
  • Wheat shipments from Ukraine continued after Russia agreed to extend the UN-brokered deal that guarantees a trade corridor for vessels carrying Ukrainian grain in the Black Sea for another four months, significantly reducing shortage concerns.

Technical

Wheat ETF WEAT

Wheat lurched lower this week after last week’s close under the breakup level in August and 0/8 giving back up the whole October rally. Resistance is now the tenkan and the 50 and 61.8% Fibs. It had been drawn higher by the flat weekly cloud and supported by 0/8 which held. 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

  • Corn prices on Friday had modest gains after a flash sale to Mexico led to some technical buying. March futures picked up half a penny to $6.5325, while May futures trended 0.75 cents higher to $6.5325.
  • Corn basis bids held steady across the central U.S. on Friday.
  • Private exporters announced to USDA the sale of 4.4 million bushels of corn to Mexico. Of the total, 80% is for delivery during the current marketing year, with the remaining 20% for delivery in 2023/24.
  • Corn export sales were disappointing after only reaching 12.6 million bushels for the week ending December 29. That was below the entire range between 15.7 million and 47.2 million bushels. Cumulative totals for the 2022/23 marketing year are still moderately behind last year’s pace so far, with 393.6 million bushels.
  • Corn export shipments fared much better last week, with 30.0 million bushels. China, Mexico, Japan, Honduras and Panama were the top five destinations.
  • Preliminary volume estimates were for 186,256 contracts, spilling moderately below Thursday’s final count of 234,804.
  • Brazil is expected to produce a record 126 million tonnes in the current marketing year, 9% higher than the previous period, according to the USDA’s Global Agricultural Information Network report.
  • Strong supply is also expected from Ukraine as Russia agreed to extend the UN-brokered deal guaranteeing a safe trade corridor for vessels shipping grain out of the Ukrainian Black Sea ports. Besides permitting exports, the resumption of trade enables Ukraine to free up important storage space in silos as the harvest for the 2022/23 marketing year continues.

Technical

Corn Futures Outlook

Corn failed to hold last week’s price action failing towards the Kijun after a 7/8 fail to close under the weekly cloud and under the 50wma. 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. From here we saw Tenkan fail again. Which is back where we are.

Soybeans

Highlights

  • After soybean prices surged to new 6-month highs the previous Friday morning dry weather in Argentina sent soybean prices significantly higher this Friday. A flash sale announced that morning lent additional support.
  • On Friday January futures rose 34.75 cents to $15.0150, with March futures up 21.25 cents to $14.92.
  • Private exporters announced to USDA the sale of 4.9 million bushels of soybeans for delivery to unknown destinations during the 2022/23 marketing year, which began September 1.
  • Soybean exports saw 26.5 million bushels of old crop sales last week, plus another 5.5 million bushels of new crop sales, for a total tally of 32.0 million bushels. Was near the middle of trade estimates, which ranged between 14.7 million and 48.7 million bushels. Cumulative totals for the 2022/23 marketing year are running slightly behind last year’s pace, with 1.036 billion bushels.
  • Soybean export shipments were robust, with 54.3 million bushels. China, Mexico, Turkey, the United Kingdom and Taiwan were the top five destinations.
  • Brazil’s Safras & Mercado slightly reduced its estimates for the country’s 2022/23 soybean production, which is now at 5.635 billion bushels. That would still be record-breaking if realized.
  • China’s soybean production increased nearly 24% to 745.9 million bushels, in large part to an acreage uptick of more than 21%. The country’s agriculture minister has indicated the country will target a planting increase of another 1.648 million acres for the 2023 season as the world’s top soybean buyer looks to be less reliant on foreign purchases of the oilseed.
  • Preliminary volume estimates were for 168,467 contracts, trending slightly higher than Thursday’s final count of 157,537.

Technical

Soybeans Weekly Outlook

Soybeans after it rejected new lows at the bottom of trendline finally got the legs to break above the 50wma. The 50 wma and the tenkan are both under the Kijun providing heavy resistance. We sit near the January breakup. 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

WTI Weekly KnovaWave Shape
US Natural Gas KnovaWave Weekly Grid

BDI Freight Index

Baltic Dry Index Weekly


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