Commodity Traders Weekly Outlook: Soybeans Rise; Oil, Heating Oil and Gasoline Crash

A mixed week for commodities with oil breaking down more getting all the attention. The Bloomberg commodity index dropped 2.4% (up 12.7% y-t-d). The USDA WASDE report was a big influence on grains, Soybean Meal, Soybeans and Canola among the leaders with Wheat and Oats amongst the weakest, while Corn hung in near unchanged. Silver and copper were again solid this week on supply concerns. Gasoline, Brent and WTI crude and heating oil were all the laggards all down around 10% on the week with demand concerns overwhelming length.

Silver rally led the pack

December 4 – 10 2022


Commodities

Weekly Commodity Highlights

  • Bloomberg dropped 2.4% (up 12.7% y-t-d).
  • Spot Gold was unchanged at $1,797 (down 1.7%).
  • Silver increased 1.4% to $23.47 (up 0.7%).
  • WTI crude sank $8.96 to $71.02 (down 5.6%).
  • Gasoline dropped 9.8% (down 7.7%),
  • Natural Gas slipped 0.6% to $6.25 (up 67%).
  • Copper increased 0.7% (down 13.1%).
  • Wheat slumped 3.5% (down 4.7%),
  • Corn slipped 0.3% (up 8.6%).
  • Bitcoin was up $80 this week, or 0.5%, to $17,146 (down 63%).
Weekend December 9, 2022

Industrial Metals

Aluminum

Highlights

  • Aluminum futures traded around$2,400 per tonne mark, recovering from an over one-year low of $2,100 hit in late September
  • Top consumer China moved to support the economy, fueling speculation of demand.
  • 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.

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 as the Chikou rebalanced. We have support below at 2/8 sphere of influence under the tenkan. confluence.

Alcoa

Copper

Highlights

  • Copper futures rose to $3.9 per pound, close to levels last seen in June amid worries of incoming shortages and expectations that industrial demand will rise in top consumer China.
  • Lower supply in South America continued to drive concerns of shortages in the near future, as output from top producer Chile slid 6.7% in the first three quarters of the year and mine protests in Peru hamper production.
  • Commodity trader Trafigura and Goldman Sachs 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.
  • Eased covid restrictions in China also supported prices by raising hopes of improved demand.
  • A significant breakdown in the US dollar contributed to last week’s rally and will likely continue to contribute to the copper bull case going forward.

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 was unchanged at $1,797 (down 1.7%).
  • Silver increased 1.4% to $23.47 (up 0.7%).

Gold

Highlights

  • Gold prices traded above $1,790 an ounce but retreated from session highs on Friday, as the dollar bounced back on hotter than expected PPI data.
  • The next big catalyst for the bullion will be the US CPI report on Tuesday while the Fed, the ECB and the BoE will also decide on monetary policy during next week.
  • The three major central banks are expected to deliver smaller rate hikes, but attention will turn to terminal rates and any signs on whether policymakers are getting ready to pause or continue tightening.
  • 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 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 Weekly
Gold in Perspective

Silver

Highlights

  • Silver futures continued to rise, sustained by trading above $22.6 per ounce at the start of December, at levels not seen since May amid expectations for a slowdown in monetary tightening by the Federal Reserve. Though the hot PPI number puts this in focus this week ahead of FOMC.
  • A cut in the reserve ratio by the PBoC supported expectations of higher demand for industrial silver usage as electricity conductors, tracking the rebound for copper.
  • Signs of low supply also 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 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.

Silver Weekly Outlook

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.
  • Chicago lumber futures fell under the psychological $400 per thousand board feet mark, down more than 70% since their March peak of around $1,450, 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

  • Chicago wheat futures trade near the 14-month low of $7.05 hit on December 6th after the USDA’s WASDE report for December reduced its global consumption forecast for the 2022/23 marketing year downwards by 1.6 million tonnes to 789.5 million for the period, mainly due to lower feed and residual usage in the EU and Ukraine.
  • Supply expectations were also revised downwards due to lower production in Argentina and Canada. Still, strong overall global supply prevailed.
  • 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.
  • Russia the dominate seller in global Wheat trade last week, discounting prices to do business.

Technical

Wheat closed 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.

Wheat ETF WEAT

Full Report:

Corn

Highlights

  • Chicago corn futures fell to below $6.4 per bushel in December, the lowest since late August amid strong supply from the world’s top exporters and a broad decline in crude oil prices, limiting demand for biofuel blenders.
  • 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 flowed lower with last week’s price action failing at the Kijun and the 7/8 near the base of the weekly cloud to 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.

Corn Futures Outlook

Full Report:

Soybeans

Highlights

  • Following last week when USDA announced 130 mt US soybeans to China soybeans futures have lifted above $14.8 per bushel, the highest level in three months as eased Covid lockdowns in top consumer China spurred hopes of higher demand.
  • Fresh projections from the USDA’s WASDE report point to higher demand from major producers, as increased export sales from Argentina outweighed slower sales from Canada and Paraguay.
  • To add to bullish pressure, output for other vegetable oils was revised lower, offsetting higher projections for global soybean output due to strong production in India and Ukraine.
  • The sharp decline in crude oil prices pressured demand for biofuel feedstock, limiting the rally for soybeans. The US Environmental Protection Agency will call for smaller-than-expected blending mandates of 20.82 billion gallons in 2023, 21.87 billion gallons in 2024, and 22.68 billion gallons in 2025.

Technical

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.

Soybeans Weekly Outlook

Full Report:

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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