Weekly Futures Market Summary 10.5

CORN:

December corn closed 14 1/2 cents higher for the week last week. Harvest was active all last week and traders expect the harvest pace to push above average for Monday afternoon’s crop progress report. The corn market is still adjusting to a tighter supply/demand situation. The longer-term fundamentals improved significantly with the adjustments made by the USDA. The smaller than expected beginning stocks number plus expectations for stronger exports are bullish forces. In their September WASDE report, the USDA put China’s total corn imports for 2020/21 (from all sources) at 7 million tonnes, but China has already booked more than 9 million tonnes from the US alone, and we are only four weeks into the marketing year. Total US export sales for 2020/21 have reached 48% of the USDA’s forecast for the entire marketing year versus a five-year average of 27%.

BONDS:

All things considered, the treasury market action continues to confound traders as major fundamental news has not been able to drive prices out of a relatively tight trading range. Certainly, the flow of information from the monthly jobs report was countervailing with the headline payroll gain very supportive of prices while an upward revision in last month’s payrolls combined with a larger than expected decline in the unemployment rate was cause to sell. Following that trend of countervailing news was a much stronger-than-expected Michigan consumer sentiment reading for September and a disappointing US factory orders report for August. However, the downside action in Treasury prices early last week was not surprising given a series of upbeat economic data points early last week.

CURRENCIES:

On a number of occasions, we will suggest that a certain currency or currencies will “win by default” but in the current condition it would appear as if “no currency is capable of winning by default”. In other words, the current market environment would appear to present a mixed environment for every currency with traders presented with so many major issues money is unwilling to commit fully to a single strategy. While the dollar has not broken out to the downside, it would appear as if it has settled back into last week’s modest downward track. Not surprisingly, the dollar is seeing pressure in the face of a slightly positive early track in global equities, improvement in the president’s health and from a modicum of optimism toward the US stimulus package from the Speaker of the House.

STOCKS:

On one hand, the equity markets did register concern on the announcement of the President’s positive Covid test. However we would not characterize the decline as indicative of a market overly vulnerable to panic selling as the index declined only 60 points. On the other hand, potential major negatives abound in the marketplace and it would appear as if a number of these issues are converging with volatility likely to explode in the coming weeks. Classic corporate news today was mixed with reports of recovering Ford sales bargain-hunting buying on FAANG stocks as well as news that Intel will be part of a contract to help the Pentagon develop chips. Global equity market action early this week favored the bull camp with the lone exception a lower trade in the Russian stock market. However, Australia China and other areas in Asia are still on holiday.

GOLD, SILVER & PLATINUM:

While the gold market last week made some inroads against the bearish control in place since the beginning of August, the overall fundamental and technical setup still favors the bear camp. With some press outlets overnight indicating gold has fallen back in the wake of news that the US President could be discharged on Monday, it would appear as if some form of flight to quality buying was behind last week’s rally. Going forward, the dollar index has started out weaker despite the news that US airlines failed to get support from Congress, with at least two major airlines now moving to undertake significant layoffs. In short, we leave the edge with the bear camp in gold and silver, partly off the lingering potential for further delays in getting a stimulus deal.

As indicated already, the silver market showed less impressive upside action last week than gold with the initial spike up move last Monday followed by lower trade for the rest of the week. In retrospect, the silver market lacked the bullish sensitivity seen in the gold market at times last week and we attribute that to the fact silver is seen as a classic physical commodity market in the face of growing economic uncertainty. While not a significant addition, silver ETF holdings last Friday increased by 865,853 ounces putting their net gain last week at 8 million ounces. The Commitments of Traders report for the week ending September 29th showed Silver Managed Money traders were net long 35,772 contracts after increasing their already long position by 189 contracts. Non-Commercial & Non-Reportable traders net bought 755 contracts and are now net long 57,378 contracts.

In looking back at last week’s action, it appeared as if the palladium market is tied to the action in equities and is clearly trading more physical related issues than flight to quality/precious metals developments. Furthermore, with China on holiday until the end of the week, the prospect of lift from favorable Chinese scheduled data is lost until Thursday, when the market will be presented with a Chinese private services PMI reading for September. However, expectations for that services PMI reading call for a decline in excess of 3 points, with the reading nearing the growth/no growth level of 50.0.

While the platinum market at times last week showed some positive traction with gains from the spillover lift provided by gold and silver, the definitive reversal of the rally last week was seen with 2 straight lower closes. In fact, with classic physical commodity market demand deflated by last week’s slightly disappointing nonfarm payrolls, surging US infection counts, developing vulnerability in equities and with the uncertainty created by the President’s contraction of the virus the fundamental bias in platinum is down to start the trading week. Fortunately for the bull camp, the net spec and fund long position as of early last week was the lowest since the 3rd week of April which in turn was the lowest since April 2017.

COPPER:

Copper prices started the new week out on a positive footing, with Asian manufacturing readings seemingly jumping ahead of China in the recovery race. It is possible that copper is catching some additional speculative buying off the fact that 2 copper mines in Chile are in the midst of labor negotiations, with the talks reportedly at critical junctions early this week. Following tremendous volatility last week (a 2-day high to low trading range of nearly $0.20) the copper trade might be experiencing the impact of Chinese traders and buyers being on an extended holiday. In fact, the Chinese holiday extends into Thursday and therefore threats of a return to lock down in areas like Europe, UK or in regional US areas will present demand fears that are clearly unlikely to be countervailed by Chinese buying.

ENERGY COMPLEX:

While the energy complex returned to a demand destruction focus last week given a slightly disappointing US jobs headline result, furloughs in airlines underway, a virus spread within the upper levels of the US government and an extended Chinese holiday the market has rebounded early this week off an uptick in stimulus hopes and the improvement in the President’s health. Furthermore, developments from the supply front could provide some countervailing force to recent demand threats, with the Norway oil strike potentially expanding and two threats against production in the Gulf of Mexico. With Libyan exports thought to have rebounded by 300,000 barrels per day the bull camp is fortunate that the amount of oil shut from the Norway strike is thought to be even larger at 330,000 barrels per day. Unfortunately for the bull camp the markets saw a 200% jump in weekly floating storage levels from year ago levels, Brent options skews are bearish to start the week and the market saw Saudi September output increase from August levels.

BEANS:

While the US harvest weather looks nearly ideal, the soybean and meal markets appear to have plenty of supply uncertainties ahead. In addition, soybean and soybean meal demand seems to be picking up steam. In Mato Grosso (largest producing state) plantings have reached just 1.7%, and this is down from 6.65% last year and 9.59% as the five-year average for this time of the year. Malaysia officials have reduced their palm oil production forecast by 1 million tonnes to 19.7 million tonnes for the 2020/21 season. In a move to boost foreign reserves, Argentina’s government has temporarily cut the soybean export tax by 3% to 30%. Oil and meal export taxes which have been 33% will fall to 28% in October. November soybeans closed 2 3/4 cents lower on the session Friday but this left the market up 18 1/4 cents for the week. Strong export demand plus dryness concerns in South America have helped offset fears of aggressive harvest activity and commercial selling. Exporters announced the sale of 252,000 tonnes of US soybeans sold to unknown destination. In addition China was a noted buyer of 264,000 tonnes of US soybeans.

WHEAT:

Continued concerns with the dry conditions in Russia, and to some extent Ukraine, has helped to drive the market higher early this week. In Russia, northern parts of the wheat belt should see rains this week, but the rest of the key growing areas should remain mostly dry for the next few weeks which appears to be poor growing conditions and the short-term dryness is supportive. The market remains in a choppy uptrend and the technical action is improving. December wheat managed to close 3 cents higher on the session Friday and this left the market with a gain of 29 cents for the week. In the US Plains, there are finally some showers in 11-15 day models but dryness is still likely to hamper establishment in at least 1/3 of belt.

HOGS:

The CME lean index as of Sep 30 was 76.74, up from 76.54 the previous session and up from 73.70 a week before. This leaves December hogs holding a discount of $14.27 to the cash market as compared with the five-year average discount of $2.35 for this time of the year. This is a factor which may limit the selling pressures as traders have already priced in a larger than normal decline in the cash market into the winter. Pork cut-out values are very volatile but managed to close slightly higher on the week even with the break on Friday. The USDA pork cutout released after the close Friday came in at $91.30, down $4.79 from Thursday but up from $90.79 the previous week and $74.44 a year ago.

CATTLE:

The cattle market struggled on Friday attempting to absorb a negative economic tone from the employment data. The market has held up very well with stronger-than-expected demand for much of the summer, and a not too burdensome production pace. This week, the market will need to absorb increased production, (last week’s beef production was up 5.7% from a year ago), and also the prospects for less than normal seasonal demand factors for the fourth quarter. Restaurant demand is still struggling to recover, and bookings for corporate and family events should be sharply reduced from normal. Hot and dry weather for the plains does not help as this could boost short-term movement for both feeder and fat supplies. December cattle gapped lower on the opening Friday and the market closed moderately lower on the day. Cash markets managed to rally to $107.00 last week but beef prices pushed lower on the week and this does not bode well for traders expecting a continued rally in cash.

COCOA:

Cocoa prices have bounced back from early lows during each session of October so far, but they have been unable to put any lasting brakes on their current downdraft. With demand concerns likely to be a front and center issue over the next month, cocoa will need to find fresh supply-side support in order to find its footing. December cocoa came under early pressure and reached a new 5 1/2 week low, but made a late recovery for a second day in a row as it finished Friday’s trading session with a moderate loss and a third daily loss in a row. For the week, December cocoa finished with a loss of 86 points (down 3.3%) which was a second weekly loss in a row.

COFFEE:

Coffee’s 3-week slide resulted in an over 20% loss in value, but the market was able to find its footing in a price areas that has provided support this year. While Brazilian near-term supply will continue to weigh on prices, a shift in focus towards next season’s crop can help coffee extend a recovery move early this week. December coffee saw an abrupt change in fortune as it reached a new 2 1/2 month low at midsession only to rally more than 5.00 cents before finishing Friday’s trading session with a moderate gain and a positive daily reversal. For the week, December coffee finished with a loss of 4.70 cents (down 4.1%) which was a third weekly loss over the past 4 weeks.

COTTON:

Demand has stayed stronger than traders have expected, and the focus of attention is shifting to the October 9 USDA crop production and supply/demand report. With several hurricanes and some dry weather periods, traders are likely looking at smaller yield and tighter ending stocks for the report. The market remains in a choppy consolidation pattern and December cotton closed only slightly lower on Friday after falling sharply earlier in the session. The market had fallen along with the stock market on the news of President Trump testing positive for Covid-19 and like the stock market recovered off of its lows as the day progressed.

SUGAR:

While sugar prices have been unable to take out their mid-August high, they have been resilient in the face of negative global risk sentiment, sluggish key outside markets and what continues to be a bearish global supply outlook. There have been bullish supply-side developments that can help sugar extend its recovery move into early October, but the market may have may limited upside and remains increasingly vulnerable to a long liquidation selloff. March sugar bounced back from midsession pressure, but could not hold its ground in positive territory and finished Friday’s trading session with a modest loss. For the week, March sugar finished with a gain of 4 ticks (up 0.3%) which was a third positive weekly result in a row.

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