Written Commentary
SOYBEANS
A stronger start for the soy complex this morning after China reportedly bought 420,000-600,000 tonnes of US beans last week. The US is competitive beyond August, and the US Soybean Export Council said over the weekend that it still expects China to buy a total of 25 million tonnes by the end of this marketing year. The China purchases are raising optimism that improved US demand will tighten the balance sheet enough to offset the very strong early start for the US bean crop.
SOYBEAN MEAL
The meal market started the week by dropping to its lowest price level in 8 months and has lost nearly $35 a ton in value since mid-May. Premiums in Argentina and Brazil had been dropping recently, but they have rebounded slightly over the past week. US crush margins have also been falling, with July crush seeing its largest monthly drop on record of $0.87 so far in June.
CORN
The market pulled back late last week and is slightly lower this morning as scattered heavy rains occurred over the weekend across the central Plains and lower Midwest, and the forecast remains wet for this week. Temperatures will be warming up in week 2 of the forecast, but extreme heat is not expected. Negotiations with Iran are ongoing in Switzerland, and the cease-fire deal remains in limbo, but lower crude prices this morning suggest most believe a deal will eventually get signed.
CATTLE
Cash cattle trade through Thursday afternoon was very limited with a light sale in the north at 256, but Friday trade increased and was reported at 258 and even 260 late in the day in the north, which would be $4 – $6 higher than light trade earlier last week. Also, Thursday afternoon’s Cattle on Feed report featured slightly lower On Feed numbers than the average guess, significantly lower placements, and slower marketing rates than expected. Overall, the report was considered bullish, given the decline in placements. Three new screwworm cases were reported in Texas, bringing the total to 15.
HOGS
Daily trading volume in hogs last Thursday was light, but August managed to close on the day’s highs with slight gains and near the highs of the week. Open interest continued to fall in the July contract, but August rose by 1,500. The consolidation in the August contract over the last week points to an easing of technical weakness seen since early March. A close above the June 12 high would further improve upside potential. The next quarterly Hog and Pig report will be released this Friday.
MILK CLASS III
July Class III milk finished last week with a moderate loss after reaching a new contract low on Thursday
CRUDE OIL
With the energy markets at the end of last week anticipating a “true end” to the war and hopeful of the restart of tanker movement through the Strait of Hormuz, we are not surprised to see a $5.50 rally off last week’s low this morning following aggressive military threats from the US. However, reports that several Qatari LNG tankers have entered the Strait of Hormuz (against a reported resumption of an Iranian blockade) suggests some Middle East players expect current negotiations to result in a reopening of the Strait of Hormuz.
NATURAL GAS
Surprisingly, August natural gas has jumped sharply to 10 day highs with prices seemingly poised to retest three-month highs up at $3.418. The sharp upside move is very surprising in the face of reports that Qatar has several LNG tankers moving into position to transit the Strait of Hormuz
DOLLAR INDEX
The USD index is little changed at 100.83. The dollar retains firm support from a hawkish shift in Fed policy expectations and the strongest net long in dollar positions in over 16 months, according to the CFTC. The dollar is seemingly being driven more by rates and macro factors than geopolitical developments over the last couple of sessions, as falling oil prices and direct US-Iran talks would otherwise see a flight away from dollar safety.
COCOA
Clearly, September cocoa has aggressively rejected the failure/reversal down attempt at the end of last week, with the market this morning posting a 25-day high. With both London and US cocoa posting significant gains over the last two weeks, off El Nino weather concerns, it is clear aggressive long speculation has returned to the trade. However, the threat of El Niño inspired production losses conflict with somewhat favorable near-term weather forecasts in Western Africa.
COFFEE
With last Thursday’s aggressive rejection of a one month high followed by a downside extension and failure at the 50 day moving average of 267.10, the technical bias in coffee starts the new trading week in favor of the bear camp. Fortunately, the most recent positioning report showed a nearly flat net spec and fund long in US coffee futures which could reduce long liquidation.
COTTON
With December cotton poised to forge an 11 day high and climb above its 50 day moving average at 80.64, the charts favor the bull camp to start the new trading week. While El Nino effects on US cotton are mixed the markets appear to be garnering minimal (likely overstated) impact from El Nino concerns toward Brazilian production.
SUGAR
While the sugar market remains in a very definitive bearish technical structure, the emergence of El Niño should create the potential for expanded volatility and potentially a major low. Unfortunately for the bull camp, developing weakness in energy prices presents a major potential downdraft threat for sugar prices directly ahead.
PRECIOUS METALS
August gold fell lower overnight, as a hawkish repricing in Fed policy led rates higher, while also offering the dollar firm support despite the drop in oil prices. Recent dynamics continue to show that gold is moderately correlated (negatively) with moves in the dollar; the dollar’s strength following the FOMC meeting being the main catalyst for the move lower in gold.
Copper prices were mixed, with benchmark three-month copper on the London Metal Exchange up 0.9% at $13,723; COMEX copper prices slid 0.16% to $6.37. US-Iran talks are the main catalyst for price action in the metals complex; optimism that US-Iran talks could result in an end to the war and a full reopening of the Strait are largely favorable to prices, with the exception being aluminum.
EQUITIES
Equity index futures were mostly higher overnight a focus remains on the US-Iran negotiations and conflict in Lebanon. The US and Iran agreed to the creation of a mechanism to ensure the end of military operations in Lebanon, The Wall Street Journal reported. This came after Tehran closed the Strait of again over the weekend.
INTEREST RATES
Yields moved higher across the curve despite the drop in oil prices overnight as Fed repricing offers support for higher yields, while Bank of America Global Research said they now expect 75bps of tightening by year-end, compared to their prior call of no rate hikes. The views of the sharp shift in hawkishness are driven by resilient economic data, sticky inflation, and a perceived hawkish reaction from Chair Warsh.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.
