While Energies continue to climb higher, US stock indexes are on the defensive at mid-month.
This after completing another round of bearish technical patterns at the end of December.
Grains are higher early Monday morning on follow-through fund buying from last Friday, for the most part.
Morning Summary: A look at the Barchart Futures Market Heat Map early Monday morning shows markets in general are seeing follow-through activity from last Friday. Leading the way higher is the Energies sector showing a cumulative gain of 2.5%. It should come as no surprise our old friend the Widow Maker (aka natural gas) (NGG25) is leading the way, up 4.9% to start the day. Also similar to last Friday, the distillates market (HOG25) is showing a strong 2.4% rally. Are there problems bubbling up in the “Gulf of America” or is this just a seasonal move. Before we go too far down that road, distillates tend to rally this time of year while natural gas sells off. But again, it’s the Widow Maker, so anything is possible. The other sector to keep an eye on as we approach the midpoint of the month is US Stock Indexes. It has been a volatile last couple months after indexes posted long-term bearish technical patterns at the end of October, rallied during November, and completed another round of bearish patterns through the end of December. This time, selling has continued through early January with the three major Indexes posting solid losses last Friday. The Indices futures sector (ESH25) was lower again early Monday morning.
Corn: Speaking of follow-through buying, please allow me to introduce you to King Corn. After March (ZCH25) closed 14.5 cents higher on trade volume of 467,000 contracts last Friday, the nearby issue added as much as 4.0 cents overnight through early Monday while registering 41,500 contracts changing hands. It should also be noted total open interest in corn grew by 72,300 contracts last Friday with March adding 29,000 contracts and May 23,000 contracts. Much of this likely came from the noncommercial side, putting the spotlight on this coming Friday’s CFTC Commitments of Traders report (legacy, futures only) for positions as of this Tuesday, January 14. For the record, last week’s CoT report will be released later today due to last week’s observance of the late US President Jimmy Carter. The commercial side of the market was on the defensive heading into the weekend, as indicated by the sharp weakening of basis markets. As I mentioned in Friday’s Afternoon Commentary, I started hearing about this immediately following the release of USDA’s latest guesses. My Friday evening calculation came in at 30.25 cents under March futures as compared to the previous Friday’s figure of 26.75 cents under and the previous 5-year low weekly close for last week of 24.75 cents under March.
Soybeans: The soybean market was also in the green to start the week with March (ZSH25) sitting 10.5 cents higher on trade volume of 36,500 contracts as of this writing. March rallied as much as 12.0 cents overnight through early Monday morning while May also gained as much as 12.0 cents. My Blink reaction is most of the support continues to come from noncommercial short-covering, as this group likely still holds a sizeable net-short futures position. The previous Commitments of Traders report showed Watson with a net-short of roughly 70,000 contracts. From Tuesday December 31 to Tuesday January 7, the March issue closed 13.25 cents lower indicating funds had spent the week adding short futures. However, since last Tuesday’s close the contract March is up 39.0 cents through early Monday morning. It’s interesting to note the open interest in March decreased by 1,600 contracts while May lost 4,400 contracts last Friday, again indicating most of the support came from fund short-covering. As for the commercial side we saw merchandisers take a defensive stance, but not as aggressively as in corn. The latest national average basis calculation came in at 59.0 cents under March versus the previous Friday’s 58.25 cents under and the previous 5-year low for last week of 54.75 cents under March.
Wheat: The wheat sub-sector decided to play along this time with all three markets showing gains to start the day. Recall March Chicago (SRW) (ZWH25) closed 3.25 cents lower last Friday on continued pressure from commercial traders. The carry in the March-May futures spread strengthened by 0.75 cent, the spread covering 57% calculated full commercial carry heading into the weekend, raising the running daily average of this Variable Storage Rate tracking period to nearly 53%. Keep in mind if this average is below 50% at the end of the period, February 21, then the official storage rate for SRW decreases starting on March 19. But back to this morning’s market. We see the March issue up 7.25 cents after gaining as much as 8.75 cents though trade volume was a meager 11,000 contracts. The latest Commitments of Traders report will likely show Watson increased its net-short futures position given March Chicago closed 9.0 cents lower from Tuesday, December 31 through Tuesday, January 7. Note the March issue is still down roughly 4.5 cents from last Tuesday’s close. March Kansas City (HRW) (KEH25) is up 6.5 cents to start the week while the nearby Minneapolis issue (MWH25) is showing a gain of 7.0 cents.
On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.