Dec picked up 39 points this week with 370 points on 4 consecutive W/W gains for the month of Aug, to settle at 66.57. These results were on par with last weekΆs expectations. Corn and soybeans continued lower W/W ahead of expected record production from the US while wheat posted a small gain.
The US continues to sell cotton for export delivery – in excess of 2M statistical bales over the last 8 weeks, which has led to total commitments reaching nearly half (48%) of this USDAΆs export projection of 10.7M bales. The US has sold cotton for export from near the 73.00 level on lower, with this weekΆs sales significantly larger W/W despite rising futures prices in concert with strengthening US currency.
On the supply side, many within the industry are tossing about US production estimates that are somewhat lower than the USDAΆs 17.5M bale benchmark. Our own estimate is off of the USDAΆs, at this time, but not by a lot. When considering all of the available information, it seems that this seasonΆs crop is likely to be slightly better than short-term trend line expectations on a per acre basis. However, without significant weather events, the US will see very low abandonment rates this season.
The net result as it applies to the US S&D balance sheet, we think, is that projected C/O for the current MY is not likely to grow larger than itΆs currently projected 5.6M bale mark on the upcoming Sept WASDE report release. This is supportive, if not positive.
With regard to the world S&D, weather concerns have caused much speculation with respect to Indian and Chinese production. The best domestic estimates from these nations project production far and above the USDAΆs latest projections. Because our bear was born on the supply side, this information is not bullish. With respect to China, which raised its projection via increased acreage in Xinjiang (the highest quality producing region of China), the news is just bearish.
Given the recent firming of cash prices across the globe, we expect that world aggregate consumption will likely rise as well. Cash prices in Brazil and Australia continue northward, but, overall, this is likely not positive for longer-term ICE futures levels.
Looking forward to next week, export sales will likely be strong, although price and US currency value would suggest that sales would be off somewhat W/W. Economic data releases for the US continue to be mostly positive, which is a double-edged sword – positive in the long-term and much less so over the short-run.
The aggregate non-commercial sector held a net short futures position for the week ending Aug 26, while being virtually flat when considering both futures and options. Managed money firms added slightly to their long position while covering short positions; the net effect, as it applies to the Dec contract, left them net long the futures; however the data further imply that they remain sellers of volatility. This implies, we think, that smart-money speculators believe the current market will remain range bound, at least over the near term. Other data indicate that the index funds are purchasing Dec futures, and this is not bearish.
The technical analysis continues to grow more positive W/W with some momentum oscillators now registering weekly buy signals. And, this market is riddled with gaps (two above and two below the current market) that serve as target levels – the one at 77.80 – 78.00 seemingly the only one out of reach, for the time being.
Fundamentally, although this market may have found support that is rooted in demand, the thrust of the US harvest season is fast approaching with its inevitable selling pressure – this market will likely be sensitive to any bearish news.
Although we expect Dec to again challenge nearby overhead resistance next week, it is difficult to imagine a major rally unfolding based on the information currently available to most market participants.
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