WEEKLY MARKET SUMMARY

Transcription

1 For the Week of January 8, 2017 BONDS: All things considered, the action in the treasury market late last week had to be discouraging to the bull camp as a headline miss relative to estimates on the nonfarm payroll reading provided only a fleeting bounce in prices. In other words, the market failed to hold in positive territory and finished the trading week in a bad technical position on the charts. Even more surprising is the lack of sustained bullish windfall from the Fed's Harker statements that two rate hikes in 2018 would be appropriate as that falls below the average market expectation of three. With global equity markets higher again early this week, the risk-on pattern looks set to extend straight away and that seemed to foster a quasi-downside breakout in Treasuries early on. With the bond and note markets also facing a failed bullish response to the nonfarm payroll report last Friday and euro zone bond yields clawing higher early this week, the bull camp will have to prove it can stand up to the late December and early January erosion in prices. With a Fed member last week suggesting that 2018 might only bring two rate hikes and portions of the trade also reiterating that expectation the lack of a definitive bullish price response on the charts has to be extremely discouraging to the bull camp. Perhaps the markets are undermined by suggestions from the Bundesbank head that the ECB needed to set a specific date to end asset purchases! The Commitments of Traders Futures and Options report as of January 2nd for U.S. Treasury Bonds showed Non-Commercial and Nonreportable combined traders held a net long position of 108,997 contracts and that positioning is overbought! In contrast the Commitments of Traders Futures and Options report as of January 2nd for US Treasury 10 Yr Notes showed Non-Commercial and Non-reportable combined traders held a net short position of 51,883 contracts and that could decrease the liquidation pressure on Notes ahead. CURRENCIES: On one hand, the action in the dollar late last week was somewhat impressive as the index did not initially fall into a downside breakout in the immediate aftermath of the disappointing US nonfarm jobs gain. However, the dollar index remains pinned down to its recent lows despite an upward revision in the November payrolls and ongoing record gains in US equities. Comments from the Fed's Mester suggesting she still sees weak inflation levels should keep the prevailing bias in the dollar pointing downward. Despite last Friday s disappointing headline nonfarm payroll result, the dollar index forged a technical upside breakout from a four day consolidation low zone in a fashion that would seem to hint at some form of low. However, it would appear as if the market continues to embrace the two rate hike view for 2018 and that could make the underside of the late November and early December consolidation extremely thick resistance for the dollar. The Commitments of Traders Futures and Options report as of January 2nd for US Dollar showed Non-Commercial and Nonreportable combined traders held a net long position of 6,323 contracts. This represents a decrease of 930 contracts in the net long position held by these traders.

2 With a five day low in the euro early this week, it would appear as if euro zone scheduled data has been discounted or perhaps the market saw a German industrial orders contraction as the primary reading over the euro zone retail sales results. However the most recent positioning report showed the combine spec and fund net long in the euro hitting a new all-time high and that clearly provides stop loss selling fodder. The Commitments of Traders Futures and Options report as of January 2nd for Euro showed Non-Commercial and Non-reportable combined traders held a net long position of 163,277 contracts. This represents an increase of 38,675 contracts in the net long position held by these traders. Apparently the quasi-risk on mode helped the March Yen reject a 10 day low on the charts. Perhaps the Yen benefited from news of a pattern of rising Chinese foreign exchange reserves as that should point to improving Pacific Rim financial and economic conditions ahead. We expect the Yen to climb toward as long as US equities extend on the upside. With spillover pressure from the euro and surprise strength in the dollar to start the week, the path of least resistance in the Swiss is down with a critical pivot point early on at Indirectly the Swiss might be pressured by the calls for a specific date for ending euro zone quantitative easing and that could leave spillover pressure from the euro. Surprisingly the British Pound started out under pressure this week despite an extension of risk on mentality in global equities. Clearly a decline in UK house prices (the first decline in six months) applied some modest pressure to the currency. News of a potential change in government Ministers and suggestions in the press calling for a hard exit, adds modestly to the downward tilt. Apparently the market into last week s top temporarily factored in a series of much stronger than anticipated Canadian jobs reports. However after a slight corrective balancing on the charts, one should expect the Canadian to remain within an and trading range. STOCKS: The stock market forged another record-breaking day last Friday with all sectors of the market seemingly rising in sync. Apparently US scheduled data from the jobs front was "good enough" to leave positive growth hopes in place without raising the threat of rising US rates. Apparently lingering security threats from the chip sector and a miss on sales by a noted consumer cyclical company were of little concern to the bull camp. Global equity markets were higher at the start of the week as if the risk-on pattern was set to extend straight away. Apparently equity markets continue to embrace bullish fundamentals perhaps because of fresh buyout activity in the biotech sector. Another issue contributing to the bull case to start the trading week is a bullish weekend poll from US growth funds. It is also possible that the markets are generally relieved with market views calling for only two US rate hikes in 2018 as opposed to previous expectations of three rate hikes. Earnings announcements will include Helen of Troy before the Wall Street opening. While the March E-mini S&P has failed to hold the new all-time high print early this week, the upward momentum in the marketplace appears to have extended into the new trading week. The bull camp should be emboldened by the fact that the most recent noncommercial and nonreportable combined net position in the E-mini S&P remains very moderate as that would seem to suggest the market is not yet overbought from that classic technical measure. The Commitments of Traders Futures and Options report as of January 2nd for E-Mini S&P 500 showed Non-

3 Commercial and Non-reportable combined traders held a net long position of 189,828 contracts. This represents an increase of 81,895 contracts in the net long position held by these traders. The mini Dow futures have also forged a new all-time high start and the index generally remains within striking distance of that all-time high into the NYSE opening. The Dow should be emboldened by a bullish fund manager survey and indications from the bank sector that the new federal tax code leaves long-term fundamentals bullish. The Commitments of Traders Futures and Options report as of January 2nd for Dow Jones Index $5 showed Non-Commercial and Nonreportable combined traders held a net long position of 87,107 contracts. This represents an increase of 6,003 contracts in the net long position held by these traders. Not to be left out, the March mini NASDAQ has also forged another new all-time high. However, the tech sector might be slightly undermined by Apple shareholders lobbying Apple to address youth addiction to phones. The Commitments of Traders Futures and Options report as of January 2nd for Nasdaq Mini showed Non-Commercial and Non-reportable combined traders held a net long position of 19,154 contracts. This represents an increase of 9,266 contracts in the net long position held by these traders. GOLD, SILVER & PLATINUM: While the overall bias in gold and silver remains up and both markets forged positive closes at the end of last week, the markets have started the new trading week out under moderate pressure and the bull camp will need to see renewed weakness in the dollar index quickly this week to offset the moderating safe haven condition in Iran. In fact the March Dollar technically broke out to the upside in a fashion that suggests the non-farm payroll report has been quickly discounted. Unfortunately for the bull camp, Chinese gold reserves have continued to remain unchanged as the demand function from China for gold appears to be limited to their private sector. The world's largest gold ETF saw their holdings fall by 1.18 tonnes on Friday to reach their lowest level since September 17th. Another problem for the bull camp is the recent positioning report for gold which showed a dramatic escalation of 32,865 long spec contracts in one week. However in our opinion, the positioning doesn't become extremely vulnerable and overdone until the net spec and fund long reaches above 250,000 contracts. The Commitments of Traders Futures and Options report as of January 2nd for Gold showed Non-Commercial and Non-reportable combined traders held a net long position of 185,809 contracts. This represents an increase of 32,865 contracts in the net long position held by these traders. The silver market's net spec and fund long also expanded aggressively in the latest positioning report but the positioning is still relatively modest and silver should be less technically vulnerable than gold. The Commitments of Traders Futures and Options report as of January 2nd for Silver showed Non-Commercial and Non-reportable combined traders held a net long position of 37,441 contracts. This represents an increase of 16,765 contracts in the net long position. With the high last week in palladium, the market reached a "new" all-time high but fortunately for the bull camp, the net spec and fund long in palladium remains below record levels in the most recent report. Furthermore while the palladium market showed some corrective action over the prior two trading sessions, the palladium market has flashed higher again and clearly remains within a bigger picture uptrend pattern. The Commitments of Traders Futures and Options report

4 as of January 2nd for Palladium showed Non-Commercial and Non-reportable combined traders held a net long position of 27,484 contracts. The Commitments of Traders Futures and Options report as of January 2nd for Platinum showed Non-Commercial and Non-reportable combined traders held a net long position of 25,738 contracts. COPPER: In addition to severe technical damage on the charts last week, the copper market into the last positioning report did register a record net spec and fund long which in turn should feed long liquidation into the new trading week. One could also suggest that copper has become slightly immune to favorable Chinese demand talk and a favorable Bank of America forecasts of a $7,700 LME copper price forecast has simply left the market flat-footed at the start of the week. In fact, the copper market has to be discouraged by the latest weekly build in Shanghai copper stocks of 9,952 tonnes especially since that news was preceded by a recent pattern of daily builds in LME copper stocks. The "combined" spec and fund Net Long position in copper as mentioned hit a new record level at 63,602 contracts and that should leave the market vulnerable to increased downside volatility. ENERGY COMPLEX: The crude oil market at the end of last week seemingly reversed course as if the latest round of bullish fundamental developments had been factored into prices. In fact, the most recent positioning report showed the combined spec and fund net long in crude oil hitting another new record level at 691,049 contracts and that would seem to leave the market technically vulnerable to start the new trading week! While the crude oil market has been boosted by the ongoing deepfreeze in the US recently, that situation has now moderated and some above normal temperatures are expected later this week. Residual support for prices is seen from news that US rail shipments to Mexico are expected to expand and from reports at the end of last week that compliance by oil producers to the production cut agreement was 128%. Reports that production was cut in Saudi Arabia by 60,000 barrels per day is joined by news that Venezuelan production continues to decline because of domestic political/economic influences and by residual production problems in Libya (from an earlier pipeline incident) should cushion prices against a badly needed corrective balancing. On the other hand, despite the reduction in output by some oil producers in December, overall OPEC output actually increased by 20,000 barrels per day. At least in the short term, it would appear as if Iranian pro-government rallies and calls for punishment of the antigovernment protesters have squelched Iranian unrest and that is slightly undermining of oil to start the week. However, the problems facing the Iranian government include severe economic problems for a large portion of the populace with an added flashpoint coming from excess displays from the rich who are benefiting from the theocracy. Therefore, the Iranian situation will continue to simmer but has temporarily lost its capacity to support prices. Forced into the market, we favor the bearish tilt given the extreme overbought technical condition and the potential for a temporary more "normal" energy market environment. The Commitments of Traders Futures and Options report as of January 2nd for Crude Oil showed Non-Commercial and Non-reportable combined traders held a net long position of 691,049 contracts.

5 With the weather outlook for a large portion of the US moderating this week and power outages throughout the Eastern Seaboard of the US in some cases reducing demand, a large portion of the bullish condition for heating oil has been tempered. Furthermore, the product markets in general have seen a rebuilding of US inventories in the wake of an extremely active US refinery operating rate pattern! As opposed to the crude oil market (that has benefited from a significant year-over-year annual stocks deficits), the annual deficits in gasoline and heating oil stocks are set to narrow. Given that the December/January rally in heating oil was a rather lofty $0.25 and given that the peak last week filled an old gap and reached up to the highest level since 2015, some form of temporary top should be in place. Evidence of the severe overbought condition of the heating oil market is apparent from the latest positioning report that pegged the net spec and fund long at a fresh record level. While we acknowledge the prospect of a corrective setback because of the milder weather pattern ahead, any recovery in crude oil and or longer-term forecasts for a return to cold for late January could help heating oil check-up the slide. The Commitments of Traders Futures and Options report as of January 2nd for Heating Oil showed Non-Commercial and Non-reportable combined traders held a net long position of 94,450 contracts. This represents an increase of 9,370 contracts in the net long position held by these traders. The Commitments of Traders Futures and Options report as of January 2nd for Gasoline (RBOB) showed Non-Commercial and Non-reportable combined traders held a net long position of 92,899 contracts. Clearly the natural gas market had factored forward cold weather in the US with last week's peak and reversal. In retrospect, the $3.00 level would appear to have become some sort of value zone in the event that cold weather returns, while the $2.60 level might become a value zone if US cold fails to return later this month. Apparently, normal storage withdrawals are not enough to permanently reverse the downward bias in natural gas and the market would appear to be poised to settle back down into a $2.80 to $2.60 trading range. Unfortunately for the bull camp, the latest positioning report showed a decrease of 26,095 contracts of the net spec and fund long into the top last week and the noncommercial and nonreportable net short remains somewhat modest at 115,523 contracts. As indicated already, the near term fundamental and technical path of least resistance in natural gas looks to be pointing downward with a possible trading range defined as $2.80 to $2.60. Given that severe cold and a noted recovery in North American winter demand failed to permanently in the downtrend we have to wonder what force is capable of bringing the February contract back above the top of the mid- December consolidation. BEANS: Traders continue to assess the weekend rains as well as the forecast in Argentina and Brazil. The overall consensus is while Argentina continues to have some problem areas the majority of Brazilian growing regions have seen near perfect growing conditions. There are two systems forecast over the next ten days for Argentina with amounts and coverage on the lighter side. Brazil will continue to see favorable rains with seasonal temperatures. Conab's updated production report this week should see an uptick in Brazil's production. March soybeans settled up 9 cents for the week on Friday with March soybean meal up $5.10 on the week and March soybean oil up 50 points on the week.

6 Brazil's December soybean exports were seen at 2.36 million tonnes, up 261% from last year's 653,000 tonnes. The exports to China came in at 2.05 million tonnes, up 328% from last year's 480,000 tonnes. Brazil's Safras & Mercado raised their estimate for Brazilian soybean exports to 68.5 million tonnes versus their previous estimate of million and compared to the latest USDA estimate of 65.5 million tonnes. Needless to say, traders are looking for the USDA to cut the soybean export estimate in this week's update. The Buenos Aires Grains Exchange estimated soybean plantings at 87.5% complete versus 81.9% last week and compared to 92.9% last year. The planted area estimate remains unchanged at 18.1 million hectares, although soybean farmers in northern Argentina are in a race against time to get their crops planted. Malaysian palm oil settled up 3.6% last week, partly due to Malaysia's decision to cut crude palm oil export duties which should benefit palm oil exports. The export duties were cut to 0% for three months and could be in response to Malaysian palm reserves rising to a 2 year high in December. Friday's weekly export sales came in at 554,000 tonnes for the current marketing year and 6,800 for the next marketing year for a total of 560,800. As of December 28th, cumulative soybean sales stand at 67.8% of the USDA forecast versus a 5 year average of 80.1%. Meal sales came in at 109,000 tonnes for the current marketing year and 8,900 for the next marketing year for a total of 117,900. Cumulative meal sales stand at 55.2% of the USDA forecast versus a 5 year average of 57.6%. Oil sales came in at 17,900 tonnes. The Commitments of Traders reports as of January 2nd showed Non-Commercial traders were net short 63,627 contracts of soybeans, an increase of 23,639 contracts for the week which leaves the market somewhat oversold going into the key growing season for Argentina. Non- Commercial and Nonreportable combined traders held a net short position of 96,940 contracts, an increase of 20,037 contracts in just one week. For Soybean Oil, Non-Commercial traders were net long 24,534 contracts, an increase of 2,506 contracts for the week. Non-Commercial and Nonreportable combined traders held a net long position of 27,222 contracts, down 326 on the week. For Soybean Meal, Non-Commercial traders were net long 49,622 contracts, a decrease of 11,013 contracts for the week and the long liquidation selling trend is a bit bearish. Non- Commercial and Nonreportable combined traders held a net long position of 63,346 contracts, down 11,589 contracts in just one week. CORN: Dalian corn futures extended lower at the start of this week, trading down over 1.5% at one point and settling down nearly 1.0% on Monday. Feed mills and processors have been stockpiling product for several weeks in anticipation of the Lunar New Year holiday later this month. Sinograin, China's state grain stocks holder, will start corn auction sales this week after domestic prices climbed to a two year high. The company will offer 26,719 tonnes of 2014 corn on January 9th from the northern province of Shanxi. Government auctions were previously planned to start in May! March corn settled last week at 351 1/4 up just 1/2 cent on the week. The Buenos Aires Grains Exchange estimated corn plantings at 77.9% versus 70.2% last week and compared to 82.9% last year. A new data set for ratings has pegged 33% of the crop in good/excellent condition, 34% in fair condition and 33% in poor/very poor condition which is a supportive price factor. Last week's export sales came in at 101,200 tonnes which was well below trade expectations. As of December 28th, cumulative corn sales stand at 54.5% of the USDA forecast versus a 5 year average of 58.1%. Looking ahead to the 2018/19 growing season, if US

7 producers were to plant 90.8 million acres, which is slightly more than last year, and average yield were to come in at bushels per acre, which is near trend, we would expect ending stocks to come in around billion bushels, a slight increase from 2017/18. A new record yield of 177 bushels per acre would leave ending stocks at a very burdensome billion bushels. If there is a minor weather issue and US average corn yield slips to 170 bushels per acre, US ending stocks could fall to billion bushels. Keep in mind that world beginning stocks for the 2018/19 season are already down 10.2% from the previous year, and China may see another major production deficit this coming season. The Commitments of Traders reports as of January 2nd showed Non-Commercial traders were net short 123,031 contracts, a decrease of 7,694 contracts for the week. Non-Commercial and Nonreportable combined traders held a net short position of 93,020 contracts, a decrease of 8,910 contracts for the week and the short-covering trend is somewhat positive. Commodity Index traders held a net long position of 328,615 contracts, up 2,789 contracts for the week. WHEAT: The near term forecast shows chances of 1/4 to 3/4 inches of rain for parts of western Kansas, and this may be enough to spark some selling early this week. However, confidence in the small amount of rain is not great and the 6-10 day looks to revert to below normal precipitation for the region. Chicago March wheat settled up 3 3/4 cents last week which was the third consecutive higher weekly settlement. Kansas City March wheat settled up 10 1/4 cents on the week and Minneapolis March wheat settled up 12 cents on the week. In a survey of 924 producers by Farm Futures, the winter wheat planted acreage is estimated at 31.2 million acres, down 4.5% from last season and the fifth consecutive decline. They commented a slow harvest from wet conditions delayed some plantings and poor profit margins continue to keep acres down. The major concern for the hard red winter wheat areas has been the extreme dryness over the last three months in areas of Kansas, Oklahoma, Colorado, Missouri and northern Texas. These areas have received 25% or less of normal rain amounts over the last 60 days. But when it comes to wheat, the higher-protein Kansas City wheat is what end-users really need. Look no further than last year's drought stricken spring wheat rally that took nearby Minneapolis wheat, another high-protein type, well above $8.00 per bushel. The July Kansas City Wheat/July Chicago Wheat spread closed out 2017 above the 200-day moving average, and it extended the rally into the New Year to trade to its highest level since July 28th. The spread traded to an intraday high of 20 cents premium Kansas City back in early July, but it has traded at 40 cents or higher several times in the past. Remember, protein is what drives the wheat market. Last week's export sales came in at 131,000 tonnes. As of December 28th, cumulative wheat sales stand at 73.4% of the USDA forecast versus a 5 year average of 74.8%. Both markets are still showing large net short positions being held by managed money traders, with Chicago's at 128,178 and Kansas City's at 28,961 as of January 2nd. The Commitments of Traders reports as of January 2nd showed Non-Commercial traders were net short 100,201 contracts, a decrease of 12,515 contracts for the week. Non-Commercial and Nonreportable combined traders held a net short position of 101,202 contracts, down 11,239 contracts for the week. For Kansas City Wheat, Non-Commercial traders were net short 10,300 contracts, a decrease of 5,894 contracts for the week. Non-Commercial and Nonreportable combined traders held a net short position of 3,881

8 contracts, a decrease of 7,500 contracts in just one week. Commodity Index traders held a net long position of 46,314 contracts, up 2,159 contracts for the week. HOGS: The hog market continues to hover near its November highs, as firm pork cutout values during a period of extremely cold weather in the Midwest is providing underlying support. The snow that reached the Carolinas on Thursday could slow East Coast producer marketings as well. The weather in the Midwest reach the 30's this weekend, and the warmth looks to continue ahead with Chicago highs on Tuesday of 36 degrees, 44 degrees on Wednesday and 48 on Thursday. With hog weights running well above year-ago levels, the warm-up could bring about a jump in marketings and pork production. Pork production normally declines by 150 to 300 million pounds from the 4th to the 1st quarters, but this year it is expected to decline by just 75 million pounds. This is a bearish setup given the record production seen in the 4th quarter. Last year production fell 239 million pounds for the same period. Similar years to this year include 2015, 2008 and The charts showing the February futures in those years speak for themselves. (These can be viewed in our Research Center at Some of the key bearish numbers from the December USDA Hogs and Pigs report include the September-November Pig Crop coming in 3.2% above last year, December-February Farrowing Intentions 2.8% above last year, and Pigs per Litter reaching a new record high. This could leave a burdensome supply for later this year. The University of Illinois has suggested that the delays in slaughter in the 4th quarter could help send 1st quarter pork production up 4.7% from last year. The CME Lean Hog Index as of January 3rd came in at 63.63, up 88 cents from the previous session and up from the previous week. This leaves February hogs at a 772-point premium to the cash market versus a 5-year average premium of 325 points. Given the production shift expected into the first quarter, the premium should be less than normal, not greater than normal. The USDA estimated hog slaughter came in at 439,000 head Friday and 387,000 head for Saturday. This brought the total for last week to million head, up from million the previous week and up 3.1% from a year ago. Pork production for the week was up 3.3% from last year. USDA pork cutout values released after the close Friday came in at $78.31, up $1.01 from Thursday and up from $77.05 the previous week. This was the highest since December 12th. The Commitments of Traders reports as of January 2nd showed non-commercial traders were net long 62,159 contracts, an increase of 4,278 for the week. Non-commercial and nonreportable combined traders held a net long position of 38,017 contracts, up 5,440 for the week. February hogs closed 5 higher on the session Friday, but this left the market down 35 points for the week. U.S. pork export sales for the week ending December 28th came in at 5,200 tonnes, versus the average of the previous four weeks at 20,075. Cumulative sales for 2017 have reached 1,184,900 tonnes, up 10.1% from last year's pace. CATTLE: February cattle closed 300 lower on the session and this left the market down 230 points for the week. Sellers turned active after a lower opening with spec long liquidation. News that cash cattle in Kansas traded at $122.00, $1.00 lower on the week helped to pressure the market as traders expected higher trade this week. The weather may be seen as a temporary bearish force. Weekly U.S. beef export sales for the week ending December 28th came in at 2,500 tonnes, compared

9 with the prior 4-week average of 6,550. Cumulative sales for 2017 have reached 795,900 tonnes, up 10.7% from last year's pace. Boxed-beef cut-out values at mid-session were up 61 cents to $ from $ one week ago. The cash market outlook for January remains supportive and beef prices continue to advance so we will have to assume that the aggressive selling tone from Friday was technical in nature. Cash live cattle traded at in Texas/Oklahoma on Friday, vs the previous week. USDA boxed beef cutout values were up 61 cents at mid-session Friday and closed 84 cents higher at $ This was up from $ the previous week and was the highest the cutout had been since November 27th. The USDA estimated cattle slaughter came in at 118,000 head Friday and 83,000 head for Saturday. This brought the total for last week to 541,000 head, up from 502,000 the previous week but down from 543,000 a year ago. February cattle closed 300 lower on the session Friday and this left the market down 230 points for the week. Sellers turned active after a lower opening with spec long liquidation noted. News that cash cattle in Kansas traded at $122.00, $1.00 lower on the week, helped to pressure the market, as traders had expected higher trade last week. The weather on the East Coast may be seen as a temporary bearish force from a demand perspective, but there is some moisture in the forecast for western Kansas, which might be seen as somewhat positive. U.S. beef export sales for the week ending December 28th came in at 2,500 tonnes, versus the average of the previous four weeks of 6,550. Cumulative sales for 2017 have reached 795,900 tonnes, up 10.7% from last year's pace. The Commitments of Traders reports as of January 2nd showed non-commercial traders were net long 105,130 contracts, a decrease of 1,736 on the week. The long liquidation selling trend is somewhat bearish. Noncommercial and nonreportable traders combined held a net long position of 81,930 contracts, a decrease of 739. Commodity index traders held a net long position of 131,654 contracts, up 1,798 for the week. COCOA: After a volatile start to 2018, cocoa had a relatively subdued finish to last week s trading that kept the market within its recent consolidation zone. With improving demand increasing the chances for supply/demand balance this season, cocoa may be heading toward higher price levels over the near future. March cocoa shook off early pressure before finishing Friday s inside day session with a modest loss. For the week, March cocoa closed with a gain of 3 points (0.2% higher) for a second positive weekly result in a row. A shift towards more seasonal hot and dry conditions is expected to have a negative impact on West Africa s late main and mid-crop output. Ivory Coast production is expected to fall 5% to 10% from last season s record high while Ghana is expected to see a 10% to 12% decline from last season. ICE exchange cocoa stocks have fallen for seven straight months and have fallen more than 40% from their multi-year highs in May, which bodes well for North American demand prospects. Last Thursday s 3-year high in the Eurocurrency should benefit European cocoa demand, where more than one-third of all global grindings take place. As a result, early trade forecasts call for cocoa to have a much smaller production surplus this season than the 335,000 tonnes that the International Cocoa Organization (ICCO) has estimated for 2016/17. The Commitments of Traders Futures and Options report as of January 2nd for Cocoa showed Non-Commercial traders were net short 5,721 contracts, a decrease of 4,155 contracts. Non-Commercial and

10 Nonreportable combined traders held a net long position of 5,692 contracts. This represents an increase of 4,133 contracts in the net long position held by these traders. Commodity Index traders held a net long position of 30,309 contracts. This represents an increase of 1,834 contracts in the net long position held by these traders. COFFEE: After three sessions of whipsaw price action, coffee finished last week with Friday s subdued inside day session. With a sizable net spec short position combined with significant index fund buying expected this week, coffee may be heading towards its highest price levels since early October. March coffee was unable to shake off early pressure as it finished Friday with a moderate loss. For the week, however, March coffee finished with a gain of 2.25 cents (1.7% higher) for a third straight weekly gain. The International Coffee Organization (ICO) reported that November global coffee exports were down 9.2% from the previous year s total. This was due to slow Vietnamese producer sales and a late start to their harvest, but also reflects a fairly tight Brazilian near-term supply situation that may last until their harvest starts in June. RCMA cut their forecast for Vietnam s 2017/18 output to 1.69 million tonnes (28.17 million bags) from 1.71 million tonnes (28.50 million bags). Rabobank lifted their Honduran production estimate by 12% to 7.3 million bags, which compares with last season s 7.2 million bags. ICE exchange coffee stocks rose by 4,890 bags on Friday and are on-track for a thirteen straight monthly gain. The latest COT report showed a sizable decline in coffee s net spec short position, but it remains large enough to fuel additional short-covering early this week. The Commitments of Traders Futures and Options report as of January 2nd for Coffee showed Non-Commercial traders were net short 39,663 contracts, a decrease of 10,132 contracts. Non-Commercial and Nonreportable combined traders held a net short position of 33,803 contracts. This represents a decrease of 8,513 contracts in the net short position held by these traders. Commodity Index traders held a net long position of 34,853 contracts. This represents a decrease of 272 contracts in the net long position held by these traders. COTTON: Technical reversals on the weekly and daily charts point to a possible near term peak for March cotton. The market closed 124 lower on Friday and 62 lower for the week. This was after it traded above for the first time since June Traders suspect that producer selling was active and that spec long liquidation selling emerged late in the day on Friday. The weekly export sales report released Friday morning showed sales for the week ending December 28th coming in at 193,900 bales for the current marketing year and 93,200 for the next marketing year for a total of 287,100. Cumulative sales have reached 78.4% of the USDA's forecast for 2017/18 marketing year versus a 5 year average of 73.2% for this time of year. This suggests that the USDA may raise their export forecast and lower their ending stocks estimate in this week's supply/demand update. The market closed higher for 10 weeks in a row before closing lower last week. Traders have noted a continued advance in open interest and fund buying as well as strong global economic news as key supportive forces. Deliverable stocks are tight, and there have been reports that 50% of the 2017/18 cotton crop from the Texas High Plains could be undeliverable against the futures market due to quality issues. Certified exchange deliverable stocks increased to 47,665 bales from 47,589 the previous session. The Commitments of Traders reports as of January 2nd

11 showed non-commercial traders were net long 114,565 contracts, an increase of 1,066 for the week. Non-commercial and nonreportable traders combined held a net long position of 119,493, up 554. Commodity Index traders held a net long position of 72,600, up 964. Spec net long positions are approaching their record levels from February-March SUGAR: Sugar s more than 12% rally from mid-december through last Wednesday s 5-week high was fueled by carryover support from outside markets, a sizable net spec short position and anticipation of significant index fund buying. As the index rebalancing window starts this week, several of those supportive factors are starting to fade which may put a bearish global supply outlook back on the front-burner earlier than thought. March sugar was unable to shake off early pressure as it finished Friday s inside day session with a moderate loss. For the week, March sugar finished with a loss of 8 ticks (0.5% lower) which also represented a negative weekly reversal. While the Brazilian currency remained strong, energy markets finished last week by pulling back from their recent highs. India may increase their sugar import duty to 75%-80% from the current 50% as their government wants to curtail imports and protect domestic prices. With their 2017/18 production expected to be more than 25 million tonnes with even larger output expected during the 2018/19 season, however, Indian sugar imports may be off the table for several seasons. While cane-growing areas in Brazil s Center-South region received below normal rains last week, showers forecast over the next few weeks should keep conditions relatively stable. The latest COT report showed that sugar s net spec short position has disappeared on the recent rally, which significant reduces the chances for additional short-covering this week. The Commitments of Traders Futures and Options report as of January 2nd for Sugar showed Non-Commercial traders were net short 4,065 contracts, a decrease of 34,888 contracts. Non-Commercial and Nonreportable combined traders held a net long position of 1,877 contracts. These traders have gone from a net short to a net long position. Commodity Index traders held a net long position of 199,348 contracts. This represents a decrease of 4,142 contracts in the net long position held by these traders. Please contact us at or via at sales@admis.com for any questions or comments on this report or would like more information about ADMIS research. 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. This report includes information from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. 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. Any reproduction or retransmission of this report without the express written consent of ADM Investor Services, Inc. is strictly prohibited. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by Archer Daniels Midland Company. Copyright ADM Investor Services, Inc. Follow, Fan and Connect w/admis on Social Media LinkedIn ADMIS Futures & Options Daily Group!