November 2017 Monthly Commodity Market Overview Newsletter

Transcription

1 November 2017 Monthly Commodity Market Overview Newsletter By the ADMIS Research Team Stock Index Futures S&P 500, Dow Jones, NASDAQ and Russell 2000 futures registered new historical highs in November. The bullish on balance economic fundamentals continue to dominate, which include better than expected corporate earnings. With third quarter earnings season winding down, over 80% of the companies in the S&P 500 having reported quarterly results, approximately 73% of them have surpassed earnings expectations, while 65% have exceeded revenue estimates. In addition, earnings for the quarter are anticipated to have climbed 8%, compared with expectations of a 5.9% increase at the beginning of October. In addition, futures continue to be supported by the relatively low global interest rate environment and optimism about global economic growth. The bullish fundamentals more than offset geopolitical pressures, including the bearish influence of the ongoing tensions on the Korean peninsula. S&P 500 Futures -Weekly 1 P a g e

2 More recently the increasing probabilities of a delayed U.S. tax reform have taken futures off of the highs. My belief is that tax reform delays will only temporarily get in the way of this bull market. The long term outlook for S&P 500, Dow Jones, NASDAQ and Russell 2000 futures is higher. Energy Crude oil prices advanced to their highest level since July of 2015, supported by geopolitical turmoil in the Middle East and the Organization of the Petroleum Exporting Countries' ongoing effort to eliminate approximately 2% of global supply with the help of external crude oil producers. However, gains were limited more recently after the International Energy Agency said that if the supply disruptions and geopolitical tensions that supported prices prove to be temporary, the market balance next year does not appear to be as tight as some would like it to be. Also, in its monthly report, the International Energy Agency reduced its crude demand growth outlook by 100,000 barrels a day for this year. Crude Oil Futures - Weekly Higher prices are likely for crude oil futures in light of ramped up geopolitical risks, along with an improving global economy. 2 P a g e

3 Precious Metals Gold futures traded sideways through most of the October-November period. There was some support due to rising tensions in the Middle East, which boosted the safe haven appeal of the yellow metal. Investors are keeping a close watch on developments in the Middle East after Saudi Arabia detained hundreds of individuals in a corruption investigation and after increased tensions between Saudi Arabia and Iran. From a technical point of view the level remains our next long term upside target. The influence of a strengthening global economy and the increased inflation that it brings should take precious metals futures higher. Gold Futures - Weekly U.S. Dollar The U.S. dollar advanced since early September, making new highs for the move this month. Much of this strength is due to ideas that interest rates in the U.S. would rise faster than elsewhere in the world, especially after the dovish on balance European Central Bank policy statement. The greenback only temporarily declined on news that October U.S. nonfarm payrolls increased 261,000, which was the largest gain since July 2016, but was below economists expectations for an increase of 310,000 jobs. In addition, average hourly earnings for private sector workers decreased by one cent or.04% last month to $26.53 an hour, which was below analysts expectations for a.2% monthly gain. 3 P a g e

4 More recently the U.S. dollar came under pressure against most other major currencies due to the uncertainty over the fate of the U.S. tax reform bill. Interest rate differential expectations appear to be slightly bullish on balance for the U.S. dollar. Euro Currency The euro currency has trended lower since early September as interest rate differentials turned against the currency of the euro zone. This belief was underscored due to the dovish on balance European Central Bank policy statement when it said its key interest rates would remain on hold well beyond the end of its asset purchase program. The ECB said it would reduce its monthly bond purchases to 30 billion euros a month from 60 billion and keep buying through September of While the level of monthly bond purchases is significantly reduced, the fact that the quantitative easing is extended through September 2018 is taken by many analysts to be a relatively dovish indication. The longer the program is in place, the further into the future there is for a rate increase. There was temporary support for the euro after the European Union said the economy of the euro zone is likely to exceed economic growth expectations for In addition, the E.U. said gross domestic product in the euro zone will grow by 2.2% in 2017, raising its forecast from 1.7% growth predicted in May. Interest rate differential expectations appear to be slightly bearish on balance for the currency of the euro zone. Grains The USDA had a few surprises in its November crop report. On November 9, the USDA estimated world 2017/18 corn end stocks at million tonnes. In addition, the USDA estimated world production near 1,043.9 million tonnes and total usage at 1,066.6 million tonnes. Total world exports are estimated to be near million tonnes and U.S. exports are estimated to be near 48.9 million tonnes. China s crop was estimated to be near million tonnes. Total demand was estimated to be near End stocks were estimated to be near 78.7 million tonnes. The fact USDA increased U.S. corn yield to a new record high weighed on prices and could limit the upside. On November 9, the USDA estimated world 2017/18 soybean production will be near million tonnes and total usage to be also a record at million tonnes. Total world exports are estimated to be near million tonnes versus last year and U.S. exports are estimated to be near 61.2 million tonnes versus 59.2 last year. The USDA estimated China s 2017/18 soybean imports to be near a record 97.0 million tonnes. The USDA lowered U.S. 2017/18 soybean end stocks to 11.6 versus 11.7 previously due to a slightly lower crop. The 4 P a g e

5 USDA did not lower the U.S. crop as much as the bulls hoped. The USDA did raise the Brazil 2018 soybean crop 1.0 million tonnes to On November 9, the USDA estimated world 2017/18 wheat end stocks at a new record million tonnes. This was due to a slight drop in U.S. and Kazakhstan. The USDA estimated world production to be near million tonnes versus last year. Total usage is estimated to be million tonnes and total world exports are estimated to be million tonnes versus last year. U.S. exports are estimated to be near 27.2 million tonnes versus 28.7 last year. The Russian wheat crop was estimated at 83.0 million tonnes versus 72.5 last year and Russian wheat exports were raised to 33.0 million tonnes versus 27.8 last year. Cattle Livestock Trading in October was a continuation of the move higher that began in mid-august. From the first day of trading in October through the final day, futures moved higher close to $12.50/cwt. October 2017 was the opposite of October 2016 when live cattle and feeder cattle plummeted and in 2017 the market caught hedgers short. On October 13, 2016, October 2016 live cattle futures settled at $ On October 13, 2017 October 2017 live cattle were climbing and settled at $ and closed the month at $ There were strong fundamental reasons for the market to rally in October U.S. beef had solid export demand. Exports for U.S. beef were 15% higher from a year ago. Even with the growth of worldwide cattle numbers, exporter buyers knew the U.S. cattle industry could consistently supply the tonnage of high quality grain fed beef, along with the variety cuts used throughout the globe. 2. From April 2017 throughout October U.S. cattle weekly slaughter averaged 5.6% above 2016, but feedlots kept weights below a year ago. With the lighter carcasses in 2017, even with the increase of cattle killed, the amount of beef produced was down below Beef processing companies had exceptional profit margins in October. Big profits pushed packing industry demand. October rallied on simple supply and demand imbalances and of course with help from speculators with chart based trading. 5 P a g e

6 Live Cattle Futures - Weekly Lean Hogs Even with mainland China buying less U.S. pork in 2017, export demand for pork moved 22% of U.S. pork. Mexico, Japan, Canada and South Korea have been excellent importers of U.S. pork. Strong exports mean less pork moved into cold storage. As of the October USDA Cold Storage Report there was 7% growth from the previous month, however, pork in storage on the October report showed supply in 2017 compared to 2016 was down 4%. This was friendly to hog prices because slaughter for 2017 compared to 2016 by the end of October was up 2.9%. Lean Hog Futures - Weekly 6 P a g e

7 Pork carcass prices from the beginning of October to the end of the month increased $4.03/cwt; loins were steady with the strength coming from hams and pork bellies. Hams were up close to $8.00/cwt and pork bellies almost $9.00/cwt higher. Hog futures bottomed on September 25 th and rallied to October 31 st over $11.00/cwt. There was a bright, or friendly side for hog futures, however. While nearby hogs were being sold, spreaders were buying early winter December hogs into the summer of 2018, pushing spreads out as much as $20.00/cwt with late winter and spring of 2018 hogs benefiting. All charts provided by QST Stock Index December 17 S&P 500 Support and Resistance Support Resistance December 17 NASDAQ Support Resistance Energy December 17 Crude Oil Support Resistance December 17 Natural Gas Support Resistance Precious Metals December 17 Gold Support Resistance December 17 Silver Support Resistance Industrial Metals December 17 Copper Support Resistance Currencies December 17 US Dollar Index 7 P a g e

8 Support Resistance December 17 Euro Currency Support Resistance Grains March 17 Corn Support 3.40 Resistance 3.70 March 18 Soybeans Support 9.40 Resistance March 17 Chicago Wheat Support 4.20 Resistance 4.50 Livestock December 17 Cattle Support Resistance December 17 Hogs Support Resistance If you would like more information about the markets featured in this monthly newsletter, please send us an to Thank you. ADM Investor Services, Inc. 2100A Chicago Board of Trade Building P TF 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 risk of loss in trading futures and options can be substantial. The views and opinions expressed in this letter are those of the authors and do not reflect the views of ADM Investor Services, Inc. or its staff. Research analysts do not currently maintain positions in the commodities specified within this report. 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. 8 P a g e