WEEKLY MARKET SUMMARY

Transcription

1 For The Week of August 7, 2017 WEEKLY MARKET SUMMARY BONDS: The treasury market was justifiably undermined late last week given the surprise upside beat by the July nonfarm payroll report. To add additional pressure to the bull camp, the market also saw a noted revision upward in the June nonfarm payroll reading. Turning up the heat even more on the long players in the market was a downtick in the unemployment rate. Clearly bonds and notes were overbought into the early highs, and part of the aggressive selling was more than likely technically based stop loss selling. Since it can take two days to factor in a large surprise in the US nonfarm payroll report seeing weaker action at the start of this week would not be surprising especially given the generally favorable global equity market action. Cushioning US Treasuries against a minimal downward tilt this morning is the fact that German 10 year bond yields sit close to 30 day lows. However, German economic data early this week was very disappointing and the German bond action appears to be an outlier. While the US Congress is on recess and the President is on a working vacation, there are some indications of attempts to move forward the tax cuts/tax reform effort. In fact, White House economic advisor Gary Cohn indicated that the US may cut its corporate tax rate by one third and that could help to improve US economic sentiment beyond the favorable payroll report. Another issue that might lend some pressure to prices this week is the presence of $62 billion in new treasury supply with $24 billion in three year notes, $23 billion in 10 year notes and $15 billion in 30 year bonds. While the Fed recently indicated that auction supply would be boosted in the wake of the Fed s intended reduction of their balance sheet. The selling of assets is not expected to begin until next month. The Commitments of Traders Futures and Options report as of August 1st for U.S. Treasury Bonds showed Non-Commercial and Non-reportable combined traders held a net long position of 15,838 contracts. This represents a decrease of 20,881 contracts in the net long position held by these traders. The Commitments of Traders Futures and Options report as of August 1st for US Treasury 10 Year Notes showed Non-Commercial and Non-reportable combined traders held a net long position of 39,747 contracts. This represents a decrease of 37,401 contracts in the net long position held by these traders. CURRENCIES: Not surprisingly, the US dollar came rebounding back after an extensively oversold condition into last week's lows in the wake of a much better-than-expected jobs report. It is also possible that some shorts in the dollar decided to bank profits and stand aside because of the congressional recess, which will probably temporarily tamp down negative sentiment toward the US/dollar by international players. In retrospect, the pendulum of views on the Fed's timing for the next rate hike was pulled forward by last Friday's data which in turn justified the dollar rally. This week will be a critical test for the dollar as its significant range up reaction to the second better-than-expected payroll result justifies better action than has been seen in the greenback over the last month. However, the dollar has not been able to sustain recovery action for more than four trading sessions since late March/early April. While it could take additional better-than-

2 expected data to bring the next Fed rate hike into view, the data out last Friday certainly tilts the pendulum in that direction. It should also be noted that the net spec and fund positioning in the dollar into last week s low was effectively liquidated and that could make the early August low some form of important low. Shorts also have to be concerned that positive data could be backed up by renewed discussions of US tax cuts as that could provide the potential for a fundamental bottom. The Commitments of Traders Futures and Options report as of August 1st for US Dollar showed Non-Commercial and Non-reportable combined traders held a net long position of 3,756 contracts. While the September euro is showing some initial strength early this week, the currency should be held back by disappointing German industrial output readings at the start of this week. While the net spec and fund long in the euro sits well under its record net spec and fund long, the market was significantly overbought into the August high and in need of a corrective cleansing. However the euro probably needs to respect a quasi-side double bottom low around the level to avoid suspicion that the uptrend is coming to an end. We would suggest that a huge portion of the June through August rally was built off of ideas that the ECB was closer to hiking rates than the US Fed and that argument suffered a blow last Friday. The Commitments of Traders Futures and Options report as of August 1st for Euro showed Non-Commercial and Nonreportable combined traders held a net long position of 103,518 contracts. Weakness in the Japanese Yen in the wake of very favorable Japanese leading and coincident indicators would appear to be indicative of a currency disappointed in the lack of safe haven interest to start the new trading week. It should also be noted that last Friday s low touched the 200 day moving average at and that moving average early this week sits down at in a fashion that suggests a reversal of the July/August rally could be at hand. Clearly the Swiss was technically oversold after the big spike down washout at the end of last week and a recovery back above gives that consolidation low zone some fresh credence. However ongoing gains in global equities and renewed strength in the dollar could result in a lower low and the lowest Swiss price since May 17th at some point this week. It is a well-known fact that the SNB wants to facilitate a lower exchange rate and that could bring in further losses and the approach of the 1.02 level. Some will argue that the British pound is technically oversold and potentially capable of a sideways consolidation this week. While some might also argue over the impact of the BREXIT price tag floated at the start of this week putting a dollar figure in the marketplace and seeing twosided negotiations on that subject could define the worst case scenario for the UK s exit. However in the near term we can t argue against a slide to the 1.30 level especially given the prospects for residual strength in the dollar. The Canadian has suffered fresh damaging action on its charts again early this week, and the failure at the level opens up a slide to the next lower quasi-consolidation support zone of With soft Canadian PMI and countervailing Canadian jobs news at the end of last week the action in the Canadian at the start of this week has to be damaging to would be buyers. STOCKS:

3 The Dow Jones industrial average managed yet another new all-time high last Friday while other measures of the market merely chopped sideways to slightly higher. The market should have been emboldened by strong payroll data for July and a noted adjustment higher in the June nonfarm payroll readings. Reports of a possible takeover of ADP by Pershing Square Capital Management probably provided a small measure of support, but that was offset earlier in the session by a sharp decline in Viacom shares in the wake of lower forecast sales at a division of the company. We do think that strong data from the job sector does shift the pendulum toward tightening from the Fed by a marginal amount, and that could create problems for stocks down the road. Global equities were mostly higher at the start of this week with the FTSE Euro Top 100 and XETRA DAX trading weaker. Against the backdrop of better-than-expected US jobs data, the markets continue to be cheered by favorable corporate earnings. There is some divergence between sectors of the market with the Dow Jones industrial average and the mini Dow futures clearly outperforming the rest of the market. In an indirect fashion, the markets might be cheered by signs that international heavyweights have seemingly come together on dealing with North Korea. So far, discussions of rising US rates have not been played up big in the headlines and therefore positive data should continue to be positive for stock prices. While the E-mini S&P has not forged a new high for six sessions it does open this week within striking distance of that old high of Unfortunately for the bull camp, consolidation low support isn t seen until but the bull camp has to be emboldened by the most recent COT report positioning which showed a building net spec and fund short over the latest weekly reporting. In fact the Commitments of Traders Futures and Options report as of August 1st for E- Mini S&P 500 showed Non-Commercial and Non-reportable combined traders held a net short position of 47,376 contracts and as mentioned that represents an increase of 45,762 contracts in the net short position held by these traders. The September mini Dow has once again forged a new all-time high in the early action and it continues its positive divergence/leadership of the marketplace. Obviously the better-thanexpected payrolls from the end of last week and expectations for an ongoing pattern of favorable corporate earnings leave the bull camp in control. However, the mini Dow futures are burning significant fuel in order to extend the very impressive rally from the mid-july lows with the most recent net spec and fund long climbing toward the record spec and fund long of 79,000 contracts. The Commitments of Traders Futures and Options report as of August 1st for Dow Jones Index $5 showed Non-Commercial and Non-reportable combined traders held a net long position of 62,954 contracts. Clearly the Mini-NASDAQ remains the laggard of the actively traded futures index instruments as it remains stuck in a three week old consolidation pattern with what appears to be significant resistance at the level. However ongoing positive action in the blue-chip stocks, the expectations of favorable earnings and residual sentiment from the positive US payroll report should make an old quasi-double bottom low of key support. The Commitments of Traders Futures and Options report as of August 1st for Nasdaq Mini showed Non-Commercial and Non-reportable combined traders held a net long position of 50,693 contracts. GOLD, SILVER & PLATINUM:

4 The gold and silver markets clearly finished last week in an injured condition as big range-down action on the charts Friday followed a pattern of lower highs and lower lows from earlier in the week. In fact, a number of the bullish themes in place at the beginning of last week were reversed with the dollar forging the most significant rally since early November 2016 and potentially changing the "trend" in the Dollar. Another issue slamming down on gold and silver prices was the puncturing of the economic uncertainty angle as the US nonfarm payrolls put sentiment back on a growth track for the US economy again, and that in turn raises the threat of Fed rate hike action ahead. With the US Congress on recess and the US President on a "working vacation", it is likely that the rate of geopolitical anxiety headline support for gold will decline. Limiting gold prices is news that Chinese Gold Reserves at the end of last month were unchanged as that suggests a major potential central bank buyer is inactive in the market. The world's largest gold ETF saw their holdings fall by 4.74 tonnes on Friday and reached their lowest level since early March of Fortunately for the bull camp in gold, the net spec and fund long in gold continues to be at a relatively low level compared to recent history and that could help to cushion gold against what appears to be a developing liquidation swing. The Commitments of Traders Futures and Options report as of August 1st for Gold showed Non- Commercial and Non-reportable combined traders held a net long position of 149,255 contracts. However, the most recent COT report results represents an increase of 44,359 contracts in the net long position and that should speak to a short term overbought technical condition. Like the gold market, September silver also suffered significant fundamental and technical damage at the end of last week and a near term probe back below $16.00 would appear to be at hand. The Commitments of Traders Futures and Options report as of August 1st for Silver showed Non- Commercial and Non-reportable combined traders held a net long position of 40,293 contracts. With the impressive range up in platinum at the end of last week, it would appear as if the market is tracking classical fundamental forces instead of safe haven currency-related forces like the gold and silver markets. While the favorable US economic shift in the wake of the stronger-thanexpected payroll report is justification for some of the gains at the end of last week, it is possible that the PGM complex is drafting some support from that latest round of Russian sanctions as a deterioration in relations could be seen as an indirect threat against Russian supply flows. Some might suggest that economic fears against mining concerns in South Africa is lending some support, but the direct demand argument for platinum is suspect given disappointing US auto sales last week. However, trouble on the South African Mining industry front was seen again with Lonmin indicating they would sell off excess assets to shore up their financial standing. On the other hand, seeing platinum rally at the expense of palladium would seem to suggest that the reversal of long palladium/short platinum spreads is at least partly behind the platinum rally. In fact, volume and open interest figures in both platinum and palladium suggest that action is being driven by position leveling among the overbought status of palladium into its recent high and the oversold condition of platinum into its July lows. The Commitments of Traders Futures and Options report as of August 1st for Platinum showed Non-Commercial and Non-reportable combined traders held a net long position of 18,233 contracts. This represents an increase of 2,960 contracts in the net long position held by these traders. The Commitments of Traders Futures and Options report as of August 1st for Palladium showed Non-Commercial and Non-reportable combined traders held a net long position of 21,142

5 contracts. This represents an increase of 1,479 contracts in the net long position held by these traders. COPPER: In retrospect, the copper market last week corrected part of its overbought condition with sideways consolidation, and that potential support is enhanced by favorable US non-farm payroll readings and by a lesser degree by strength in platinum prices. Furthermore, it would appear as if September copper has built a decent layer of consolidation support around the $ level. Copper might have been held back by news from last week that Russia's January through June copper exports increased by 34,000 tonnes from year ago levels However, that may have been offset early this week by predictions from the International Copper Study Group that global mine output "growth" would be smaller going forward. The Commitments of Traders Futures and Options report as of August 1st for Copper showed Non-Commercial and Non-reportable combined traders held a net long position of 32,266 contracts. This represents an increase of 9,399 contracts in the net long position held by these traders, but that positioning is not overbought and or vulnerable in our opinion. ENERGY COMPLEX: After making a fresh three day low on Friday, September crude oil managed to recover and venture back toward the $50 per barrel level. The energy complex should have been supported above last week's consolidation lows by a better-than-expected US nonfarm payroll report, and by signs that US oil drilling activity is seemingly leveling out. In fact, the weekly Baker Hughes operating count showed a 1 rig decline in oil rigs operating and that marks the second week in the past three weeks with a decline in activity. Another issue that should provide some support to crude oil this week is the oil producers meeting which is supposedly set to focus on the overproduction of the UAE and Iraq, as compliance among the other signatories to the production cut agreement recently achieved the highest compliance levels of the year. Other issues that might lend support to crude oil are weekend reports that China passed the US as the world's largest oil importer, favorable global oil demand forecasts from Goldman and talk that a Libyan oil field is slowly drifting toward a shutdown. Unfortunately for the bull camp, the June/July rally has pumped up the net spec and fund long position in crude oil to a level that hints at increased vulnerability to more aggressive two-sided swings in prices. The Commitments of Traders Futures and Options report as of August 1st for Crude Oil showed Non-Commercial and Non-reportable combined traders held a net long position of 527,497 contracts. This represents an increase of 60,620 contracts in the net long position held by these traders. While favorable demand hopes should linger from last week's nonfarm payroll gain and some supply-side issues should help to support prices, the market is overbought technically and crude appears to be having trouble piercing the $50.00 psychological level. Gasoline prices at the end of last week did not show as much resiliency as crude oil in the wake of favorable US economic data, firm Gulf Coast refinery interest and firm European crack spreads. In fact, the gasoline market at the end of last week should have drafted more support

6 from news of refinery problems and the respect and rejection of the 100 day moving average in the September gasoline contract at the $ level. From a technical perspective, the charts in gasoline look negative with last week presenting a series of lower highs and the inability to manage a close back above $1.65. While the Commitments of Traders Futures and Options report as of August 1st for Gasoline (RBOB) showed Non-Commercial and Non-reportable combined traders held a net long position of 70,282 contracts and while that positioning is escalating, it is not excessively overbought yet! The Commitments of Traders Futures and Options report as of August 1st for Heating Oil showed Non-Commercial and Non-reportable combined traders held a net long position of 35,640 contracts and while this represents an increase of 17,911 contracts in the net long position over the prior week that positioning isn't particularly overdone yet. Technical action in the natural gas market remains patently bearish, but short-term technical indicators are becoming extremely oversold. However, classic fundamentals both supply and demand do not provide the incentive for would-be buyers to step in against the dramatic weakness posted last week. In fact, the US temperature sweep is negative and there still isn't a tropical storm threat yet. However, US natural gas rigs declined by 3 last week in a potential developing trend, and that should be minimally supportive to both crude and natural gas. Fortunately for the bull camp, the Commitments of Traders Futures and Options report as of August 1st for Natural Gas showed Non-Commercial and Non-reportable combined traders held a net short position of 34,090 contracts and that represents an increase of 19,548 contracts in the last week and we suspect that positioning is understated. We continue to warn fresh shorts of the risk of positions implemented below the $2.80 level but a 2-3 day unplanned shutdown of a Norwegian facility hardly offsets average US summer cooling demand. To begin to question the bear case might require a close back above $2.84. BEANS: Iowa continues to miss out on rain events and the dryness in this key producing state has helped to support the bounce ahead of the USDA reports this week. Two China soybean buyers have resold near 500,000 tonnes of soybeans apparently due to poor margins and congestion at a major port. There does not seem to be enough of a shift in the weather to slow the selling, and the market looks to remain in a short-term downtrend. The close below the last key support at 960 1/2 for November soybeans on Friday leaves the market vulnerable to a deeper downside correction. Ideas that the weather looks favorable to see improving crop conditions this week and maybe next helped to pressure the market on Friday. In addition, traders see only a minor adjustment lower in yield for the USDA Production and Supply/Demand update. For the USDA reports this week, the Reuters average yield estimate is 47.5 bushels/acre ( range) with ending stocks at 424 million bushels (range 369 to 474 million). World ending stocks are expected near million tonnes from million posted in July and from million tonnes for the 2016/17 season. There are still parts of Iowa which have received very little rain in the last 1-2 weeks and a few spots in southern Minnesota, northern Missouri and southwest Michigan. There is not much rain for the next week in Iowa and southern South Dakota which could dry down the crop. However,

7 there are good rains for the southern and eastern Midwest and excessive rains across the Delta and southeast. The 6-10 and 8-14 models are cool with most of the crop areas seeing normal to above normal precipitation. November soybeans closed 3 3/4 cents lower on the session Friday and this left the market down 56 1/4 cents for the week which is the largest weekly drop since last summer. The Commitments of Traders reports as of August 1st showed Non-Commercial traders were net long 42,701 contracts, a decrease of 6,947 contracts for the week and the long liquidation selling trend is seen as a short-term bearish force. Non-Commercial and Nonreportable combined traders held a net short position of 806 contracts. These traders have gone from a net long to a net short position. Commodity Index traders held a net long position of 119,824 contracts. This represents an increase of 1,425 contracts in the net long position held by these traders. For Soybean Oil, Non-Commercial traders were net long 74,941 contracts, an increase of 6,623 contracts for the week. Non-Commercial and Nonreportable combined traders held a net long position of 87,561 contracts, up 9,504 contracts in just one week. For Soybean Meal, Non- Commercial traders were net long 12,526 contracts, a decrease of 2,461 contracts for the week. Non-Commercial and Nonreportable combined traders held a net long position of 17,132 contracts, down 6,830 contracts for the week. Commodity Index traders held a net long position of 74,191 contracts, down 3,315 contracts for the week. CORN: There are some concerns with too much heat in Ukraine and parts of Eastern Europe while Chinese rains have eased dryness concerns. Market focus seems to be on the results of the USDA report this week and whether or not the corn yield will be able to recover from poor July weather. The market seems to have already priced-in a large ending stock outlook, but the report this week is likely to show a modest drop in US ending stocks and a major drawdown in world ending stocks. There are still parts of Iowa which have received very little rain in the last 1-2 weeks and a few spots in southern Minnesota, northern Missouri and southwest Michigan. There is also not much rain for the next week in Iowa and southern South Dakota which could dry down the crop. However, there are good rains for the southern and eastern Midwest and excessive rains across the Delta and southeast. The 6-10 and 8-14 models are cool with normal to above normal precipitation for Iowa and most of the Midwest growing areas. December corn closed 3 1/4 cents higher on the session Friday and this left the market down 7 cents for the week. Ideas that the rain event on Thursday for Iowa may not have been enough to ease dryness concerns in some parts of the state helped to support and the market was supported as Iowa rains were also disappointing over the weekend. Crop conditions are likely to be steady to a little lower for the weekly update later today. Open interest pushed higher all week last week and pushed up to the highest level since April. For the USDA reports this week, the Reuters average yield estimate is bushels/acre ( range) with ending stocks at billion bushels (range billion). World ending stocks are expected near million tonnes from million posted in July and from a record million tonnes for the 2016/17 season. The Commitments of Traders reports as of August 1st showed Non-Commercial traders were net long 133,579 contracts, a decrease of 33,056 contracts for the week. Non-Commercial and

8 Nonreportable combined traders held a net long position of 115,581 contracts, down 30,250 contracts for the week. Commodity Index traders held a net long position of 325,780 contracts, down 4,036 contracts for the week. WHEAT: Australia's wheat production was estimated at 22.7 million tonnes from 23.3 million tonnes according to National Australia Bank. The areas of Western Australia, South Australia and New South Wales were most affected by the dry weather. The French Ag Ministry raised their soft wheat output to 36.8 million tonnes compared to 27.5 million last year. Germany continues to suffer from too much rain during harvest as quality and quantity are on the decline. As much as 40% of their output could only make feed quality compared to a normal 20%. Weather in Canada and Australia should have a short-term impact but long liquidation selling has been the primary bearish force with a focus on the record Russian crop and aggressive exports from the Black Sea region. Iraq and Bangladesh are tendering to buy 50,000 tonnes of wheat. September wheat closed Friday with the market down 26 1/4 cents for the week, the biggest weekly decline since last summer. Talk of a huge Black Sea region crop for the world to absorb combined with a sharp rally in the US dollar helped to hold the market trading lower on the day for much of last Friday s session. The market is probing for a short-term low and is extremely oversold technically, while hefty rains in the forecast for the central and southern Plains are seen as bearish as this could build soil moisture reserves ahead of planting. For the USDA reports this week, the Reuters average ending stocks estimate is at 907 million bushels (range 806 to 948 million). World ending stocks are expected near million tonnes from posted in July and from million tonnes for the 2016/17 season. The Commitments of Traders reports as of August 1st showed Non-Commercial traders were net long 14,488 contracts, a decrease of 9,316 contracts for the week and the aggressive long liquidation selling trend is seen as a short-term bearish force. Non-Commercial and Nonreportable combined traders held a net long position of 10,059 contracts, down a significant 10,408 contracts in just one week. Commodity Index traders held a net long position of 132,333 contracts, a decrease of 5,326 contracts for the week. For Kansas City Wheat, Non-Commercial traders were net long 67,409 contracts, a decrease of 13,232 contracts for the week (long liquidation). Non-Commercial and Nonreportable combined traders held a net long position of 65,875 contracts, down 16,902 contracts in just one week. Commodity Index traders held a net long position of 51,602 contracts. This represents a decrease of 3,753 contracts in the net long position held by these traders. HOGS: The October futures discount seems too wide and the actual slaughter pace seems to be coming in below expectations from the last Hogs and Pigs report. The last report suggested that slaughter should be near % above last year, but recent weeks have run near 2% above last year. USDA pork cutout values released after the close on Friday came in at $95.34, down 96 cents from Thursday and down from $98.05 the previous week. This is the lowest pork value since June 16th.

9 October hogs closed 127 higher on the session Friday and this left the market up 27 points for the week. The steep discount of futures to the cash market seems to be causing significant shortcovering and technical buying following the sweeping reversal on Wednesday. A higher cash market tone and ideas that actual slaughter is coming in less than expected has helped to support the more positive tone. June US pork exports totaled just million pounds which was down from million in May and down from the March 2017 peak of million pounds. Exports were up 4.2% from last year and represented 21.8% of total pork production for June. The CME Lean Hog Index as of August 2nd came in at 87.11, down 24 cents from the previous session and down from the previous week. This leaves October hogs showing a much wider than normal discount the cash market. The USDA estimated hog slaughter came in at 422,000 head Friday and 76,000 head for Saturday. This brought the total for last week to million head, up from million the previous week and up 2.3% from last year. Pork production for the week was up 2.1%. The Commitments of Traders reports as of August 1st showed Non-Commercial traders were net long 75,826 contracts, a decrease of 5,079 contracts for the week and the long liquidation selling trend is a short-term bearish force. Non-Commercial and Nonreportable combined traders held a net long position of 52,269 contracts, down 5,969 contracts for the week. Commodity Index traders held a net long position of 85,225 contracts, down 1,588 contracts. CATTLE: The stronger than expected cash cattle market this past week and the outlook for firm cash early this week helped support an impressive recovery off of the July 31st lows. With cheap corn and cooler weather in the Plains (the 6-10 and 8-14 day forecast models show below normal temperatures until at least August 20th), cattle could also put on extra weight, which would just add to the beef supply. Average dressed steer weights for the week ending July 22nd came in at 868 pounds, up from 865 the previous week. Beef production in the third quarter is expected to be up 5.3% from the same period last year, and it may be revised even higher. In addition, production is expected to increase by 405 million pounds from the second quarter, which is the highest increase for that period on record. Given the surge in placements of 116% in June, third quarter beef production is likely to be revised higher as the slaughter pace picks up in late August and into September. This could keep the cash cattle and beef markets in a steady downtrend into September. Texas/Oklahoma cash market news saw $ to $ trade on Friday. While open interest has come down dramatically since May 2017, the managed money (fund) trader position was still above +110,000 last week and slipped down to 102,526 contracts in Friday's report, down 8,176 contracts for the week. This suggests that long liquidation selling could intensify if support levels are violated. While futures are trading at a discount to the cash market, the upside seems somewhat limited by a potential burdensome supply flow ahead. October cattle closed 72 lower on the session Friday and this left the market up 167 points for the week. The USDA estimated cattle slaughter came in at 117,000 head Friday and 52,000 head for Saturday. This brought the total for last week to 634,000 head, up from 627,000 the previous week and up 8.7% from last year. Beef production for the week was up 6.8% from last year.

10 USDA boxed beef cutout values were down $1.05 at mid-session Friday and closed $1.55 lower at $ This was down from $ the prior week and the lowest beef market since February 27th. The Commitments of Traders reports as of August 1st showed Non-Commercial traders were net long 131,359 contracts, a decrease of 5,934 contracts for the week and the long liquidation selling trend is a short-term bearish force. Non-Commercial and Nonreportable combined traders held a net long position of 105,543 contracts, down 2,406 contracts for the week. Even index funds were selling. Commodity Index traders held a net long position of 123,982 contracts, down 2,971 contracts for the week. COCOA: With nearly a 10% recovery move since the early July lows, cocoa was one of the more vulnerable commodities to the Dollar s sharp rebound last Friday. While the market was able to hold its ground above key technical measures, cocoa may need fresh supply-side support in order to regain upside momentum. After an initial rebound, September cocoa came under heavy midsession pressure to finish last Friday s trading session with a sharp loss. For the week, September cocoa finished with a loss of 66 points (down 3.2%) which also resulted in a weekly reversal from Tuesday s 7-week high. Some fresh unrest in the Ivory Coast helped to support the market, but cocoa prices faced strong headwinds after the Dollar had a very positive reaction to the US jobs data. Both the Eurocurrency and British Pound ended up with triple-digit losses on Friday which dampened the prospects for improved demand prospects from that region. Ideas that current West African cocoa production is still coming in well above last year s pace added to the bearish tone of the market going into the weekend. Last season s mid-crop was severely impacted by an El Nino weather events, however, so output that is close to being in-line with last year s total may help to support prices over the next few weeks. The latest COT report saw cocoa s net spec short position fall by over one-third, but it still remains large enough to fuel additional short-covering if prices can sustain an upside move. The Commitments of Traders Futures and Options report as of August 1st for Cocoa showed Non- Commercial traders were net short 26,011 contracts, a decrease of 12,196 contracts. Non- Commercial and Nonreportable combined traders held a net short position of 20,059 contracts. This represents a decrease of 10,882 contracts in the net short position held by these traders. COFFEE: Coffee prices may have had a lukewarm finish to last week s trading, but managed to hold their ground in close proximity to their recent highs as a bullish near-term supply outlook continues to offset weak global demand. After coming within 5 points of Thursday s 3 1/2 month high, September coffee closed just 5 points lower for last Friday s inside-day session which left the market up 230 points (1.6% higher) for last week which was a sixth positive weekly result in a row. While a sharp post-us jobs data rally in the US dollar was seen as a bearish force for commodities in general, the Brazilian currency only had a moderate negative reaction and was able to finish last week with a minimal gain. In addition, the coffee market is finding underlying support from continued talk of small beans and potential quality issue from the Brazilian harvest. This could keep Brazilian exports at comparatively lows levels over the next few months, which

11 would have a notable impact on global supply as the upcoming Vietnamese crop will not reach market until November. ICE exchange coffee stocks rose by 5,260 bags on Friday and did not have any daily declines last week, which indicates that demand in Europe and North America has plenty of room for improvement. Coffee s net spec short position was cut by more than half in the latest COT report and is closing in on being at a relatively balanced level. The Commitments of Traders Futures and Options report as of August 1st for Coffee showed Non-Commercial traders were net short 5,774 contracts, a decrease of 9,828 contracts. Non-Commercial and Nonreportable combined traders held a net short position of 5,200 contracts. This represents a decrease of 8,747 contracts in the net short position held by these traders. COTTON: The cotton market remains in a solid uptrend as tightening old crop ending stocks and tightening deliverable supply continue to support. Indian officials see planted area for cotton up 18.5% this season which might ease demand on the world market for US cotton. China and Pakistan crops should also be higher this year. US crop conditions look to improve in the next few weeks as heavy rains are in the forecast for Texas, the Delta and the Southeast growing areas. The market rallied again on Friday and pushed up to the highest level since June 15th. While old crop ending stocks could slide to near 3.0 million bales or even lower due to better exports, normal weather should leave new crop ending stocks above 5 million bales. The Commitments of Traders reports as of August 1st showed Non-Commercial traders were net long 34,929 contracts, an increase of 2,626 contracts for the week. Non-Commercial and Nonreportable combined traders held a net long position of 31,589 contracts, up 3,262 contracts for the week. Commodity Index traders held a net long position of 72,432 contracts, down 819 contracts for the week. SUGAR: Sugar may still be waiting for its first positive daily close during the month of August, but the market appears to have found its footing after last Thursday s downdraft. October sugar closed 17 points lower for last Friday s inside-day session, and this left the market down 23 points for last week which also represented a weekly reversal from a 2-month high. Although sugar prices traded higher early, a sharp rebound in the US dollar following US jobs data put the market on the defensive. However, the Brazilian currency held up relatively well during Friday s Dollar rally while energy markets were able to finish last week on a positive note, both of which underpinned sugar prices above Thursday s low. In addition, October sugar closed above its 50-day moving average for a second session in a row. Even so, the continued steady flow of new sugar out of Brazil was a source of pressure going into the weekend. Brazil s Center-South region has a slight chance of showers early next week, but otherwise has a mostly dry forecast through mid-august that will minimize their harvesting and crushing delays. The lack of commercial buying interest on the collapse on Thursday was seen as a bearish development as well, although there are indications of near-term supply shortages in India despite what has been an average monsoon season.

12 The latest COT report showed that sugar s net spec short position fell by over 60% in the space of one week. While it remains sizable, it could indicate that short-covering may not be as consistent source of support as it was during July. The Commitments of Traders Futures and Options report as of August 1st for Sugar showed Non-Commercial traders were net short 23,206 contracts, a decrease of 24,172 contracts. Non-Commercial and Nonreportable combined traders held a net short position of 22,376 contracts. This represents a decrease of 34,601 contracts in the net short 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!