October 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 October. In addition, the MSCI World equity benchmark of large and mid-cap stocks also hit another all-time high. The bullish on balance fundamentals continue to dominate, which include better than expected corporate earnings. So far this earnings season, of the companies in the S&P 500, 82% of them reported better results. 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
All charts provided by QST Geopolitical tensions, when they arise from time to time, will only temporarily get in the way of this bull market. Our view remains that any bearish political news that pressures the stock index futures market should be used as an opportunity to enter the market on the long side on the belief that the influence of bearish news will probably last for a short time, while the bullish ongoing low interest rate environment is there all of the time. The long term outlook for S&P 500, Dow Jones, and NASDAQ and Russell 2000 futures is higher. Energy Crude oil futures advanced to a three week high supported by ongoing political tensions in the Middle East. Specifically, geopolitical tensions have returned due to unrest in Iraq and rising hostilities between the U.S. and Iran. In addition, there are escalating tensions between Iraq's central government and the semiautonomous Kurdish region, which have supported crude oil prices recently due to concerns that the conflict could reduce exports from the area. Kurdistan, which voted overwhelmingly to become an independent state in a referendum last month, exports approximately 600,000 barrels of oil a day. Also, boosting crude oil prices is the possibility that the U.S. will impose new sanctions on Iran, reducing its oil exporting capacity. Crude Oil Futures - Weekly 2 P a g e
Higher prices are likely for crude oil futures in light of ramped up geopolitical risks, along with an improving global economy. Precious Metals Gold futures rallied over $45 since October 6 due to expectations of stronger global growth and rising inflation. However, there has been pressure more recently as one Fed official predicted the Federal Open Market Committee will increase its fed funds rate three or four times in 2018. In addition, according to financial futures markets, the probability that the Federal Open Market Committee will increase its fed funds rate at the December 13 meeting is 93%. Our analysis suggests the Fed will increase its feds funds rate in December, but only one or two more times in 2018 and not three or four times that some at the Fed are predicting. Gold Futures - Weekly Some of the selling is linked to a report that President Donald Trump is favoring Stanford economist John Taylor, who is seen as more hawkish than Fed Chair Janet Yellen, to lead the Federal Reserve. Other candidates for Fed chair are Fed Governor Jerome Powell and former Fed official Kevin Warsh. Yellen s term ends in February. The influence of a strengthening global economy and the increased inflation that it brings, will sustain this long term bull market. 3 P a g e
U.S. Dollar The negative economic impact of Hurricanes Harvey and Irma pressured the U.S. dollar into early September taking the greenback to its lowest level since February 2015. Ongoing tensions over North Korea also exerted a negative impact of the currency of the U.S. However, since the first week in September the U.S. dollar rebounded due to a series of stronger than expected economic reports, including news that U.S. economic output grew at a 3.1% annual rate in the second quarter, which is slightly stronger than previously believed and marks the best growth rate in two years. Economists had expected the estimate to remain at 3% growth. Some of the these gains were given back due to dovish comments from Chicago Federal Reserve Bank President Charles Evans when he said one more rate increase before the end of 2017 isn t set in stone. He said, "It makes sense to continue to increase policy gradually as we assess whether inflation is going to get to the 2% objective." It is likely that the U.S. dollar will come under pressure as interest rate differential expectations remain bearish. Euro Currency The euro currency advanced recently for several reasons. Most economic reports showed a stronger euro zone economy, including several better than expected economic reports, including news that industrial output in the euro zone and in Germany grew more than expected. Industrial output in the euro zone increased 1.4% in August from July and was up 3.8% from a year ago, which was much stronger than expected. Economists estimated a month to month increase of only.5%. Industrial output in Germany increased by 2.6% in August from July, when economists predicted growth of.9%. Also, the euro currency hit a two week high as a result of relief that Catalonia stopped short of formally declaring independence from the rest of Spain and in spite of media reports suggesting the European Central Bank might keep its bond purchase program longer than expected. The main trend for the currency of the euro zone is higher. Grains The USDA had a few surprises in their October crop report. On October 12, the USDA estimated world 2017/18 soybean production will be near 347.9 million tonnes and total usage to be also a record at 344.4 million tonnes. Total world exports are estimated to be near 151.0 million tonnes versus 147.4 last year and U.S. exports are estimated to be near 61.2 million tonnes versus 59.1 4 P a g e
last year. The USDA estimated China s 2017/18 soybean imports to be near a record 95.0 million tonnes. The USDA lowered U.S. 2017/18 soybean end stocks to 11.7 versus 12.9 previously due to lower 2016/17 end stocks. On October 12, the USDA estimated world 2017/18 wheat end stocks at a new record 268.1 million tonnes. This was due to higher crops in the E.U. and India. The USDA estimated world production to be near 751.2 million tonnes versus 754.1 last year. Total usage is estimated to be 739.6 million tonnes and total world exports are estimated to be 180.0 million tonnes versus 182.5 last year. U.S. exports are estimated to be near 26.1 million tonnes versus 28.7 last year. The Russian wheat crop was estimated at 82.0 million tonnes versus 72.5 last year and Russian wheat exports were raised to 32.5 million tonnes versus 27.8 last year. On October 12, the USDA estimated world 2017/18 corn end stocks at 201.0 million tonnes. In addition, the USDA estimated world production near 1,038.8 million tonnes and total usage at 1,064.8 million tonnes. Total world exports are estimated to be near 150.7 million tonnes and U.S. exports are estimated to be near 47.0 million tonnes. China s crop was estimated to be near 215.0 million tonnes. Total demand was estimated to be near 240.0. End stocks were estimated to be near 79.2 million tonnes. Livestock Cattle Live cattle futures in September may have fooled more than a few traders, both hedgers and speculators. Because of the severe drop in cattle prices in 2016 from August through the end of October, traders were prepared for a repeat. It was also hard to look for a move higher with a bearish cloud hanging over cattle futures due to falling prices June through the end of August. Adding to the bearish sentiment, choice boxed beef dropped from June s historic highs throughout the summer and by the first week of September were down near price levels of a year ago. 5 P a g e
Live Cattle Futures - Weekly However, the beef buyers, mega grocery store chains and big box stores started to increase purchases and exporters took advantage of the cheap U.S. dollar combined with low cattle and beef prices. Exports of beef for the year were up 15% by September 1 st and remained strong throughout September. Lean Hogs The opposite of live cattle, lean hog futures saw a continuation of downward prices that began in July and except for a brief upturn in August, lean hogs fell another $9.00/cwt throughout September. Much of the blame had to do with pork bellies and pork trimmings, along with an increasing supply of hogs in the United States and globally. From June through mid-august, pork bellies climbed into record highs, but loins and hams, the largest percentage of primal cuts of a pork carcass, drifted down. However, by the beginning mid- August into the first week of September, bellies reversed and quickly gave up gains that were made most of the summer months. While pork prices fell, hogs going to slaughter increased and the combination of poor pork prices and increasing hogs pushed lean hog prices lower. 6 P a g e
Lean Hog Futures - Weekly 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. Support and Resistance Stock Index December 17 S&P 500 Support 2539.00 Resistance 2575.00 December 17 NASDAQ Support 6075.00 Resistance 6165.00 Energy December 17 Crude Oil Support 50.70 Resistance 54.40 7 P a g e
December 17 Natural Gas Support 2.790 Resistance 3.050 Precious Metals December 17 Gold Support 1265.0 Resistance 1315.0 December 17 Silver Support 16.550 Resistance 17.850 Industrial Metals December 17 Copper Support 3.0900 Resistance 3.3100 Currencies December 17 US Dollar Index Support 90.550 Resistance 92.500 December 17 Euro Currency Support 1.18600 Resistance 1.21750 Grains December 17 Corn Support 3.40 Resistance 3.70 January 18 Soybeans Support 9.40 Resistance 10.20 December 17 Chicago Wheat Support 4.20 Resistance 4.50 8 P a g e
Livestock December 17 Cattle Support 110.00 Resistance 119.00 December 17 Hogs Support 56.50 Resistance 65.00 If you would like more information about the markets featured in this monthly newsletter, please send us an email to sales@admis.com. Thank you. ADM Investor Services, Inc. 2100A Chicago Board of Trade Building P 1.312.242.7000 TF 1.877.690.7303 www.admis.com 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. 9 P a g e