Energy Complex Explodes Higher — Here’s Why

Overnight weather maps were showing colder
temperatures for the northern cornbelt for next weekend as compared with
yesterday’s maps and this was seen as a bullish force to support the higher
opening. The jump attracted moderate short-covering from speculators who came
into the week holding a hefty net short position. Fears that crops in a large
area of Minnesota, North Dakota and South Dakota could see a significant yield
drop “if” frost hits next week helped to support the solid gains. A lack of
deliveries against the September futures along with a positive tone for the cash
basis levels added to the positive tone. Producers do not seem too interested in
selling old or new crop at current pricing. For the weekly export sales report,
released before the opening, traders are looking for corn sales near
200,000-600,000 tons as compared with 342,600 tons last week. December corn
support moves up to 241 and 237 3/4 with next resistance at 245 1/4 and 249.
9/1/2004 December corn opened 3 1/4 cents higher on the session at 241 with an
early range of 239 1/2 to 245. Overnight weather maps were showing colder
temperatures for the northern cornbelt for next weekend as compared with
yesterday’s maps and this was seen as a bullish force to support the higher
opening. The jump has attracted moderate short-covering from speculators who
came into the week holding a hefty net short position. Fears that crops in a
large area of Minnesota, North Dakota and South Dakota could see a significant
yield drop if frost hits next week helped to support the solid gains. A lack of
deliveries added to the positive tone. December corn support moves up to 237 3/4
with next resistance at 245 1/4 and 249.

Technical Outlook

CORN (DEC) 09/02/2004: The cross over and close
above the 40-day moving average is an indication the longer-term trend has
turned positive. The daily stochastics gave a bullish indicator with a crossover
up. Momentum studies are rising from mid-range, which could accelerate a move
higher if resistance levels are penetrated. The close above the 9-day moving
average is a positive short-term indicator for trend. The market has a bullish
tilt coming into today’s trade with the close above the 2nd swing resistance.
The near-term upside target is at 249 1/4. The next area of resistance is around
246 1/4 and 249 1/4, while 1st support hits today at 239 1/4 and below there at
235.

 

SOY COMPLEX RECAP

9/1/2004

September Soybeans finished up 9 1/4 at 636 1/2,
12 off the high and 12 1/2 up from the low. November Soybeans closed up 10 at
637 1/4. This was 14 1/4 up from the low and 14 3/4 off the high.

December Soymeal closed up 0.7 at 181.9. This was
3.9 up from the low and 8.1 off the high.

December Soybean Oil finished up 0.77 at 25.97,
0.13 off the high and 0.57 up from the low.

The increased concerns for cold weather late next
week into the northern sections of the cornbelt was enough to trigger a sharply
higher opening. The sharply higher opening triggered increased anxiety among
commercial traders who seem to be caught short-bought for coverage and also was
enough of a factor to trigger more short-covering and new buying from
speculators. Ideas that the hurricane moving toward the east coast may actually
increase the chances of a cold blast for late next week helped support.
September soybeans and products found support from the lack of deliveries. Talk
that the mid-day weather maps were a little warmer for next week triggered a
sharp to push futures lower on the session but speculative buying emerged to
support. Funds were noted buyers of near 7000 contracts into the mid-session.
For the weekly export sales report, released before the opening, traders are
looking for soybean sales near 250,000-400,000 tons, meal sales near
40,000-80,000 tons and oil sales near 1,000-4,000 tons. Resistance for November
soybeans comes in at 646 1/4 and then 675 1/2 with support at 637 and 633.
9/1/2004 November Soybeans opened 9 3/4 cents higher on the session at 637 and
established an early range of 634 to 652. The increased concerns for cold
weather late next week into the northern sections of the cornbelt was enough to
trigger a sharply higher opening. The sharply higher opening triggered increased
anxiety among commercial traders who seem to be caught short-bought for coverage
and also was enough of a factor to trigger more short-covering and new buying
from speculators. Ideas that the hurricane moving toward the east coast may
actually increase the chances of a cold blast for late next week helped support.
September soybeans and products found support from the lack of deliveries. A
close for November soybeans above 646 1/4 might improve the technical picture
and leave 675 1/2 (50% retracement of the April 5th to August 11th break) as
next resistance. Support comes in at 637 and 633.

Technical Outlook

BEANS (NOV) 09/02/2004: Momentum studies are
trending higher but have entered overbought levels. The close above the 9-day
moving average is a positive short-term indicator for trend. The market setup is
supportive for early gains with the close over the 1st swing resistance. The
near-term upside objective is at 666 1/4. The next area of resistance is around
651 3/4 and 666 1/4, while 1st support hits today at 622 3/4 and below there at
608 1/2.

MEAL (DEC) 09/02/2004: Stochastics are at
mid-range but trending higher, which should reinforce a move higher if
resistance levels are taken out. A positive signal for trend short-term was
given on a close over the 9-bar moving average. The market has a slightly
positive tilt with the close over the swing pivot. The next upside target is
194.9. The next area of resistance is around 187.8 and 194.9, while 1st support
hits today at 175.9 and below there at 171.0.

BEANOIL (DEC) 09/02/2004: Momentum studies are
trending higher but have entered overbought levels. The market’s short-term
trend is positive on the close above the 9-day moving average. If yesterday’s
gap higher on the day session chart holds, additional buying could develop this
session. There could be more upside follow through since the market closed above
the 2nd swing resistance. The near-term upside objective is at 26.56. The market
is becoming somewhat overbought now that the RSI is over 70. The next area of
resistance is around 26.31 and 26.56, while 1st support hits today at 25.62 and
below there at 25.16.

 

WHEAT MARKET RECAP

9/1/2004

September Wheat finished up 7 3/4 at 317 1/2, 1 off the high
and 7 1/2 up from the low. December Wheat closed up 7 1/2 at 330 1/4. This was 7
1/4 up from the low and 3/4 off the high.

The surge higher in soybeans, export news and
fund short-covering were seen as supportive factors to support the higher
opening. Changing forecasts for a frost probability for next week in the
northern cornbelt helped to keep soybean trade choppy and this helped to trigger
some weakness into the mid-session for wheat. Jordan seeks 130,000 tons of US
hard wheat under PL 480 which was seen as a supportive factor for cash markets.
Lighter than expected deliveries for the first two days of the delivery period
for September wheat added to the positive tone. A cold and wet forecast for the
spring wheat areas was also seen as a bullish factor with storms moving in this
weekend. For the next few days, however, harvest progress looks active. Harvest
has lagged behind historic norms. The USDA attaché in Canada pegged the crop at
24.7 million tons which is up 5% from last year and up from 24.5 million tons
posted in the last USDA World Supply/Demand Report. For the weekly export sales
report, released before the opening, traders are looking for wheat sales near
350,000-550,000 tons as compared with 614,900 tons last week. Support for
December wheat moves up to 325 and 323 with 332 3/4 and 347 as next resistance.
9/1/2004 December wheat opened 2 1/4 cents higher on the session at 325 and
traded in an early range of 324 1/2 to 330. The surge higher in soybeans, export
news and fund short-covering were seen as supportive factors to support the
higher opening. Jordan seeks 130,000 tons of US hard wheat under PL 480 which
was seen as a supportive factor for cash markets. Lighter than expected
deliveries for the first two days of the delivery period for September wheat
added to the positive tone. A cold and wet forecast for the spring wheat areas
was also seen as a bullish factor with the harvest lagging behind historic
norms. Support for December wheat moves up to 325 and 323 with 330 1/4 and 332
3/4 (40-day moving average) as next resistance.

Technical Outlook

WHEAT (DEC) 09/02/2004: Momentum studies are
trending higher from mid-range, which should support a move higher if resistance
levels are penetrated. The market’s short-term trend is positive on the close
above the 9-day moving average. The market’s close above the 2nd swing
resistance number is a bullish indication. The next upside objective is 336 1/2.
The next area of resistance is around 334 1/4 and 336 1/2, while 1st support
hits today at 326 1/4 and below there at 320 3/4.

 

LIVE CATTLE RECAP

9/1/2004

October Live Cattle closed down 1.57 at 83.07.
This was 0.62 up from the low and 0.82 off the high.

October Feeder Cattle finished down 2.42 at
107.00, 1.80 off the high and 0.20 up from the low.

The cattle market closed sharply lower yesterday,
erasing all of the gains from yesterday and at one point trading at its lowest
level since April 30th. The market is growing more and more concerned with the
poor packer profit margins that are keeping packer demand light. Cash fed cattle
were bid at $79 in the plains today with offers reported holding steady at
$85-$86. Trade sources are looking for trade to eventually come in at $82, which
would be down $1 from last week. Feedlots are expecting packers to be a little
anxious ahead of the three day weekend. Boxed beef cutout values (600-750
choice) were down 83 cents on the day at mid-session to $135.24. A week ago they
were trading at $140.67. Slaughter came in at 116,000, way below expectations
ranging from 123,000-126,000 head and compared to 127,000 last week and 136,000
a year ago.

Technical Outlook

CATTLE (OCT) 09/02/2004: The daily stochastics
have crossed over down which is a bearish indication. Daily stochastics
declining into oversold territory suggest the selling may be drying up soon. The
market’s short-term trend is negative as the close remains below the 9-day
moving average. The close below the 1st swing support could weigh on the market.
The next downside target is now at 81.700. The next area of resistance is around
83.770 and 84.570, while 1st support hits today at 82.370 and below there at
81.700.

 

LEAN HOGS RECAP

9/1/2004

October Lean Hogs closed up 0.82 at 66.80. This
was 1.35 up from the low and 0.60 off the high.

February Pork Bellies finished up 2.72 at 95.15,
0.15 off the high and 3.02 up from the low.

October hogs closed sharply higher on the session
for the third day in a row and closed at their highest level since August 13th.
Fund buying and the strength in the cash market were supportive elements today.
The CME 2-day lean index for the period ending August 30th was down 40 cents
from the previous session to 72.83 as compared with 74.59 on August 24th.
Average hog weights for the week ending August 28th came in at 261.8 pounds
versus 260.9 last week and 255.7 a year ago. Slaughter came in at 394,000 head,
which was below trade expectations ranging from 396,000-400,000 head and
compares with 394,000 last week and 387,000 a year ago. Bellies closed sharply
higher on fund buying as well.

Technical Outlook

HOGS (OCT) 09/02/2004: The major trend could be
turning up with the close back above the 40-day moving average. Stochastics are
at mid-range but trending higher, which should reinforce a move higher if
resistance levels are taken out. The close above the 9-day moving average is a
positive short-term indicator for trend. A positive setup occurred with the
close over the 1st swing resistance. The next upside objective is 68.550. The
next area of resistance is around 67.770 and 68.550, while 1st support hits
today at 65.850 and below there at 64.670.

 

COCOA MARKET RECAP

9/1/2004

December Cocoa finished down 91 at 1595, 44 off
the high and 8 up from the low.

December cocoa prices gapped lower on aggressive
fund sales as recent rains in cocoa producing regions looks to be getting
trader’s nervous that the world supply deficit expected for 04/05 may be smaller
than expected. Origin and speculative selling looks to have over powered
industry buying. With the funds holding a large net long position, it is not
surprising this week to see the magnitude of profit taking since the market has
lacked a sufficient amount of bullish news for traders to justify holding on to
long positions.

Technical Outlook

COCOA (DEC) 09/02/2004: The market back below the
40-day moving average suggests the longer-term trend could be turning down.
Stochastics trending lower at midrange will tend to reinforce a move lower
especially if support levels are taken out. The close below the 9-day moving
average is a negative short-term indicator for trend. More selling pressure is
likely given yesterday’s gap lower price action on the day session chart. The
defensive setup, with the close under the 2nd swing support, could cause some
early weakness. The next downside target is now at 1552. The next area of
resistance is around 1621 and 1656, while 1st support hits today at 1569 and
below there at 1552.

 

COFFEE MARKET RECAP

9/1/2004

December Coffee closed up 1.35 at 73.95. This was
1.60 up from the low and 0.70 off the high.

December coffee closed sharply higher Wednesday
on concerns hurricane France, headed for Florida, could damage coffee storage
facilities. However, as of Wednesday afternoon, the hurricane’s path would
suggest it would miss Miami where the coffee is being stored. The market’s
reaction to a possible supply threat is not surprising since the funds are
holding a very large net short position according to the last COT report with
options. In other supportive news, Guatemala reported August coffee exports to
be down 8.7% from year ago levels. According to Reuters, a UK research firm
(CoffeeNetwork) is projecting a 2004/05 world robusta coffee
production/consumption deficit of 1.6 million bags. However, high world stocks
of estimated 15 million bags will more than make up for the deficit. Next
resistance for Dec coffee comes in at 74.70.

Technical Outlook

COFFEE (DEC) 09/02/2004: A bullish signal was
given with an upside crossover of the daily stochastics. Studies are showing
positive momentum but are now in overbought territory, so some caution is
warranted. The market’s close above the 9-day moving average suggests the
short-term trend remains positive. Since the close was above the 2nd swing
resistance number, the market’s posture is bullish and could see more upside
follow-through early in the session. The near-term upside target is at 76.00.
The next area of resistance is around 75.05 and 76.00, while 1st support hits
today at 72.80 and below there at 71.45.

 

SUGAR MARKET RECAP

9/1/2004

October Sugar closed up 0.18 at 8.17. This was
0.09 up from the low and 0.03 off the high.

March sugar gapped higher from support in London
and closed at the highest level since early August as continued talk of export
business to India and active buying from speculators helped support. While there
is still no definite confirmation of buying, traders suspect that India will buy
near 1.3-1.5 million tons. A surge higher in ethanol prices added to the bullish
outlook. A move above the August highs would leave 911 as next swing objective
for March sugar.

Technical Outlook

SUGAR (OCT) 09/02/2004: The cross over and close
above the 40-day moving average is an indication the longer-term trend has
turned positive. Momentum studies are trending higher from mid-range, which
should support a move higher if resistance levels are penetrated. The market’s
short-term trend is positive on the close above the 9-day moving average. The
gap upmove on the day session chart is a bullish indicator for trend. With the
close over the 1st swing resistance number, the market is in a moderately
positive position. The next upside target is 8.27. The next area of resistance
is around 8.23 and 8.27, while 1st support hits today at 8.11 and below there at
8.04.

 

COTTON MARKET RECAP

9/1/2004

October Cotton finished down 0.40 at 53.40, 1.80
off the high and 0.35 up from the low.

The market surged higher in early trade but after
three sessions of buying, the market seemed to have run out of new buying and
speculative long liquidation selling set in to push futures lower. While the
market is still concerned over the possible damage to crops in Georgia and the
Carolinas next week, talk that the delta crop would probably be spared of heavy
rains helped to ease damage concerns. For the weekly export sales report,
released before the opening, traders are looking for cotton sales near
50,000-130,000 bales as compared with 115,600 bales last week.

Technical Outlook

COTTON (OCT) 09/02/2004: Rising stochastics at
overbought levels warrant some caution for bulls. The close above the 9-day
moving average is a positive short-term indicator for trend. The downside
closing price reversal on the daily chart is somewhat negative. The market has a
slightly positive tilt with the close over the swing pivot. The near-term upside
objective is at 55.91. The 9-day RSI over 70 indicates the market is approaching
overbought levels. The next area of resistance is around 54.47 and 55.91, while
1st support hits today at 52.33 and below there at 51.62.