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Commodities Markets Report. Week 6 2023

Global weather review

• La Niña continues in the tropical Pacific, but has weakened from its peak in spring 2022. Though ocean temperatures have warmed in recent weeks, atmospheric indicators are largely unchanged and remain at La Niña levels.
• La Niña typically increases the chance of above average rainfall for northern and eastern Australia during summer.
• Since La Nina is not weakening El Nino will not arrive until late this year into 2024.
• The Indian Ocean Dipole (IOD) is neutral and has little influence on Australian climate while the monsoon trough is in the southern hemisphere (typically December to April).
• Dry but cold weather over western and central Europe contrasted with locally heavy rain in southeastern portions of the continent.
• In Argentina beneficial rain continued for a second week in key summer grain, oilseed, and cotton areas.
• In Brazil warmth and dryness persisted over southern farming areas.
• India Rajastan and Punjab was hit by heavy hail damaging agricultural assets lke wheat and sugar. Light and isolated showers likely to fall over Arunachal Pradesh, Adnaman and Nickobar islands, whereas the rest of country to be dry.
• In Australia widespread showers in the east benefited immature summer crops.

Dollar Index

Commodities Index

Wheat: Buy

• Wheat futures traded sideways on Wednesday.
• U.S. outlook this month is for steady supplies, larger domestic use, unchanged exports, and lower ending stocks.
• Beginning balance is raised on higher beginning stocks as reported in today’s NASS Grain Stocks report.
• Feed and residual use is raised 30 million bushels to 80 million based on higher second-quarter implied disappearance based on the Grain Stocks report.
• Seed use is raised 3 million bushels to 69 million, reflecting larger than expected winter wheat plantings reported in today’s NASS Winter Wheat and Canola Seedings report.
• Projected 2022/23 ending stocks are lowered as larger domestic use more than offsets higher beginning stocks.
• Amid geopolitical factors Ukraine depleted old crop inventory level and therefore deficit is expected. Ukraine production to see 40-50% reduction form ongoing war. If war escalates it is highly probable that Ukraine will not be allowed to sell grain and the supply shortages of wheat later in this year could be quite severe.
• Asian rice supply squeeze raises demand for US wheat and thus is bullish for the prices.

Wheat: Weather review

Drier albeit cold weather prevailed across western and central portions of the continent, while locally heavy rain lingered in southeastern Europe. Little to no precipitation (5 mm or less) was reported over much of western, central, and northern Europe. However, soil moisture reserves remained adequate to abundant for dormant (central and north) to semi-dormant (south) winter grains and oilseeds after a recent protracted wet spell.

At this time of the year hot wind called Harmattan is weakening which favorable for cocoa crop development as more rain will arrive.Winter crop harvesting has reportedly concluded in most areas, with lingering activity confined primarily to the southern-most growing regions. Mostly dry weather in Western Australia, South Australia, and western Victoria allowed this fieldwork to continue with little if any delay. In eastern Australia, widespread showers (5-25 mm, locally more) benefited immature summer crops, including cotton and later-planted sorghum.

For a second week, locally heavy showers brought much needed relief to major commercial farming areas throughout Argentina. Rainfall totaling 25 to 85 mm extended from northern sections of La Pampa and Buenos Aires northward through Salta and eastward into Corrientes. Drier conditions prevailed at the southern and eastern edges of the main agricultural delegations, including southern farmlands of La Pampa and Buenos Aires and cotton areas in and around eastern Chaco. In central Argentina, much of the rain fell during the latter half of the week, ending a brief spell of summer heat that pushed temperatures into the middle and upper 30s (degrees C) on several days. While benefiting later-planted summer crops, the moisture arrived too late to reverse damage to crops that flowered during the height of the drought.

Pockets of dryness persisted over southern Brazil, accompanied by summer warmth that exacerbated water losses through evaporation. Rainfall remained patchy and light from southern sections of Mato Grosso do Sul and São Paulo through Rio Grande do Sul, where daytime highs often reached the lower and middle 30s (degrees C). While maintaining adequate to abundant levels of moisture for immature summer crops, the heaviness of the rain sustained localized delays in seasonal fieldwork.

Wheat: Price Chart

Cotton: Buy

• Cotton closed slightly lower on Wednesday.
• World 2022/23 ending stocks are forecast 370,000 bales higher this month as lower production is more than offset by a reduction in consumption.
• World production is forecast 330,000 bales lower than it was in December as lower production in India more than offsets gains in the United States and Brazil.
• Projected world consumption is 850,000 bales lower this month, at 110.9 million bales, a 5.7-percent decline from the previous year.
• Compared with the December outlook, India’s 2022/23 consumption is forecast 500,000 bales lower, with smaller declines for Indonesia and Vietnam.
• Projected world trade is down 600,000 bales, to 41.7 million, as projected exports from the United States, India, and Argentina decline. Imports by China, Indonesia, and Vietnam are also projected lower.
• Cotton prices find bullish support on lower production.
• Amid bearish factors is low level of internatioinal trade.

Cotton: Weather review

Brazil was wet which is beneficial for orange crops that is collected from July to January.

Florida remains warm. Tallahassee’s high of 84°F on the 19th set a January record; the previous mark of 83°F had been achieved on January 2, 2022, and several earlier dates. Weather was favorable for orange harvest that goes on from October to June.

Cotton: Price Chart

Special Market Situation

SMS - refers to a set of market indicators (COT data) that indicates major market turnarounds. For example, if market is oversold it is likely moving average will go up, if market is overbought downward movement is expected.

Special situation trade setups are selected based on 10+ years of trading experience, but there are no guarantees that any trade will prove profitable or will not produce a loss. A trade may require more than one entry attempt. You alone are responsible for your trading decisions. It is up to you to control the risk by using stop losses.

This special situation does not claim immediate practical application. Actionable buy and sell signals are published on our website charts every week.

You can get more information here.

Wheat

Commercial insiders hold their largest net long position in 2.5 years. Funds are holding their largest net short total in 3.6 years, tagging wheat as speculatively oversold.

Breakout of the monthly high to confirm the trend change.

Natural Gas

Commercial insiders hold their largest net long position in 2.8 years and funds hold their largest net short total in the same period, categorizing natural gas as speculatively oversold.

Orange Juice

Funds hold their largest net long position in 6.0 years, noting OJ as speculatively overbought.

Euro FX

Commercial insiders hold their largest net short (most bearish) position in 2.0 years.

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