What Was Driving Markets Early Monday Morning?

• This week's docket includes a variety of government reports, both economic and otherwise, something that should make those interested in such things quite happy. 

• The Energies sector rallied overnight following the familiar Tolstoy Timeline this past weekend: “Peace” teasings late last week that didn't materialize and more talk of War Monday morning. 

• The Grains sector shrugged off weekend rains, with noncommercial activity taking center stage to start the week.

Morning Summary: Welcome to a new week with a look at the quote screen showing us the commodity complex is basically more of the same. For those addicted to government numbers, this week is for you, at least once we get to Hump Day (aka Whisky Wednesday for those of us who aren’t). We will get the latest Consumer Price Indexes, to go along with USDA’s August WASDE. Thursday’s docket includes the July Producer Price Index, comments from members of the Federal Reserve, weekly jobless claims, and weekly sales and shipments. Frantic Friday will see the July retail sales figures released. Until these made-up figures steal the headlines we are left with the standard Tolstoy Timeline. Recall late last week was filled with plenty of “Peace” teasings from the US president, though as CNBC pointed out Sunday night, nothing came of it. Early Monday morning finds headlines reading, “(The US president) shifts to economic pressure as Iran hardens stance over Strait of Hormuz” and “Oil prices rise amid uncertainty over U.S.-Iran Strait of Hormuz deal”. To begin with, there is no “uncertainty”. This is how the game is played these days. Lastly, the US president has to first tell his social media subscribers what he is going to say next so they can position themselves accordingly. 

Corn: The corn market was quietly higher to start the day and week. The December issue (ZCZ26) posted a 4.5-cent trading range overnight on light trade volume of 16,000 contracts and was sitting 1.75 cents higher at this writing. A few leftover items of note from last Friday: The Goldman Roll got under way, meaning if funds were long the September issue they would be rolling to December over the coming days. This could skew the September-December futures spread that was already covering a bearish level of calculated full commercial carry (75%) at last week’s settlement. The Dec-March covered a neutral 53%. On the other side of the ledger, the latest Commitments of Traders report showed a noncommercial net-long futures position of 255,070 contracts as of Tuesday, August 4, an increase of only 750 contracts from the previous week. Was this hinting at a loss of bullish momentum? Possibly. Recall Dec closed lower for the second consecutive week after rallying four straight weeks in July. The latest break has seen Dec retrace 50% of what it had gained, fitting with the neutral Dec-March futures spread. Watson doesn’t seem overly interested in weekend rains that rolled across the US Plains and Midwest, with more in the forecast today. 

Soybeans: The rally in the Energies sector sparked a bit of buying in the oilseed sub-sector overnight through pre-dawn Monday. Diesel fuel (distillates) (HOU26) was up 9.75 cents (2.5%) to start the day. As one would expect, soybean oil led oilseeds higher. The more heavily traded December issue (ZLZ26) gained as much as 0.64 cent (0.9%) overnight and was within sight of its session high at this writing. It should be noted soybean oil has recently seen selling from both commercial (a flattening forward curve) and noncommercial sides. The latest Commitments of Traders report showed funds decreased their net-long futures position by 20,520 contracts, the tenth week out of the past 13 this has been the case with most of the activity long liquidation. As for soybeans, the November issue (ZSX26) looks to be driven more by the noncommercial side than commercial interests to start the week. Despite a cooler, wetter extended forecast, Nov26 rallied as much as 8.75 cents overnight on still light trade volume of 16,000 contracts. On the algorithm side, Nov continues to hold above the 85-day moving average on its daily close-only chart while stochastics hold below the oversold level of 20%. Watson held a net-long futures position of 175,540 contracts as of last Tuesday. 

Wheat: The wheat sub-sector was in the green across the board to start another day and week. What stood out to me was trade volume picked up overnight with the September SRW issue (ZWU26) showing 18,500 contracts while December (ZWZ26) registered 15,500 contracts changing hands. All this activity translated to September rallying as much as 16.75 cents while December added as much as 16.25 cents. The same two contracts were up 9.5 cents and 9.25 cents respectively at this writing. Fundamentally the market was still bearish at last week’s close, as indicated by the September-December futures spread covering 76% calculated full commercial carry while the Dec-March covered 69%. Friday night’s national average basis calculations came in at 61.5 cents under September and 80.0 cents under December, as compared to the previous week’s final 56.25 cents under and 74.5 cents under, all while the National SRW Index lost 4.75 cents for the week. To summarize: the market’s intrinsic value decreased, basis weakened dramatically, and futures spreads were more bearish. Since we are talking about wheat, it makes sense Watson would start the week buying. For the record, last Friday’s Commitments of Traders report showed funds increased their net-short futures position by 12,770 contracts as of Tuesday, August 4.