What Will Watson Do Wednesday?

• The US president's War on Iran continues to expand, with Iran reportedly weighing an attack on US targets in Europe. 

• The Energies sector led the commodity complex higher overnight through early Wednesday morning, as expected. 

• Grains were mostly higher to start the new noncommercial positioning week. 

Morning Summary: Given this week has played out generally according to schedule – starting with a Manic Monday and continuing with a partial Turnaround Tuesday – I was set to talk this morning about a normal Watson Wednesday. What I mean is this day, the third day (of the week), is the start of a new noncommercial positioning week, a day when Watson tends to get more active. As I said, that was the plan. However, a look at the quote screen pre-dawn told me to check on the day’s headlines. Why? The Energies sector was leading the commodity complex higher once again. As of this writing WTI had gained as much as $1.37, climbing back above $86 overnight while Brent crude had taken out $92. Meanwhile, diesel fuel (distillates) made its way north of $4.50. What was the catalyst this time around the clock? It seems the US president’s War on Iran, after already spreading like a disease across much of the Middle East, is now set to be a pandemic over parts of Europe. The lead headline Wednesday morning read, “Iran reportedly weighs attack on U.S. targets in Europe as UAE severs trade with Tehran”. As for gold, the December issue was down another $6.60 to start the day. 

Corn: The corn market traded both sides of unchanged overnight, initially dipping a couple cents into the red. As of this writing, December (ZCZ26) was sitting on the round number $4.90, up 2.0 cents from Tuesday’s close on trade volume of 27,000 contracts. Speaking of Yesterday (feel free to hum The Beatles song as background music), the December issue finished 1.5 cents lower for the day but 27.5 cents higher for the positioning week. This tells us Watson added to its net-long futures position, last reported at 244,910 contracts. A look at the CME website early Wednesday shows open interest in the Dec issue increased by 7,370 contracts during Tuesday’s selloff. Where did the change come from? Dec lost 0.25 cent to March, settling yesterday’s session at a carry of 16.0 cents, equaling its lifetime low daily close, and covering a still neutral 53% calculated full commercial carry. Further out, March lost 0.75 cent to May while the carry in the May-July futures spread strengthened by 0.5 cent. As for open interest, March added 3,900 contracts with July increasing by 2,730 contracts. Combined, these numbers tell me the new-crop market found increased commercial selling after its recent rally meaning merchandisers are still comfortable with supply in relation to demand. 

Soybeans: After looking at the Energies page on my quote screen early Wednesday morning, I jumped over to the oilseed sub-sector. Sure enough, markets were in the green across the board, this time led by canola. Here we see the November issue added as much as $14.00 (1.7%) and was sitting $10.80 (1.3%) higher at this writing. Following at a bit of a distance was December soybean oil with a gain of 0.6 cent (0.8%) after rallying as much as 0.7 cent overnight. The November soybean contract (ZSX26) gained as much as 10.75 cents overnight and was within sight of its session high on solid trade volume of 43,000 contracts. Recall from yesterday’s Afternoon Commentary, Nov closed 0.75 cent higher after rallying as much as 15.75 cents, setting the stage for a possible selloff overnight. However, Nov was also up 48.0 cents for the Tuesday-to-Tuesday positioning week meaning Watson was adding to its net-long futures position, last reported at 159,945 contracts. Fundamentally the new-crop market remains neutral-to-bullish. The latest national average basis calculation came in at 40.0 cents under November futures as compared to the previous 5-year average weekly close for the first week of September of 44.0 cents under November. 

Wheat: The wheat sub-sector was mixed to start the day. It’s interesting to note trade volume was solid for all three markets with December SRW (ZWZ26) registering 8,000 contracts traded, December HRW 5,600 contracts, and December HRS 260 contracts changing hands overnight. Starting with SRW, contracts were in the green to start the day with December up 1.25 cents after adding as much as 5.5 cents. Recall Dec closed 8.0 cents lower for the day yesterday but still 33.0 cents higher for the positioning week. This tells us Watson was covering some, possibly a large part, of its net-short futures position last reported at 24,910 contracts. It’s interesting to note, a look at its daily close only chart shows Dec SRW continues to run just above its 26-day moving average. Dec moved above this technical statistic on Friday, August 14 with the 26-day calculated Wednesday at $6.7925. Over in HRW we see the December issue down 2.75 cents after posting an overnight trading range 8.0 cents, from up 3.0 cent to down 5.0 cents. Dec finished 9.0 cents lower for the day Tuesday but up 42.5 cents for the positioning week indicating Watson added substantially to its net-long futures position reported last Friday at 13,210 contracts.