• The stock market powers higher over the first two weeks of July
  • The dollar falls- Gold, silver and palladium move to the upside- Platinum continues to lag the precious metals
  • Ethanol and coal fall, but oil, oil products, and natural gas move higher since June 30
  • Wheat rallies, while corn and beans are on either side of unchanged- Gains in cotton and meats, but other soft commodities fall
  • Copper and base metals rally- Lumber and iron ore power higher



On Wednesday, July 1, the Fed minutes from the most recent meeting told market participants to expect easy money policy for many years. The central bank reiterated its quantitative easing policies and said that guidance would continue. Dovish central bank policy in the US has become institutionalized and is a permanent part of market dynamics for as far as the eye can see. The stock market action in the first session of the third quarter was mostly quiet as the holiday weekend approached. The S&P 500 and NASDAQ were 0.50% and 0.95% higher. The DJIA and Russell 2000 slipped 0.30% and 0.97% lower. September 30-Year US Treasury Bond futures moved 0-09 lower to 178-09, while the dollar index fell 0.194 to 97.155. Grain prices followed through on the upside after the rallies on the final session of June. Soybeans, corn, and CBOT wheat prices all moved higher on Wednesday. Crude oil and oil products edged higher on the back of mostly bullish inventory data from both the API and EIA. The reported declines in crude oil inventories of 8.156 and 7.20 million barrels, respectively, for the week ending on June 26. Crack spread for gasoline and distillate edged higher on the session. Natural gas fell 8 cents per MMBtu on the August contract after gains earlier this week. Ethanol moved higher. After trading at over $1800, gold fell to the $1780 level, taking silver, platinum, and palladium prices lower. Copper remained above the $2.70 level on September futures, closing Wednesday at $2.7340 near the high. August live and feeder cattle and August lean hog futures edged higher. September cocoa moved slightly lower, while active month cotton, FCOJ, coffee, sugar, and lumber prices posted gains. Bitcoin was $140 higher to $9325 per token.

On Thursday, before the holiday weekend, the employment report sparked buying in the stock market as a record gain of 4.8 million jobs in June was above expectations and pushed the unemployment rate lower to 11.1%. Stocks moved modestly higher on the session, with under 0.52% gains in all of the leading indices. Bonds and the dollar index did not move all that much on the session. In commodities, crude oil moved above the $40 level on August futures, natural gas settled at over the $1.70 per MMBtu level. Gold was around the $1790 level, with silver just above $18.30 per ounce. Copper was steady at almost $2.75 per pound. Soybeans were flirting with $9, and corn was over $3.50 per bushel on the new-crop contracts. Wheat was the weakest link with the price at $4.92 per bushel on September futures. Meats were mostly higher. Lumber was higher with sugar and cotton, but coffee, cocoa, and FCOJ prices fell. Bitcoin was around the $9150 level. Markets were closed on Friday for the July 4 holiday.

On Monday, July 6, Warren Buffett emerged from the shadows as he purchased Dominion Energy’s natural gas assets. Stocks continued to move higher, with the NASDAQ up 2.21% to a new all-time high. The S&P 500 rose 1.59%, the DJIA was up 1.78%, and the Russell 2000 gained 0.77% on the session. September US 30-Year bonds were stable around the 178 level. The September dollar index fell by 0.619 to 96.682. Soybeans moved higher to above $9 per bushel on the November futures contract, but corn and wheat prices edged lower. Crude oil was higher, with the price settling at $40.63 on the August futures contract. Heating oil was higher along with the distillate crack spread. Gasoline kept pace with crude oil. August natural gas futures continued to recover and were 9.6 cents per MMBtu higher to the $1.83 level. Ethanol rallied to $1.34 per gallon. Gold was sitting just below the $1800 level, silver was just shy of $18.60, and platinum was at $837.70, up $6.10. Palladium moved $24.70 to $1952.30 on the September contract. September copper settled at $2.7745 up 2.6 cents on Monday. Live and feeder cattle prices rose, while lean hogs edged higher. Cotton, FCOJ, and lumber were higher, but sugar, coffee, and cocoa prices moved to the downside. Bitcoin moved to the $9400 level higher on the first session of the week.

On Tuesday, stocks moved lower as the Russell 2000 fell 1.86%, the S&P 500 shed 1.08%, and the DJIA was down 1.51%. The NASDAQ continued to outperform the rest of the stock market with a loss of 0.86%. The September long bond futures rose 1-10 to 179-09, and the September dollar index edged a bit higher to 96.839. Soybeans moved a bit lower, but the price of November futures remained above the $9 per bushel level.  December corn was lower, but September wheat was marginally higher. Crude oil was close to unchanged, but gasoline and heating oil futures posted gains, sending crack spreads higher. August natural gas futures were 4.6 cents higher to the $1.876 per MMBtu level. Ethanol pulled back to $1.33 per gallon. Gold settled at $1809.90 on the August contract after rising to a new high at $1810.80. September silver was over the $18.60 level, and platinum rose by $25.50 per ounce. Palladium was less than $1 lower on the session. September copper was just below the $2.80 level as the red metal put in a new high. Live cattle edged higher, while feeder cattle posted a loss. Lean hogs were close to unchanged as the price remained below the 50 cents per pound level on the August contract. Sugar, coffee, and cotton prices were higher, but cocoa and FCOJ futures slipped lower. Bitcoin futures were steady at just under the $9300 per token level.

On Wednesday, the NASDAQ continued to lead the stock market higher with a 1.44% gain. The DJIA, S&P 500, and Russell 2000 were all 0.68% to 0.81% higher on the session. The September long bond futures fell 0-11 to 178-21. The dollar index futures were 0.471 lower to 96.367 as it approaches the first level of short-term technical support at 96.320, the June 23 low. Soybeans fell, corn posted a marginal gain, but September wheat futures blasted through the $5 level to settle at $5.1650 near the session’s high. NYMEX crude oil was 28 cents per barrel higher. Gasoline outperformed crude oil, lifting the crack spread, but heating oil underperformed the energy commodity, pushing the distillate processing spread lower. Natural gas futures were 5.2 cents lower to $1.824, while ethanol moved higher to $1.36 per gallon. Gold rose to another new high at $1829.80 as it makes its way to the 2011 record high at $1920.70. September silver settled at $19.161, the highest price of 2020. Platinum settled over $20 higher, but palladium slipped by $13.30 per ounce. Copper continued to climb as the red metal settled at $2.8240 on the September futures contract on COMEX. Live and feeder cattle moved lower along with lead hog prices, which were around the 48 cents per pound level. Sugar edged lower while coffee remained at the $1 per pound level. Cocoa continues to fall as it moved to the downside for the eighth consecutive session. Cotton and FCOJ prices moved higher on Wednesday. Bitcoin rose with the price of the digital currency at the $9500 per token level.

On Thursday, stocks moved lower early on a Supreme Court ruling that President Trump must hand over tax return information to the NY District Attorney. However, in another decision, the Court rejected efforts by House Democrats to receive his tax records. They also ruled that nearly half of Oklahoma falls within an Indian Reservation and “Tribal Land.” Stocks made a bit of a comeback from early losses. The DJIA was 1.39% lower, and the S&P 500 fell by 0.56%. The Russell posted a 1.76% loss, but the NASDAQ continued to be the strongest with a 0.53% gain on the session to a new record high. The September long bond futures were 1-12 higher to 180-10. The dollar index was higher at 96.673. Grain prices moved higher with soybeans just above $9 per bushel, corn at the $3.57 level on the new-crop December futures, and wheat powering higher to over $5.20 per bushel. Crude oil fell below the $40 level as the August contract settled at $39.62 per barrel. Product prices fell, sending gasoline cracks slightly lower, but distillate cracks posted a gain. Natural gas fell to settle at $1.779 per MMBtu after the EIA reported a 56 bcf increase in stocks for the week ending on July 3, slightly below the market’s expectations. August ethanol moved higher to $1.395 per gallon. Gold moved lower to the $1800 level, silver slipped below $19 per ounce, while platinum fell, and palladium moved higher on Thursday. Copper continued to climb, reaching a high of $2.8690 on September futures and settling at $2.8385. Live and feeder cattle edged higher, and lean hogs moved higher and above the 50 cents per pound level. Sugar and coffee moved lower, while cocoa was higher. Cotton edged lower after the recent gains, but FCOJ rallied and was approaching the $1.30 per pound level on September futures. September lumber continued to climb and was at over $480 per 1,000 board feet on the September contract. Bitcoin declined to the $9250 per token level.

On Friday, stocks moved higher across the board. The Russell 2000 small-cap index led the way on the upside with a 1.70% gain. The DJIA moved 1.44% higher, and the S&P 500 gained 1.05%. The NASDAQ moved 0.66% higher to another record peak. September 30-Year Treasury bond futures fell 0-27 to 179-17, and the dollar index was slightly lower to 96.614. The USDA released its July WASDE report. Corn and soybean prices fell sharply on the back of the report and trade tensions between the US and China. CBOT wheat moved higher on concerns over global weather conditions and crop yields. Crude oil bounced back over the $40 pivot point, and oil products and crack spreads posted gains. Natural gas closed the week at $1.805 per MMBtu. August ethanol slumped to $1.32 per gallon on the back of weakness in corn. Gold settled the week at just over the $1800 level, and silver at above $19 per ounce on the September contract. Platinum edged lower, but palladium moved higher to just below $2000 per ounce. August live and feeder cattle posted gains, but lean hogs settled at just below the 50 cents per pound level. Sugar and coffee prices fell, but cocoa, cotton, FCOJ, and lumber prices moved to the upside. September lumber closed at just below the $500 per 1,000 board feet level, the highest price of 2020, and since 2018. Bitcoin futures were at $9,275 per token to close the week.

On Monday, the stock market moved significantly higher early in the day, but new on the rising number of coronavirus cases and state’s plans to slow or stop reopening of business pushed prices lower by the close. The DJIA was close to unchanged, with a 0.04% gain on the day. The S&P 500 fell 0.94%, and the Russell 2000 was 1.34% lower on the first session of the week. The NASDAQ pulled back by 2.13% in a rare session where it posted the most significant loss. US 30 Year Treasury Bond futures in September were 0-12 higher to 180-06. The September dollar index fell 0.207 to 96.407. December corn futures fell 8.25 cents to $3.3650, while November soybeans declined 15.5 cents to $8.7525 per bushel. September wheat was 9.25 cents lower to the $5.2475 level. August crude oil futures settled at $40.10, down 45 cents. Oil products moved lower and underperformed crude oil, sending crack spread slightly lower. August natural gas fell 6.6 cents to $1.739, and August ethanol was steady at $1.33 per gallon. Gold was just over $1800, while silver moved to a new high for 2020 at $19.81 and settled at $19.788 per ounce. Platinum and palladium prices moved higher on the session. Copper continued to move to the upside, reaching a high of $2.9930 on the September contract before settling at $2.9550 per pound. Live cattle edged lower below $1 per pound, but feeder cattle were higher on Monday. August lean hog futures put in a bullish reversal on the daily chart and moved to just over the 51.50 cents per pound level. Sugar and cotton were lower. Coffee and cocoa moved higher, and FCOJ was unchanged. Lumber made a new high at $513.90 on the September futures contract but settled at $493.70. Bitcoin was steady at $9295 per token.

On Tuesday, even though coronavirus continues to rage through parts of the United States, stocks posted gains. In a continuation of the pattern over the past few sessions, the NASDAQ posted the smallest increase as it rose 0.94%. The S&P 500 was 1.34% higher, and the Russell 2000 gained 1.76%. The DJIA was the leader on the upside as it moved 2.13% to the upside. The September long bond futures were around the 180 level. The September dollar index fell 0.200 to 96.207. The next level of support is at 95.57. Corn futures edged lower, but soybean and wheat futures posted marginal gains. August crude oil was 19 cents higher to $40.29, while gasoline and heating oil fell, sending both refining spreads lower. Natural gas was up only 0.70 cents to 1.746 per MMBtu on the August contract, while ethanol futures were steady at $1.33 per gallon. Gold, silver, platinum, and palladium prices moved to the downside with the most significant losses coming in the PGMs. Copper fell 2.6 cents per pound, but the September contract remained above the $2.90 per pound level. Live and feeder cattle prices moved lower, with the August live cattle contract failing at the $1 per pound level. Lean hogs slipped back below the 50 cents per pound level. Sugar, coffee, cocoa, cotton, and FCOJ all moved lower on Tuesday. FCOJ put in a bearish reversal on the daily chart. Lumber was higher to $511.50 on the September contract. The expiring July contract moved to a new high at $583 per 1,000 board feet, the highest price since July 2018. Bitcoin posted a marginal gain to $9310 per token.


On Wednesday, the Beige Book from the Fed expressed concerns over employment levels. OPEC, Russia, and other world oil producers agreed to taper production cuts to 7.7 mbpd in August. Stocks moved higher led by the Russell 2000, which posted a 3.50% gain. The S&P 500 was up 0.91%, and the DJIA was 0.85% higher. The NASDAQ continued to lag after being the only index to rise into record territory, but it was up 0.59% on the session. US 30-Year Treasuries fell 0-21 to 179-20. The dollar index continued to melt as it fell to the 96.039 level. Soybeans and corn were lower, but CBOT wheat futures rose to over the $5.50 per bushel level. The cut in the production cut did not stop crude oil from moving higher as the August contract on NYMEX settled at $41.20 per barrel up 91 cents and within reach of the recent high at $41.63. The API and EIA reported that inventories declined, which helped to support crude oil. Oil products were higher, but they underperformed crude oil, sending crack spreads marginally lower. Natural gas in August was up 3.2 cents to $1.778 per MMBtu. Ethanol fell sharply to the $1.17 per gallon level. Gold and silver prices moved to the upside along with platinum and palladium. Copper fell and settled at $2.8850 on the COMEX September futures contract. Live and feeder cattle futures posted gains, with live cattle moving over the $1 per pound level after putting in a bullish reversal on the daily chart. Lean hogs were sitting at just over 50 cents per pound after edging higher. Sugar future moved to the upside, but coffee, cocoa, cotton, FCOJ, and lumber all moved lower. Bitcoin was sitting at $9235 per token.


Weekly Spreadsheet:

Copy of Spreadsheets for The Hecht Commodity Report July 15, 2020


Stocks and Bonds

Over the past two weeks, the US stock market continued to move higher despite the rising coronavirus cases. The flow of liquidity from the Federal Reserve turns the stock market into a magnet for capital. The tech-heavy NASDAQ has led the way higher and has moved to record highs since the end of June. The stock market has begun the second half of 2020 like it finished the first half, in a bullish trend. However, share prices could be climbing a wall of worry if the number of infections leads to rising fatalities over the coming weeks. Florida, Texas, Arizona, and other states are running short of hospital and ICU beds over the past days. Some states have backtracked on reopening businesses. The uncertainty over the pandemic continues to be the most significant factor that could create another risk-off period in the stock market. At the same time, the US presidential election could also cause volatility in stocks over the coming weeks and months. However, the trend is always your friend and it remains higher in stocks.

The S&P 500 rose 4.07% since June 30. The NASDAQ was 4.89% higher, and the DJIA posted a 4.10 gain. Together with other monetary authorities around the globe, the US central bank has injected unprecedented levels of liquidity into the financial system. At the same time, government stimulus programs that address high levels of unemployment and the surging costs of the virus have created ballooning debt levels. The price tag for the virus and a potential shift in US domestic and foreign policies will continue to cause price variance over the coming weeks and months. Markets tend to reflect the economic and political landscapes, but the liquidity has been bullish fuel for the stock market.

Chinese stocks moved higher over the past two weeks and outperformed US equities.

Source: Barchart

As the chart illustrates, the China Large-Cap ETF product (FXI) was trading at the $43.47 level on Wednesday, as it gapped higher and rose by 9.50% since the previous report. The Chinese large-cap ETF product had been trading around the $40 per share level. Support was at the March low at $33.10 with resistance at $41.65, the June 10 high. FXI had made higher lows and higher highs since March. The break to the upside took the price to the highest level since April 2019. The Chinese economy is back in business with a low rate of reported coronavirus cases. Moreover, the Chinese government could be supporting the level of Chinese stocks. The break to the upside is significant. The most recent high was at $45.93. A move above $46 could cause a technical rally to $50 per share, which is a level not seen since early 2018. Rising tensions between the US and China have not stood in the way of the rise in FXI over the past two weeks.

September US 30-Year bonds edged higher over the past two weeks despite the rally in the stock market. Interest rates in the US are not moving appreciably higher any time soon. On Wednesday, July 15, the September long bond futures contract was at the 179-20 level, 0.60% higher than on June 30. Short-term support for the long bond is at 170-30 with resistance at 181-14. The bond market action reflects Fed policy, which has made dips in bonds a buying opportunity. The pattern of trading is likely to continue, given the Fed’s approach to monetary policy.

Open interest in the E-Mini S&P 500 futures contracts fell by 1.10% since June 30. Open interest in the long bond futures rose 2.89% over the past two weeks. The VIX traded to a high of 85.47 on March 18, the highest level since 2008. I have been writing, “I continue to believe that risk-reward favors buying the VIX and VIX-related products with tight stops and reestablishing positions after the market triggers stops is the optimal approach in the current environment. Nothing has altered my approach to the VIX over the past week.” The volatility index was at 27.70 on July 15, down 8.97% since the end of June. I continue to believe that related short-term products like VIXX, and VIXY are in the buy zone. The most recent high in the VIX was at 44.44 on June 15. At below 28, they offer value.

If the number of fatalities rises substantially over the coming days and weeks, we could see a decline in business activity and another risk-off period in the US stock market. The United States continues to lead the world in the number of reported cases and deaths from coronavirus. The price for freedom and individual states’ rights have caused an inconsistent approach when it comes to dealing with the pandemic. However, a therapeutic solution that significantly lowers the mortality rate or a prophylactic vaccine would be bullish for stocks. Meanwhile, the virus’s price tag will continue to keep interest rates low for as far as the eye can see.  The stock market is at lofty levels, but it has been a mistake to fight the bullish trend.


The dollar and digital currencies

The dollar index continued to move lower over the past two weeks. The September dollar index future contract was at 96.039 on July 15, down 1.35% from the level on June 30. The dollar has experienced selling pressure since March. Open interest in the dollar index futures contract moved 21.59% higher since June 29. A move below the 94.61 level would threaten the long-term uptrend in the dollar index. Daily historical volatility in the dollar index was at 4.15% on Tuesday, over 1% lower than on June 30. The metric that measures price variance on the September contract rose to a high of 22.70% in late March. Short-term support is at 95.57 with resistance at 97.70 on the September futures contract.

The September euro currency was 1.49% higher against the dollar. The interest rate differential between the dollar and the euro has narrowed, which provided some support for the euro. Open interest in the euro futures rose by 4.41%. The September pound moved 1.53% higher against the dollar since the previous report, and open interest moved 4.30% lower. The dollar is not out of the woods on the downside, but governments around the globe tend to intervene in the foreign exchange markets to achieve stability. The trend in the dollar since March threatens the bullish trend and seems headed for a test of critical support at 94.61.


Bitcoin and the digital currency asset class moved higher over the past week. Bitcoin was trading at the $9,177.89 level as of July 15.  Bitcoin failed after several attempts to conquer the $10,000 level. The leading digital currency rose only 0.46% since last week. Ethereum posted a 5.43% gain since June 30. Ethereum was at $237.57 per token on Wednesday. The market cap of the entire asset class moved 4.62% higher over the past two weeks. Bitcoin underperformed the asset class since the previous report. The number of tokens increased by 65 to 5735 tokens since June 30. In late 2017 the overall market cap was at over $800 billion with a fraction of the number of tokens available today.

On Wednesday, the market cap was around $271.702 billion. Open interest in the CME Bitcoin futures rose 9.55% since last week. Open interest has been increasing when Bitcoin moved higher and lower during downside moves, which is a bullish sign for the cryptocurrency. The pattern continued over the past week. The target on the upside stands at $10,595 per token. The trend is your friend in Bitcoin, and it remains higher. Support is at $8,950.

The Canadian dollar moved 0.58% higher since June 30. Open interest in C$ futures rose by 29.54% over the period. The C$ is highly sensitive to commodity prices as Canada is a mineral-rich nation that produces significant quantities of energy and agricultural products. Keep an eye on the oil futures market for clues about the Canadian dollar as it often acts as a proxy for the price of the energy commodity.

The Australian dollar is also a commodity-based currency with a high degree of sensitivity to China’s economy. The A$ moved 1.46% higher since last week. The geographical proximity to China makes the Australian dollar sensitive to events in China. The A$ is a proxy for both China and raw material prices. Economic strength or weakness in China will determine the path of the Australian economy. Any retribution over the spread of coronavirus could cause retaliatory measures by both sides, which would weigh on Australia’s economy. In the long-term, the stimulus is bullish for commodities prices and both the Australian and Canadian currencies. The brewing tensions with China are a reason to be cautious with the Australian currency. Over the coming months and years, we could see significant gains in the C$ and A$ as commodity prices rise because of inflationary pressures caused by the increase in the global money supply. I believe the price action in 2020 in all markets is similar to 2008. In the years that followed, commodity prices soared because of the stimulus, taking the Australian and Canadian currencies appreciably higher against the US dollar because of their sensitivity to raw material prices. Over the long-term, buying the A$ and C$ during periods of weakness could prove to be the optimal strategy. I am bullish on the two currencies that I view as proxies for commodities prices. Nothing changed since the previous report in these two commodity-sensitive currencies. I believe that any price weakness is a buying opportunity for the A$ and C$ over the coming weeks and months.

Over the past week, the volatile Brazilian real moved 1.12% higher against the US dollar on the September futures contract. The debt default by neighboring Argentina had little impact on the Brazilian real as it bounced against the US dollar. The real moved to a high of $0.2053 level against the US dollar on June 10 on the September contract before turning lower. The September Brazilian currency was trading at the $0.185650 level after falling to a new and lower low at $0.16780 on May 13. The real is a critical factor when it comes to the commodities that the South American nation produces and exports to the world. Coffee, sugar, oranges, and a host of other markets are sensitive to changes in the direction of the Brazilian real. The falling real had been a factor that weighed on sugar and coffee prices as Brazil is the world’s leading producer and exporter of the soft commodities and output costs are in local currency terms over the past weeks along with crude oil. However, as we have seen in other markets, low prices may not stop shortages of supplies as the virus impacts parts of the supply chain when it comes to processing or transporting the commodities. The weather conditions in critical growing regions and the spread of the virus could also cause price volatility in the agricultural products. Brazil has seen a significant increase in the number of infections and fatalities because of coronavirus, which could harm its currency value. The South American nation is second behind the US in cases and deaths. Since the last report, President Bolsonaro tested positive for the virus. However, in the long run, I am bullish for the real because of Brazil’s commodity production. The nation is a supermarket to the world for many products. In the aftermath of the global pandemic, the price tag for liquidity and stimulus could cause inflationary conditions that would provide support for the A$, C$, and even the Brazilian real. Brazil is second after the US when it comes to reported cases and death because of COVID-19. While the US economy went into the pandemic in robust shape, Brazil has been a basket case for many years. A rise in commodity prices could help to bolster the value of the real. I am a buyer of the real on any weakness against the US dollar.


Precious metals were mostly higher over the past week as gold moved to another new high. Silver was the leader on the upside when it comes to the four metals that trade on the COMEX and NYMEX futures exchanges. Platinum continues to be the laggard.


Precious Metals

As of the settlement prices on July 15, three of the precious metals that trade on the COMEX and NYMEX exchanges posted gains. Platinum edged lower as the metal continued to underperform its precious cousins. Gold continued to make higher highs as the price moved to a peak of $1829.80 and settled at $1813.80 on the nearby August futures contract on July 15. Silver moved above $19 per ounce, and palladium was flirting with the $2000 level. Rhodium moved higher since the end of June.

Gold was 0.74% higher over the past week. The yellow metal made a higher high at $1829.80 on July 8. Silver rose 6.03% since June 30. August gold futures were just below the $1814 per ounce level on Wednesday. September silver settled at $19.761 per ounce on July 15. I maintain a bullish opinion on the gold and silver markets as the odds favor that the price action that followed the 2008 global financial crisis is a blueprint for the coming months and years.  Stimulus is bullish fuel for gold and silver as increases in the money supply weigh on the value of fiat currencies. Price corrections continue to be buying opportunities in the silver and gold markets. However, we could see wide price variance given the price levels. I continue to hold a long core position in gold and silver. I am also running short-term long positions looking to buy on dips with the hope of taking profits on rallies. On the short-term risk positions, I am using both the metals and the diversified gold and silver mining ETF products. Nothing has changed since the previous report. Gold continues to make small strides on the upside as the price is now above the $1800 per ounce level and makes new highs. Silver at over $19.75 is a bullish sign for the precious metals sector.

While I am bullish on the gold and silver markets, they rarely move in a straight line. Using corrections as buying opportunities is likely to be the optimal approach to trading and investing.

Technical resistance for August gold stands at the recent high at $1829.80 per ounce, the high from July 8. Support is at $1754.00, the low from June 26. In September silver, support is at $17.175, with resistance at $19.815 on the new active month contract. If the price action from 2008 through 2011 is a guide, gold will head for the $2000 to $3000 per ounce level over the coming months, and silver should follow the yellow metal to the upside.

Gold mining shares moved higher with the yellow metal over the past week, with the GDX up 5.43% and GDXJ moving 8.69% to the upside. The mining shares tend to outperform the yellow metal on the upside and underperform on the downside. The market action led to an outperformance by the mining shares on a percentage basis. The SIL and SILJ silver mining ETF products that hold portfolios of producing companies moved 9.18% and 10.22% higher since June 30. The price action outperformed the silver futures market.

Gold underperformed silver over the past week. The silver-gold ratio reached a new modern-day high as risk-off selling hit the silver market, taking the price below the $12 per ounce level. The ratio had been moving steadily lower over the past weeks. I will continue to add to long physical positions in gold, silver, and platinum, during periods of price weakness. I will continue to trade leveraged derivatives and mining stocks on a short-term basis with tight stops. While gold mining stocks and derivatives follow the price of gold, they are not the metal and could experience significant periods of price deviation if risk-off conditions return to the stock market. I hold long core positions but will employ tight stops on any new positions that increase exposure to the two leading precious metals.

October platinum fell 0.94% since the previous report.  Platinum continues to lag the rest of the precious metals sector in 2020. October futures were at the $843.20 per ounce level on July 15. The level of technical resistance is at $931.80 on the October futures contract, the May 20 high. Support in platinum is at $798.00 per ounce on the active month contract. Rhodium is a byproduct of platinum, and the price of the metal had been in a bull market since early 2016. The price of rhodium was at a midpoint price of $7,000 per ounce on July 15, up $200 or 2.94% over the past two weeks. September Palladium rose by 2.19% since last week. Support is at $1830.20 on the September contract with resistance at $2091.20. September palladium settled at the $2010.00 per ounce level on Wednesday.

Open interest in the gold futures market moved 5.91% higher over the past week. The decline in open interest earlier in the year was because of problems with dealers when it comes to the EFP, or arbitrage positions between gold for delivery on COMEX and London. The metric moved 1.37% lower in platinum. The total number of open long and short positions increased by 19.07% in the palladium futures market. Silver open interest rose 3.75% over the period. Rising open interest in most of the precious metals futures markets is a bullish sign for the sector.

The silver-gold ratio moved lower over the past week.

Source: CQG

The daily chart of the price of August gold divided by September silver futures shows that the ratio was at 91.54 on Wednesday, down 5.29 from the level on June 30. The ratio traded to over the 124:5 level on the high on March 18 on the continuous contract. The long-term average for the price relationship is around the 55:1 level. The ratio rose to the highest level since futures began trading in 1974 as the price of silver tanked recently. The move lower since mid-March has been a supportive factor for the two metals. In 2008, the ratio peaked during the risk-off selling and then fell steadily until 2011.

Central banks continued to purchase gold over the first half of 2020, and net buying by central banks is a supportive factor for the price of the yellow metal. All signs are the trend will continue in Q3.

Platinum was 0.94% lower, and palladium moved 2.19% to the upside over the past week. September Palladium was trading at a premium over October platinum with the differential at the $1166.80 per ounce level on Wednesday, which widened since the last report. October platinum was trading at a $970.60 discount to August gold at the settlement prices on June 23, which also widened since the previous report.

The price of rhodium, which does not trade on the futures market, rose $200 on the week. Rhodium is a byproduct of platinum production. The low price of platinum caused a decline in output in South African mines, creating a shortage in the rhodium market that lifted the price to the $13,000 level before risk-off conditions caused the price to evaporate to $2,000. Rhodium has been highly volatile over the past weeks after reaching its peak. The price moved higher from a low at $575 per ounce in 2016. The bid-offer spread in Rhodium remained at $2000 per ounce, $1,000 narrower than in previous weeks. The spread remains at a level that makes any investment in the metal irrational. Rhodium is an untradeable commodity, but it can provide clues about the price path of the other PGMs.

I continue to favor buying physical platinum as well as gold and silver during corrective periods. In gold and silver, the GLD, IAU, BAR, and SLV ETF products hold physical bullion and are acceptable proxies for the coins and bars. In platinum, PPLT and PLTM are the proxies. Since a NYMEX platinum futures contract contains 50 ounces of metal, purchasing a nearby futures contract on NYMEX and standing for delivery is a way to avoid significant premiums for the metal. At $843.20 per ounce, a contract on NYMEX has a value of $42,160, after falling to the lowest level just under two decades in March.

The GLTR ETF product holds a portfolio of physical gold, silver, platinum, and palladium, for those looking for diversified precious metals exposure. I continue to believe that gold is heading a lot higher, but the route will not be in a straight line. The stimulus in the US and Europe continues to be highly supportive of gold and silver prices. Platinum is inexpensive from a historical perspective compared to gold and palladium. Palladium and rhodium continue to trade in bullish patterns, but both are sensitive to global economic conditions. We should continue to see volatility in all of the precious metals with a bias to the upside. I continue to favor gold, silver, and platinum on price weakness. I hold a long core position and a trading position where I buy dips and take profits on rallies. Since mining shares tend to be more volatile, I have used the mining ETFs and ETNs in gold and silver shares for short-term trading purposes. The higher high in gold over the past week is another sign of technical and fundamental strength for the yellow metal as the Fed continues to add liquidity to markets. As I have written in the past, the ascent of gold marks the descent of fiat currencies that rely on the full faith and credit of the governments that print legal tender. Central banks and governments worldwide continue to hold and be net buyers of gold, which is the ultimate currency. While countries can print legal tender to their heart’s content, the gold stock can only increase by extracting more from the crust of the earth. If 2020 turns out to be anything like 2008, new all-time highs in gold are on the horizon, and the precious metal has the potential to surprise and even shock market participants on the upside in the coming months and years. Gold moved to than $100 below the record high since the previous report, and it reached new highs in a host of other currencies. The target on silver is now the July 2016 high at $21.095 per ounce. The price action in silver has been explosive since the metal created a blow-off low below $12 per ounce in March.


Energy Commodities

The energy sector posted across the board gains over the past two weeks, except for ethanol and coal for delivery in Rotterdam. WTI and Brent crude oil, oil products, crack spreads, and natural gas moved higher since June 30.

August NYMEX crude oil futures rose 4.92% since June 30. The August contract settled at $41.20 per barrel on July 15 after trading to a low of $20.28 on April 22 and a high at $41.63 on June 23. The bottom of the gap on the daily chart from March remained elusive at the $42.17 level. Production cuts by OPEC and the decline in US output contributed to the recovery from the lowest prices in history for WTI crude oil futures in late April when nearby futures fell into negative territory for the first time. Meanwhile, crude oil inventories rose for the week ending on July 3, according to both the API and EIA, product stockpiles were mostly lower during that week. Crude oil inventories moved significantly lower for the week ending on July 10, according to the API and EIA, which added support to the market. OPEC, Russia, and other producing nations tapered the production cut to 7.7 mbpd on July 15. The market took the news in stride as oil posted a small gain on Wednesday.

Chinese demand for crude oil has been robust over the past weeks. With parts of the economy reopened in Europe and the US, the demand side of the equation has improved. However, the rising number of cases throughout the US poses a threat to the recovery in the energy commodity. The current target on the upside in August NYMEX futures is the bottom end of the gap at $42.17 per barrel from March 6, which stands as a resistance level.

September Brent futures outperformed August NYMEX WTI futures, as they rose 6.25% since June 30. August gasoline was 5.24% higher, and the processing spread in August moved 5.80% higher since last week. The August gasoline crack spread was at $11.85 per barrel. Wild swings in energy prices caused wide price ranges in the crack spreads the reflect refining margins. Gasoline crack spreads tend to exhibit strength during the summer driving season in the US, but 2020 is no ordinary year.

August heating oil futures moved 4.91% higher from the last report. The heating oil crack spread was 6.24% higher since June 30. Heating oil is a proxy for other distillates such as jet and diesel fuels. The August distillate crack spread traded to a low of $8.47 in late May and closed on Wednesday at $11.23 per barrel. The price action in the processing spreads has been highly volatile, given the timing differences between moves in crude oil and products over the past months. The crack spreads are a real-time indicator of demand for crude oil as well as barometers for the earnings of refining companies that process raw crude oil into oil products. The crack spreads could be a significant indicator of demand over the coming days and weeks as the wheels of the US economy have begun moving. However, the energy market remains highly sensitive to new outbreaks and hotspots in the US and worldwide. The crack spreads moved higher despite the increase in the number of reported cases of COVID-19 in the US.

Technical resistance in the August NYMEX crude oil futures contract is at $41.63 and $42.17 per barrel level with support at the $34.66 level. The measure of daily historical volatility was at 29.90% on July 15, lower than the 43.7% level on June 30. The price variance metric was at almost 135% in early May on August futures. Demand remains the overwhelming critical factor when it comes to the price direction of the energy commodity. As I wrote over the past weeks, “falling production should eventually balance the market and could create a deficit at some point in the future. The course of the pandemic is crucial for the oil market over the coming weeks and months. If we have seen the peak, we could see prices rise. However, further outbreaks that prompt a return to closing parts of the economy again would be a highly bearish factor for energy demand.” The August NYMEX crude oil futures contract has made higher lows and higher highs. The price needs to remain above the $34.66 level to keep that pattern intact. However, the market has stalled at the $40 level, which has become a pivot point. The lack of a decline after the tapering of production cuts could be a bullish sign for the oil market.

The Middle East remains a potential flashpoint for the crude oil market. Relations between the US and Iran and Saudi Arabia and Iran have not improved over the past months. While the leadership in Teheran has had their hands full with coronavirus, we could see them lash out at US interests in the region over the coming weeks or months. Any hostilities that cause supply concerns could send the price of crude oil for nearby delivery appreciably higher in the blink of an eye. At just over $43 per barrel for the Brent benchmark, any actions that impact production, refining, or logistical routes could cause a far greater percentage move in the price of oil than we witnessed at the beginning of 2020. The Middle East could provide surprises to the oil market, but global demand remains the primary factor for the price over the coming weeks.

Crude oil open interest increased by 0.41% over the period. NYMEX crude oil rose by 4.92%, and the energy shares underperformed the energy commodity since June 30. The XLE dropped 1.24% over the two weeks as of July 15.

I continue to be cautious when it comes to any investments in debt-laden oil companies. I would only consider those with the most robust balance sheets like XOM and CVX in the US. Exxon and Chevron could stand to pick up lots of production assets at bargain-basement prices over the coming months as the number of bankruptcies rises in the oil and gas sectors. I would only purchase these companies during corrective periods. Nothing has changed since the prior report when it comes to opportunities for oil-related equities.

The spread between Brent and WTI crude oil futures in September moved higher to the $2.45 per barrel level for Brent, which was up 52.0 cents from the level on June 30. The September spread moved to a high of $5.45 on March 18. The continuous contract peak was at $11.52 on April 20 as all hell broke loose in the crude oil futures market. The Brent premium tends to move higher during bullish periods in the oil market and vice versa. However, this time, it was the carnage in the price of WTI futures that drove the spread to higher levels. Brent crude can travel by ocean vessel to consumers around the globe, while WTI is a landlocked crude oil. The lack of storage capacity was responsible for the price action in the spread and outright prices in late April. The decline in the Brent-WTI could reflect the decline in US output and the anticipation of rising demand for gasoline.

A decline in US production over the coming months could cause significant volatility in the Brent-WTI spread. Before 2010, WTI often traded at a $2 to $4 premium to Brent. The WTI grade has a lower sulfur content making it the preferable crude oil for processing into gasoline, the world’s most ubiquitous fuel. If US output continues to decline significantly and demand returns to the market, we could see it impact the Brent-WTI differential and cause periods where WTI returns to a premium to the Brent, which is better suited for refining into distillate products. The spread also reflects the political risk in the Middle East as the region uses the Brent price for its output. The USO and BNO ETF products replicate the short-term price action in WTI and Brent futures, respectively. While both do an adequate job tracking the futures in the short-term, neither are particularly effective for medium or long-term positions because of the volatility of the forward curves in both crude oil benchmarks. The path of least resistance of the oil market will be a function of the ups and downs of the global pandemic over the coming weeks and months.

Term structure in the oil market experienced a significant shift as the price of crude oil tanked in March and April. The flip from backwardation to contango in the spread reflects the flood of supplies in the crude oil market. Oil traders have filled tanks and storage all over the world to take advantage of the wide contango with financing rates at historic lows. Cash and carry trades in the oil market became one of the only profitable areas of the market as demand evaporated. The cash and carry trade put upward pressure on freight and storage rates. The forward curve in crude oil highlights the current state of the widest contango in years. The US is filling its strategic petroleum reserve to the brim at the current low price levels. The contango caused the price of May futures to plunge to an incredible low of negative $40.32 per barrel. As prices moved higher over the recent weeks, contango declined.

Over the past two weeks, August 2021, minus August 2020, moved from a contango of $0.63 to $1.23, which was 60 cents higher over the period.  The $0.63 level at the end of June was the recent low in the spread. In early January, the spread traded to a backwardation of $5.05, $6.28 per barrel tighter than the level on July 15. The spread hit a high of $10.19 per barrel on April 28. August futures traded to a low of $20.28 on April 22. Rising contango was a sign of a glut in the oil market while falling contango signifies tighter supplies. The capacity for crude oil storage around the globe fell dramatically as well-capitalized traders purchased nearby crude oil, put it in storage, and sold it for futures delivery. The decline in the spread could have triggered some profit-taking, which opened up more capacity on the storage front.  Falling production also caused the spread to tighten. We have likely seen a least a partial unwind of some spreads as they gravitated back towards flat. Production declines and declining inventories over the coming months would result in significant profits for well-capitalized crude oil traders who continue to store crude oil against deferred short positions. The decline in contango since late April is a supportive sign for the price of oil. The number of rigs operating in the US continued to decline significantly over the past two weeks. According to Baker Hughes, on July 10, the number of rigs in operation was at 181, down 7 from two weeks earlier, and 603 below the level last year.

US daily production stood at 11.0 million barrels per day of output as of July 10, according to the Energy Information Administration. The level of production was unchanged from the previous two weeks, as the price remained around the $40 per barrel level on nearby NYMEX futures. As of July 3, the API reported an increase of 2.048 million barrels of crude oil stockpiles, and the EIA said they rose by 5.70 million barrels for the same week. The API reported a decline of 1.825 million barrels of gasoline stocks and said distillate inventories fell by 847,000 barrels as of July 3. The EIA reported a decrease in gasoline stocks of 4.80 million barrels and an increase in distillates of 3.10 million barrels. The inventory data from both the API and EIA was not overly supportive of the price of crude oil. However, as of July 10, US production dropped by 2.1 million barrels per day since March, and inventories moved significantly lower.

OIH and VLO shares moved in opposite directions since June 30. OIH rose by 2.40%, while VLO moved 2.70% to the downside over the past week. As I wrote over the past weeks, “the level of crack spreads is a reason for short-term caution for VLO.” OIH was trading at $124.81 per share level on Wednesday. I am holding a small position in OIH. We are long two units of VLO at an average of $70.04 per share. VLO was trading at $57.23 per share on Wednesday, which is disappointing. I continue to believe VLO is too low at the current price level.

The August natural gas contract settled at $1.778 on July 15, which was 1.54% higher than on June 30. The August futures contract recovered and traded to a high of $1.924 on July 7, and then pulled back below the $1.80 level. Support in August stands at $1.655 and the June low of $1.517 per MMBtu. The continuous contract made a new twenty-five-year low at $1.432 per MMBtu in late June. Below the June bottom, the next target on the downside stands at $1.335, the low from the second half of 1995. Short-term resistance is at the $1.924 and $2.162 levels.  The bearish price action in natural gas led to a bounce over the past two weeks. The all-time low was in 1992 at $1.02 per MMBtu.

Over the past two weeks, the EIA reported smaller increases in natural gas stockpiles.

Source: EIA

The EIA reported an injection of 56 bcf, bringing the total inventories to 3.133 tcf as of July 3. Stocks were 28.0% above last year’s level and 16.9% above the five-year average for this time of the year. The previous week, the injection was 65 bcf. Natural gas stocks fell to a low of 1.107 tcf in March 2019, this year the low was at 1.986, 879 bcf higher. This week the consensus expectations are that the EIA will report a 44 bcf injection into storage for the week ending on July 10. The EIA will release its next report on Thursday, July 16, 2020.  Over the past fifteen weeks, the percentage above last year’s level has been declining when it comes to natural gas stockpiles. The steady decline from 79.5% above the one-year level as of March 20 to 28.0% last week has not provided much fundamental support to the natural gas market. The trend could reflect higher demand or lower production. Given the events since March, it is likely that output is causing a slower rate of injections into storage. Baker Hughes reported that a total of 75 natural gas rigs were operating in the US as of July 10, compared to 172 last year at this time. Meanwhile, the price action over the past few weeks continued to be a sign of fragile demand. I suggest tight stops on any risk positions but continue to prefer the long side over the coming week. The rebound from the late June low was overdue.

Open interest fell by 2.59% in natural gas over the past week. Short-term technical resistance is at $1.924 per MMBtu level on the August futures contract with support now at $1.655 per MMBtu, lower than last week. Price momentum and relative strength on the daily chart were at neutral readings as of Wednesday.

August ethanol prices moved 4.10% lower over the past week. Open interest in the thinly traded ethanol futures market moved 2.22% higher over the past week. With only 88 contracts of long and short positions, the biofuel market is untradeable and looks like it could be delisted. The KOL ETF product rose 5.56% compared to its price on June 30. However, the price of August coal futures in Rotterdam fell 2.64% over the past week.

On Tuesday, July 14, the API reported an 8.322-million-barrel decline in crude oil inventories for the week ending on July 10. Gasoline stocks fell by 3.611 million barrels, while distillate stockpiles increased 3.030 million barrels over the period. On Wednesday, the EIA reported a 7.50-barrel decline in crude oil stocks. The agency said that gasoline stocks fell by 3.10 million barrels and distillate 453,000 barrels lower. The inventory data and daily production of the week ending on July 10 were bullish for the price of crude oil. Demand remains the significant factor for the price direction of the energy commodity. The strength in the crude oil futures market following the tapering of the production cut on Wednesday was a positive sign for the energy commodity.

I expect volatility in the crude oil market as it will move higher or lower on optimism or pessimism on the back of the progress of the virus and progress on treatments and a vaccine. The latest reports of new outbreaks were bearish for the energy sector. Production is falling, but demand remains the most significant factor when it comes to the price direction. The price recovery threatened to close the gap just above the recent high. While price gaps are powerful magnets for price action, the oil futures market fell short on the August futures contract over the past two weeks.

In natural gas, the forward curve continues to be wide, with January 2021 futures trading at a significant premium over natural gas for August 2020 delivery.

Nearby August futures settled at $1.778 on July 15 with natural gas for delivery in January 2021 at $2.891 per MMBtu.

The price is in contango where deferred prices are higher than levels for nearby delivery, reflecting the condition of oversupply and high level of inventories compared to past years as we are in the 2020 injection season. Natural gas stockpiles started the 2020 injection season at a level where a build to over four trillion billion cubic feet and a new record high is possible in November, which could keep the price from running away on the upside in the lead-up to the winter of 2020/2021. However, production is likely grinding lower because of the low level of prices that make output uneconomic. The trend in stocks since March 20 compared to last year is a sign of declining output. The debt-laden oil and gas businesses in the US could receive support from the government to keep energy output flowing, but demand destruction is a critical factor. Meanwhile, the differential between nearby August futures and natural gas for delivery in January was $1.113 per MMBtu or 62.6% higher than the nearby price, reflecting both seasonality and substantial inventory levels. The spread narrowed over the past two weeks as the price of nearby futures recovered.

I have been taking profits quickly and stopping losses looking for a 1:2 risk-reward ratio on forays into the crude oil futures market. UCO and SCO products can be helpful for those who do not trade futures. In natural gas, UGAZ and DGAZ were delisted by Credit Suisse, so I will be using the BOIL product, which offers double leverage on the long side.

We are holding a long position in PBR, Petroleo Brasileiro SA. PBR shares tanked with oil and the Brazilian real but has made a comeback. At $8.99 per share, PBR was 8.71% higher than on June 30. I have a small position that I will hold as a long-term investment. PBR had been weak on the back of the falling value of the Brazilian currency.

Demand continues to be the primary factor that will drive energy prices over the coming days and weeks. The recovery ran into a roadblock as the number of cases of the virus is climbing in the US. Natural gas recovered, but the price remains below the $2 per MMBtu level. I remain more comfortable with the long side with tight stops. I continue to believe that crude oil will fill the gap on the August chart up to $42.17 per barrel, but the correlation with the stock market should remain firmly in place. Tight stops are key when approaching energy commodities in the futures or ETF arena. When it comes to share prices, I believe that the leading companies will eventually rebound, but it could take some time. Energy powers the world, and demand is critical throughout the rest of 2020. In 2021, US energy policy could change, which would impact the dynamics of the fundamental equation for fossil fuels. The upcoming November election could significantly impact the oil and gas markets in the US as it is the world’s leading producer of both energy commodities.



The USDA released its July World Agricultural Supply and Demand Estimates report on July 10. The monthly WASDE report is the gold-standard for many agricultural producers and consumers. I reached out to my friend, Sal Gilberte, the founder of the Teucrium family of grain, oilseed, and sugar ETF products for his take on the USDA’s latest report. Sal told me:

The July WASDE report confirms ample supply across the entire grain spectrum, but there is also solid global demand for all grains as well. The wheat complex, even with record high global inventories, is showing price resiliency due to robust demand and unusually widespread production issues around the globe. Soybeans, with a nearly 200-million-bushel decline in year-on-year ending inventories in the US, are the most vulnerable to any weather issues; even a 1 or 2 bushel decrease in yield will tighten the US domestic soybean balance sheet considerably. Corn, along with all the grains, will be susceptible to any weather-related supply disruptions, but until gasoline usage picks up corn supplies are more than adequate to meet demand. Of particular interest is the increasing level of Chinese corn imports, much sourced by recent purchase commitments in the United States, which is likely the result of 5-year highs in Chinese domestic corn prices. China has also returned to US soybean markets in its quest to fulfill a projected record volume of annual soybean imports in the coming year. Weather is key and bears close watching, especially in early August for soybeans.


The full text of the report can be found via this link.


New crop November soybean futures rose only 0.06% over the past week and was at $8.8275 per bushel on July 15. Beans moved above the $9 per bushel level over the past two weeks but fell after the WASDE report. The USDA told the soybean market:

U.S. oilseed production for 2020/21 is projected at 122.8 million tons, down 0.4 million from last month, with increases for soybeans and peanuts offset with reductions for canola, sunflowerseed, and cottonseed. Soybean production is projected at 4.14 billion bushels, up 10 million on increased harvested area. Harvested area, forecast at 83.0 million acres in the June 30 Acreage report, is up 0.2 million from last month. The soybean yield forecast is unchanged at 49.8 bushels per acre. With higher beginning stocks, 2020/21 soybean supplies are raised 45 million bushels. Soybean crush is raised 15 million bushels reflecting an increase in domestic soybean meal disappearance which is raised in line with an increase for 2019/20. With projections for exports unchanged, 2020/21 soybean ending stocks are increased 30 million bushels to 425 million. Soybean changes for 2019/20 include higher crush, lower residual use, and higher ending stocks. Soybean residual use is reduced 50 million bushels, reflecting June 1 soybean stocks reported in the recent Grain Stocks report, and reported soybean use through May. Soybean ending stocks for 2019/20 are projected at 620 million bushels, up 35 million from last month. The U.S. season-average soybean price for 2020/21 is forecast at $8.50 per bushel, up $0.30 partly reflecting higher price expectations following the June Acreage report. The soybean meal price is projected at $300.00 per short ton, up $10.00 from last month. The soybean oil price forecast is unchanged at 29.0 cents per pound. The 2020/21 global oilseed supply and demand forecasts include lower production, lower exports, higher crush, and lower ending stocks compared to last month. Global oilseed production is reduced 2.0 million tons to 604.2 million on lower rapeseed, cottonseed, and soybean production. Canola production is lowered for Canada based on updated government data. Soybean production is lowered for Canada and Uruguay, resulting in lower 2020/21 exports for both countries. The 2020/21 global soybean ending stocks are reduced 1.3 million tons to 95.1 million as lower stocks for Brazil and China are partly offset by higher U.S. stocks. Lower foreign stocks reflect notable balance sheet revisions for Brazil in 2019/20 and China in 2019/20 and 2020/21. For Brazil, the 2019/20 crop is increased 2 million tons to 126 million, reflecting higher yields. Exports are increased 4 million tons to 89 million, leading to a 2-million-ton reduction to ending stocks. The local year exports (February 2020-January 2021) are also increased 2.5 million tons to 79.5 million. China’s 2019/20 balance sheet changes include a 2-million-ton increase in imports to 96 million and a 1-million-ton increase to crush, resulting in higher ending stocks. For 2020/21, China’s higher beginning stocks are offset by higher crush, leading to lower ending stocks. With these changes, China’s year-over-year soybean meal domestic disappearance growth remains at 7 percent.

Source: USDA

The USDA projected an increase in US stocks, and a reduction in global inventories from the previous month.


Tensions between the US and China weigh on soybean prices, but the weather is the leading factor for the price of the oilseed over the coming weeks. We are now in the height of the summer growing season. Open interest in the soybean futures market moved 2.22% higher since June 29. Price momentum and relative strength indicators were below neutral territory on Wednesday. November beans reached a high of $9.1250 on July 6 but retraced and fell after last Friday’s WASDE report.

The December synthetic soybean crush spread was unchanged from the level on June 30 at 85.75 cents. The processing spread in December for new crop beans has been trending lower since reaching a peak at $1.1550 in early April.

US relations with China could throw cold water on the chances of higher price levels as we are now in the heart of the summer season. I suggest tight stops on long risk positions and would be looking to take profits on rallies. I will tighten risk parameters the further we move into the growing season, which risks tailing off to minimal levels during the peak summer months when crops become established in August. The best chances for a supply-based rally will come during the coming weeks in early to mid-July when the plants are most vulnerable. My guidance is unchanged from last week. The weather is the most significant factor over the coming weeks. I took some profits on a scale-up basis leaving a small core long position.

December corn was trading at $3.3400 per bushel on July 15, which was 4.71% lower since June 30. Open interest in the corn futures market fell by 3.32% since June 29. The USDA told the corn market:

This month’s 2020/21 U.S. corn outlook is for sharply lower supplies, reduced feed and residual use, increased food, seed, and industrial use, and lower ending stocks. Corn beginning stocks are raised 145 million bushels, based on lower use forecasts for 2019/20. Feed and residual use for 2019/20 is lower based on indicated disappearance during the first three quarters of the marketing year as reported in the June 30 Grain Stocks. Food, seed, and industrial use is lowered 45 million bushels. Corn used for ethanol is lowered 50 million bushels based on reported use to date and weekly ethanol production data reported by the Energy Information Administration during the month of June and into early July. Projected corn used for glucose and dextrose and starch are both raised, while that used for high fructose corn syrup is lowered. For 2020/21, corn production is forecast 995 million bushels lower based on reduced planted and harvested areas from the June 30 Acreage report. The national average corn yield is unchanged at 178.5 bushels per acre. During June, harvested-area weighted precipitation for the major corn WASDE-602-2 producing states as reported by the National Centers for Environmental Information was below normal, but did not represent an extreme deviation from the 1988 to 2019 average. Silking as reported in the Crop Progress report is slower than the recent historical average and for much of the crop the critical pollination period will be during middle and late July. Projected feed and residual use is lowered 200 million bushels, reflecting a smaller crop and higher expected prices. Food, seed, and industrial use is raised 25 million bushels, based on projected increases in the amount of corn used for beverage and manufacturing, starch, and glucose and dextrose. Small revisions are made to historical trade and utilization estimates based on the 13th month trade data revisions from the Census Bureau. With supply declining more than use, stocks are lowered 675 million bushels to 2.6 billion. The season-average corn price received by producers is raised 15 cents to $3.35 per bushel. This month’s 2020/21 foreign coarse grain outlook is for virtually unchanged production, slightly higher trade, and lower stocks relative to last month. Foreign corn production is virtually unchanged from last month, as forecast increases for Russia and Bolivia are essentially offset by a reduction for Canada. Barley production is lowered for the EU and Morocco but raised for Canada. Major global trade changes for 2020/21 include larger corn imports for Canada and Algeria, with a partly offsetting reduction for Kenya. For 2019/20, corn exports are raised for Argentina but lowered for Brazil for the local marketing year beginning March 2020 based on observed data through early July. China’s corn feed and residual use for 2019/20 and 2020/21 is raised from last month, based on a faster-than expected rebound in soybean meal equivalent protein consumption and current corn prices. Foreign corn ending stocks for 2020/21 are lowered from last month, with the largest declines for China, Argentina, the EU, Canada, and Mexico.

Source: USDA


The USDA lowered its projections for US production and Us and global ending stocks. The yields for corn and beans at the end of the growing season will be the most significant factor when it comes to the price direction of the grain and oilseed.

Technical metrics were below neutral readings in the corn futures market on the daily chart as of Wednesday. Support on December corn futures is at the $3.22 level, on the continuous contract, $3 per bushel is a line in the sand on the downside. Long positions should have stops below $3 per bushel. Technical resistance is now at $3.6300 per bushel, the July 1 high.

Corn will continue to be highly sensitive to the price path of gasoline. Ethanol production in the US accounts for approximately 30% of the annual corn crop.  The price of August ethanol futures fell by 4.10% since the previous report. August ethanol futures were at $1.17 per gallon on July 15. The spread between August gasoline and August ethanol futures was at 9.45 cents per gallon on July 15, with gasoline at a premium to ethanol. The spread moved 11.30 cents since two weeks ago as gasoline outperformed the biofuel in August futures.  The prospects for corn prices are a function of both the weather and the price of gasoline and crude oil. Corn found support from the energy sector over the past weeks, which lifted the price to its highest level since late March where it failed.

September CBOT wheat futures rose 12.0% since last week. The September futures were trading $5.5075 level on July 15. Open interest decreased by 4.07% over the past week in CBOT wheat futures. The USDA told the wheat market:

The outlook for 2020/21 U.S. wheat this month is for larger supplies, lower domestic use, unchanged exports, and increased stocks. Supplies are raised as larger beginning stocks more than offset lower production. Beginning stocks are increased on the NASS Grain Stocks report, issued June 30, which indicated higher 2019/20 ending stocks than previously estimated. This also resulted in lowering 2019/20 feed and residual use by 61 million bushels to 74 million. Wheat production for 2020/21 is reduced 53 million bushels to 1,824 million. Winter wheat production is lowered 48 million bushels to 1,218 million with reductions in Hard Red Winter and Soft Red Winter. The initial 2020/21 survey-based production forecasts for other spring and Durum were issued this month by NASS. Other spring wheat is less than last year at 550 million bushels on lower forecast yields while Durum is higher at 56 million on increased harvested area. Domestic use is 10 million bushels lower this month, all on reduced feed and residual use as 2020/21 U.S. corn supplies are still projected significantly larger than last year. Projected 2020/21 exports are unchanged at 950 million bushels but there were several offsetting by-class changes this month. Ending stocks for 2020/21 are projected 17 million bushels higher than last month at 942 million. The projected season-average farm price (SAFP) is unchanged at $4.60 per bushel, compared to the revised 2019/20 SAFP of $4.58. The 2020/21 global wheat outlook is for smaller supplies, reduced consumption, lower exports, and decreased stocks. Supplies are reduced 2.9 million tons to 1,066 million as larger beginning stocks are more than offset by reduced production, primarily in the EU, United States, Morocco, and Russia. EU production is lowered 1.5 million tons to 139.5 million, mainly on reductions for France and Spain. If realized, this would be the smallest EU wheat production since 2012/13. Morocco is lowered 800,000 tons to 2.7 million, the smallest output since 2007/08, primarily on updated government estimates. Russia is reduced 500,000 tons to 76.5 million as lower winter wheat production is partially offset by increased spring wheat output. Projected 2020/21 global trade is reduced 0.8 million tons to 188.0 million as lower EU exports are only partially offset by higher Australian exports. World consumption is lowered 1.6 million tons to 751.6 million, primarily on reduced feed and residual use in the EU, the United States, and Morocco. Projected 2020/21 world ending stocks are lowered 1.3 million tons to 314.8 million but remain record-large with China and India accounting for 51 and 10 percent of the total, respectively.

Source: USDA

Wheat projections were for increased US stocks, but global inventories declined, which provided support for the price of the grain.


The support and resistance levels in September CBOT wheat futures now stand at $5.1575 and $5.6450 per bushel. Price momentum and relative strength were rising towards an overbought condition on Wednesday on the daily chart.

As of July 15, the KCBT-CBOT spread in September was trading at an 91.25 cents per bushel discount with KCBT lower than CBOT wheat futures in the September contracts. The spread widened by 39.25 cents since June 30. The long-term norm for the spread is a 20-30 cents premium for the Kansas City hard red winter wheat over the CBOT soft red winter wheat. The CBOT price reflects the world wheat price, and it is the most liquid wheat futures contract. The KCBT price is often a benchmark for bread manufacturers in the US who purchase the grain from suppliers. As I have been writing, “at a discount to CBOT, consumers are not hedging their requirements for KCBT, which is a sign that they continue to buy on a hand-to-mouth basis.” Any sudden problem in the wheat market that causes consumer hedging to increase could result in a dramatic change in the spread between the hard and soft winter wheat futures contracts. The spread moved away from the long-term average over the past week, which tends to be a bearish factor for the price of wheat. However, wheat has been strong on the back of weather and supply chain problems in growing regions around the globe.

I continue to hold small long core positions in futures and the CORN, WEAT, and SOYB ETF products. The further we move into the growing season without any significant price appreciation, I will cut position sizes. The time of the year when crops are most vulnerable to the weather is between now and mid-July. As crops mature, they can withstand periods of adverse conditions. I continue to favor the long side but will be looking at the calendar as a time stop on positions is likely to be the optimal approach to controlling risk. I took profits on soybean, corn, and wheat positions during the recent rally. I will not be aggressive when it comes to buying back recent sales as the prices decline. I have the most significant position in wheat but am working a tight, trailing stop.


Copper, Metals, and Minerals

Base metals and most industrial commodities prices moved higher across the board since June 30. Lumber led the way on the upside as the price of September futures was over the $500 per 1,000 board level. Iron ore and uranium were higher, and the Baltic Dry Index posted a small loss. Zinc and copper led the way on the upside on the LME, with aluminum, nickel, and lead were all over 3.5% higher. Tin posted a smaller gain over the past two weeks. Industrial commodities prices are signaling optimism about the global economy since the end of June.

Copper rose 5.74% on COMEX over the past two weeks on the September futures contract. The red metal was 8.79% higher on the LME since the last report. Open interest in the COMEX futures market moved 15.46% higher since June 30. Rising price and increasing open interest is a technical validation of the bullish trend in the red metal. September copper was trading at $2.8850 per pound level on Wednesday. Copper is a leading barometer for the overall health and wellbeing of the Chinese and global economies. LME copper inventories fell sharply, and COMEX stockpiles moved higher, continuing the trend over the past months.

Short-term technical support for the copper market is at $2.7035 per pound. Resistance is at $2.9930, $2.9955, and $3.3220 per pound. Chinese demand will continue to be the most significant factor when it comes to the path of the price of copper and other base metals and industrial commodities over the coming weeks and months. During the 2008 financial crisis, copper fell to a bottom of $1.2475 per pound. The decline came from over $4 per pound in early 2008. By 2011, the copper price rose to a new all-time high at just under $4.65 per pound. A massive level of stimulus is supportive of the price of copper and other commodities. Any events that cause the economy to shut down again or take a significant step back in social distancing easing could cause selling to return to all markets, and industrial commodities could fall sharply after the recent gains. Therefore, caution is advisable in copper, which can become extremely volatile during risk-off periods. We could see volatility increase as tensions between the US and China rise.

The LME lead price moved higher by 3.60% since June 30. The rise in demand for electric automobiles around the world had been supportive of lead in the long term as the metal is a requirement for batteries, but Coronavirus had weighed on the price of lead because of falling fuel prices. Since late April, the prices of crude oil, gasoline, and lead moved higher. The price of nickel moved 6.63% higher over the past week. The export ban in Indonesia began on January 1, 2020 but has had little impact on the price of the nonferrous metal so far this year. Tin rose 2.50% since the previous report even though inventories moved over 11% higher since the end of June. Aluminum was 4.23% higher since the last report. The price of zinc posted an 8.27% gain since June 30. Zinc was at the $2198.50 per ton level on July 14. Nonferrous metals remained within their respective trading ranges, but all posted gains.

September lumber futures were at the $505.20 level, 17.05% higher since the previous report. The nearby contract traded to a high of $600 over the period. Interest rates in the US influence the price of lumber. Lumber can be a leading economic indicator, at times. The price of uranium for August delivery rose 0.46% and was at $32.70 per pound. The world’s leading producer, Kazakhstan, suspended production nationwide for three months to slow the spread of COVID-19, which helped lift the price over the past months. The volatile Baltic Dry Index fell 2.90% since June 30 to the 1742 level after significant increases over recent weeks. June iron ore futures were 14.18% higher compared to the price on June 30. Supply shortages of iron ore from Brazil have supported the price over the past year. Open interest in the thinly traded lumber futures market rose by 37.09% since the previous report, which validated the bullish price action in the wood market.

LME copper inventories moved 23.40% lower to 168,225 as of July 14. COMEX copper stocks rose by 12.40% from June 29 to 88,960 tons. Lead stockpiles on the LME were 10.12% lower as of July 14, while aluminum stocks were 1.31% lower. Aluminum stocks fell to the 1,669,550-ton level on July 14. Zinc stocks increased by 0.29% since June 29. Tin inventories rose 11.22% since June 29 to 3,965 tons. Nickel inventories were 0.23% higher compared to the level on June 29.

The LME released its off-warrant stock levels to improve transparency. The latest release showed the following:

Source: LME

The stock levels were lower than many analysts projected, contributing to the bullish price action in the nonferrous metals arena.

We own the January 2021 $15 call on X shares at $3.30 per share, and it was trading at 33 cents on July 15, up 10.0 cents since the previous report. The details for the call option are here:


US Steel shares were at $8.05 per share and moved 11.50% higher since last week.

FXC was trading at $13.53 on Wednesday, $1.96, or 16.94% higher since the previous report. I continue to maintain a small long position in FCX shares. FCX moves higher and lower with the price of copper.

I remain cautious on the sector and have limited any activity to very short-term risk positions. Brewing tensions between the US and China could cause a return of risk-off conditions to the industrial metals and commodities as can any new outbreaks of Coronavirus over the coming weeks and months. Keep stops tight on all positions in this sector that is highly sensitive to macroeconomic trends. The price action is bullish, but many of the metals and other industrial commodities are approaching levels that could require more positive support when it comes to the global economy. In the medium to longer-term, the stimulus is bullish for industrial commodities.

We are long PICK, the metals and mining ETF product. We bought PICK at the $23.38 per share level, and it was trading at $26.56 on July 15, up 8.28% for the week. I continue to rate this metals and mining ETF that holds shares in the leading producing companies in the world a long-term hold. I would add to the long position on price weakness over the coming weeks and months if another risk-off period occurs. Base metals and industrial commodities prices could continue to follow crude oil and stocks over the coming week.  The price action in the sector was bullish over the past two weeks. Copper is the leader of the pack. The move to just shy of the $3.00 level was a constructive sign for the sector.


Animal Proteins

All of the meat futures posted gains over the past two weeks. A recovery in the animal protein futures markets was long overdue, but the prices have yet to post significant gains. In its July WASDE report, the USDA told the meat markets:

The forecast for 2020 red meat and poultry production is raised from last month. The beef production forecast is raised primarily on higher cattle slaughter and heavier carcass weights. USDA will release the Cattle report on July 24, providing a mid-year estimate of U.S. cattle inventory as well as producer intentions regarding retention of heifers for beef cow replacement. Forecast pork production is raised from last month largely on higher expected second-half commercial hog slaughter.

For 2021, the red meat and poultry production forecast is raised as higher expected beef, pork, and broiler production more than offsets lower forecast turkey production. Forecast beef production is raised from the previous month as higher expected placements in late 2020 and early 2021 will result in higher marketings. The pork production forecast is raised as the sector continues to adjust to the effects of COVID-19. The beef import forecast is raised for 2020, but the export forecast is lowered from the previous month on recent trade data. The 2021 beef trade forecasts are unchanged from last month. Pork export forecasts for 2020 and 2021 are raised from last month as international demand is expected to remain robust. Cattle price forecasts for 2020 are lowered from last month on prices to date and continued large supplies of fed cattle. Forecast 2021 cattle prices are unchanged. The 2020 hog price forecast is reduced on current price weakness and supply pressure. The 2021 hog price forecast is also reduced on higher hog supplies.

Source: USDA

The USDA lowered its projections for cattle and hogs for 2020. In 2021, the forecasts were unchanged for cattle and lower for hogs.


August live cattle futures were at $1.01300 per pound level up 5.22% from June 30. Technical resistance is at $1.0190 per pound. Technical support stands at 93.575 cents per pound level. The levels did not change over the past two weeks. Price momentum and relative strength indicators were above neutral readings on Wednesday and heading for overbought territory. Open interest in the live cattle futures market moved 3.73% lower since the last report. The disconnect between cattle prices in the futures market and consumer prices at the supermarket continued to be a dislocation in the market. Very little changed in the cattle arena. However, the end of the grilling season comes in early September, which is typically a time of the year when prices decline.

August feeder cattle futures slightly underperformed live cattle as they rose by 4.95% since June 30. August feeder cattle futures were trading at the $1.394250 per pound level with support at $1.28325 and resistance at $1.38450 per pound level, also unchanged since June 23. Open interest in feeder cattle futures rose by 13.13% since last week. While live cattle futures have a delivery mechanism, feeder cattle are a cash-settled futures contract. Sometimes live cattle prices lead feeder cattle prices, while at others, the opposite occurs. Price momentum and relative strength metrics were also rising towards overbought territory on Wednesday. Cattle futures markets edged higher over the past two weeks.

Lean hog futures posted a smaller gain since the previous report. The August lean hogs were at 50.150 cents on July 15, which was 2.30% higher than the level in the previous report. Price momentum and the relative strength index were on either side of neutral readings on July 15 on the August contract. Support is at the most recent low at 47.525 cents with technical resistance on the August futures contract at the 58.025 cents per pound level. The low from April at 37 cents is critical technical support. The same issues impacting beef are present in the hog market with low prices at origination points and bottlenecks at processing plants causing consumer prices to rise and shortages to limit availability for customers.

The long-term average for the spread between live cattle and lean hogs is around 1.4 pounds of pork for each pound of beef. Over the past week, the spread between the two in the August futures contracts moved higher as the price of live cattle outperformed lean hogs on a percentage basis.

 Source: CQG

Based on settlement prices, the spread was at 2.01990:1 compared to 1.96380:1 in the previous report. The spread rose by 5.61 cents as live cattle moved higher, and lean hog futures posted a smaller gain in August since June 30. The spread fell to a low of 1.2241 in mid-March, which was below the long-term average making pork more expensive than beef. The spread moved over the average and kept going, and beef is more expensive than pork on a historical basis on the August futures contracts, and the spread widened over the past two weeks.

The current low prices could give way to far higher levels in 2021 as producers adjust to the new price environment. After processing plants resume regular schedules in the eventual aftermath of the virus, shortages could develop. I believe that today’s low price levels will cause prices to rise next year, and consumers will face even higher levels at the supermarket. I am a buyer of cattle and hogs on price weakness and would only trade the beef and pork futures market from the long side over the coming weeks. On June 15, live cattle futures put in a bullish reversal pattern on the daily chart. I view the weakness in hogs as an opportunity but picking a bottom can be challenging. The upside potential faces the end of the 2020 grilling season in early September and an overall bearish fundamental report from the USDA.


Soft Commodities

Four of the five soft commodities moved lower over the past two weeks as sugar, coffee, cocoa, and FCOJ prices slipped. Coffee led the way on the downside with the most significant percentage loss. Cotton was the only soft commodity to post a gain over the past two weeks.

October sugar futures fell by 1.17% since June 30, with the price settling at 11.82 on July 15. The price of the sweet commodity fell to a new multiyear low at 9.05 cents per pound on the May contract on April 28. Technical resistance on October futures is at 12.40 cents with support at 10.70 cents on active month futures. Sugar made a new high at 15.90 cents on February 12 on the continuous contract, but the price collapsed on the back of risk-off conditions. The decline in the price of crude oil and ethanol in April weighed on sugar as the primary ingredient in ethanol in Brazil is sugarcane. The recovery in the oil market provided support for the price of sugar. Weakness in the Brazilian currency reduces production costs and had been a bearish factor for the sugar market.

The value of the September Brazilian real against the US dollar was at the $0.185650 against the US dollar on Wednesday, 1.12% higher over the period. The September real traded to a new low of $0.16780 on May 13. The Brazilian currency had been making lower lows as Coronavirus weighed heavily on all emerging markets. Anyone with a risk position in sugar should keep an eye on the price action in the Brazilian real. Argentina’s recent default on debt obligations did not put downward pressure on the Brazilian real.

Meanwhile, Brazil has become a hotspot of the global pandemic, which could lead to supply chain problems for sugar, coffee, and oranges, as well as the other commodities produced by South America’s most populous nation and leading economy. Over the past week, we have seen price weakness in two of the three of those soft commodities. FCOJ was the exception.

Price momentum and relative strength on the daily sugar chart were on either side of neutral territory as of July 15. The metrics on the monthly chart were below a neutral reading, as was the quarterly chart. Sugar made a new high above its 2019 peak in February before correcting to the downside. The low at 9.05 was the lowest price for sugar since way back in 2007. In 2007, the price of sugar fell to a low of 8.36 cents before the price exploded to over 36 cents per pound in 2011. At that time, a secular rally in commodity prices helped push the sweet commodity to the highest price since 1980. If the central bank and government stimulus result in inflationary pressures, we could see a repeat performance in the price action in the commodities asset class that followed the 2008 financial crisis. Sugar could become a lot sweeter when it comes to the price of the soft commodity in a secular bull market caused by a decrease in the purchasing power of currencies around the world. The price action in sugar over the past weeks reflects the recovery in crude oil and gasoline prices as ethanol moved higher. Sugar is the primary ingredient in ethanol in Brazil. A stronger real has also provided some support for the sweet commodity. Meanwhile, the lockdowns have weighed on demand, which could eventually cause production to decline.

In February, risk-off conditions stopped the rally dead in its tracks on the upside. Sugar found at least a temporary bottom at a lower low of 9.05 cents per pound. Open interest in sugar futures was 2.28% higher since last week. Sugar had rallied to new highs as drought conditions in Thailand created the supply concerns that lifted the price of sugar futures in late 2019 and early 2020. The correction in sympathy with the risk-off conditions in markets across all asset classes chased any speculative longs from the market. The long-term support level for the sweet commodity is now at 9.05 and 8.36 cents per pound. Without any specific fundamental input, sugar is likely to follow moves in the energy sector as well as the currency market when it comes to the exchange rate between the US dollar and the Brazilian real. Over the longer term, the cure for low prices in a commodity market is low prices as production declines, inventories fall, demand rises, and prices recover. We may have seen the start of a significant recovery in the sugar market after the most recent low. Over the past weeks, the price traded on either side of the 12 cents per pound level, but it was leaning lower on Wednesday. The 12 cents level could become a pivot point as the price of sugar consolidates.

September coffee futures moved 3.76% to the downside since June 30. September futures were trading at the 97.20 cents per pound level. The technical level on the downside is at 94.55 cents on the September futures contract. Below there, support is at around 92.20 and 86.35 cents on the continuous futures contract, the bottom from 2019. Short-term resistance is at $1.0465 on the active month contract. I continue to favor coffee on the long side, but coffee can be a highly volatile commodity in the futures market, as we have witnessed over the past weeks and months. The lower coffee falls, the higher the odds of a significant rebound become. Our stop on the long position in JO is at $27.99. JO was trading at $30.23 on Wednesday. Open interest in the coffee futures market was 0.83% higher since last week. I continue to hold a small core long position in coffee after taking profits during the rally in March. I have added to my long position over the past two weeks. From a technical perspective, a bottom above 92.20 cents would be constructive. Coffee could eventually make a similar move to sugar, given the recent bounce in the Brazilian currency.

The ultimate upside target is the November 2016, high at $1.76 per pound. Price momentum and relative strength turned lower and was below neutral territory on Wednesday. On the monthly chart, the price action was below neutral. The quarterly picture was also below a neutral condition. Coffee can be a wild bucking bronco when it comes to the price volatility of the soft commodity. Bottlenecks on South American ports could prove highly supportive of coffee prices as they could create a shortage of the beans. I expect volatility in coffee to continue, and I will look to trade on a short-term basis with a bias to the long side. Any new positions should have tight stops and defined profit objectives. Coffee remains near the bottom end of its pricing cycle. I would leave wide scales on buying as picking a bottom in the volatile coffee market is more than a challenge.

The price of cocoa futures continued to slip over the past two weeks on the September contract. On Wednesday, September cocoa futures were at the $2135 per ton level, 2.33% lower than on June 30. Open interest rose by 4.39% over the past week. Relative strength and price momentum were below neutral readings on July 15. The price of cocoa futures rose to a new peak and the highest price since September 2016 at $2998 per ton on the March contract on February 13. Risk-off conditions pushed the price of cocoa beans lower, but they bounced after reaching a low that was $7 above the technical support level on the weekly chart. Cocoa has been falling since early June. We are long the NIB ETN product. NIB closed at $25.34 on Wednesday, July 15. As the Ivory Coast and Ghana attempt to institute a minimum $400 per ton premium for their cocoa exports, it should provide support to the cocoa market. The levels to watch on the upside is now at $2.397, $2475, $2509, and at the mid-March high of $2631 per ton on the July contract on the daily chart. On the downside, technical support now stands at $2092 per ton on the September contract. The potential for Coronavirus to disrupt production in West Africa is high, which could lead to shortages of beans over the coming months. The health systems in producing countries like the Ivory Coast, Ghana, Nigeria, and others are not sufficient to treat patients or prevent the spread of the virus. Africa could suffer tragic consequences over the coming weeks and months. The flow of cocoa beans to the world could suffer as bottlenecks at ports could reduce exports. I continue to favor the long side in cocoa but will be cautious in the deflationary environment in markets. Nothing has changed since last week. I continue to view the price action in the cocoa futures market as a buying opportunity. Weakness in the British pound has also weighed on the price of cocoa as London is the hub of international cocoa trading. I would leave wide buying scales in the cocoa futures market or in the NIB product.

December cotton futures moved higher by 2.05% over the past week. The USDA told the cotton market:

The U.S. 2020/21 cotton projections show lower production, exports, and stocks compared with last month. Beginning stocks are 200,000 bales lower due to higher 2019/20 exports, but exports in 2020/21 are reduced 1 million bales as a 2-million-bale decline in projected output reduces exportable supplies. U.S. planted area is 1.5 million acres lower this month, as indicated in the June 30 Acreage report. Ending stocks are projected at 6.8 million bales, 1.2 million lower than in June, and equivalent to 38 percent of use. The projected price received by U.S. upland cotton producers is 59 cents this month, 2 cents higher than in June. Global projected ending stocks in 2020/21 are lower this month as well, down 1.9 million bales, largely due to a 2.5-million-bale reduction in projected world production. While the United States accounted for most of the global decline in production, projections were also reduced for Turkey, Tanzania, and Mexico, more than offsetting a 200,000-bale increase for Pakistan. Consumption in 2020/21 is projected 115,000 bales lower this month. At 114.3 million bales, consumption is expected to rise 11.7 percent from the previous year’s recession-reduced level.

Source: USDA

The USDA lowered US and global stocks from June in the July WASDE report, which provided fundamental support for the cotton market.

December cotton futures have been making higher lows and higher highs since reaching a low of 50.18 cents in early April.  December cotton was trading at 62.13 cents on July 15, after falling to the lowest price since 2009 in early April when the continuous contract reached 48.35 cents per pound. Cotton was 2.05% higher and was the best-performing soft commodity since the end of June. On the downside, support is at 57.75, 52.15 cents, and then at 48.35 cents per pound. Resistance stands at the 64.90 cents per pound level. Open interest in the cotton futures market rose by 9.18% since June 229, which is a constructive sign as it validates the bullish price action. Daily price momentum and relative strength metrics remained above neutral territory on Wednesday. The June WASDE report was constructive for cotton from a fundamental perspective as US and global inventories were adjusted lower from June. I have been optimistic about the prospects for the price of cotton since the 50 cents per pound level, but the risk rises with the price. I would continue to use tight stops on any long positions and a reward-risk ratio of at least 2:1. Cotton remains at an attractive price level, but the fundamentals remain problematic. The China-US issues are not a bullish factor for the price of the fiber. The move above 60 cents for the first time since March was constructive for the fiber futures, and it followed through on the upside. Optimism in the economy could lead to more garment purchases, which supports the demand for cotton. The price needs to remain above the 57.75 level on December futures to keep the bullish pattern intact. Remember that cotton suffered selling pressure in 2008 that pushed the price to below 40 cents per pound. A decline in production and stimulative policies by central banks took cotton from the bottom end of its pricing cycle twelve years ago to an all-time high of $2.27 per pound in 2011. Cotton was a lot closer to the low end of its pricing cycle on July 15.

September FCOJ futures declined since June 30. On Wednesday, the price of September futures was trading around $1.2480 per pound, 2.80% below the price on June 30. Support is at the $1.18150 level. Technical resistance is at $1.3200 per pound. Open interest rose by 0.89% since June 29. The Brazilian currency could eventually turn out to be bullish for the FCOJ futures, and bottlenecks at the ports could create volatility. FCOJ broke out to the upside over recent weeks, but the price stopped short of challenging the technical resistance at $1.32 per pound.

Keep an eye on the Brazilian real versus the US dollar when it comes to sugar, coffee, and FCOJ futures. The path of cotton’s price will be a function of US relations with China, the impact of coronavirus, and the weather in critical growing regions in China, India, the US, and Pakistan. Cocoa has been trending lower since falling short of $3000 per ton in mid-February. At below $2200 per ton, the primary ingredient in chocolate confectionery products is likely near the bottom end of its pricing cycle. I continue to believe that the upside potential in all of the soft commodities is greater than the downside over the coming months and years. If 2020 turns out to be anything like 2008, we could see significant rallies in the sector. Buying on price weakness is likely to be the optimal approach to the volatile sector. There are no significant changes in my view for the prospects of the five soft commodities since the end of June.


A final note

Commodity prices moved higher in the second quarter, and the beginning of Q3 was more of the same. I continue to expect turbulence and volatility in markets across all asset classes over the second half of 2020. Coronavirus cases are rising in the US, and many experts expect the death toll to mount over the coming weeks. The US election will be a highly contentious contest, which will determine the path of domestic and foreign policy initiatives. Markets could begin to move with the polls over as the summer ends.

2020 has been anything but a typical year in markets. The unprecedented level of monetary and fiscal stimulus in the US and around the world could lead to inflationary pressures in the coming months and years. If the market action from 2008 through 2012 is an example of what we can expect, this is an excellent time to pick up bargains in the commodities asset class. Leave plenty of room to add to long positions as price variance could return to markets in a blink of an eye throughout the rest of this year. I am bullish on the prospects for commodities and continue to trade mostly from the long side of markets.


As I wrote over the past weeks, I plan to increase the price of the report in the coming months. However, all of my current loyal subscribers will never experience an increase in their monthly or annual subscription rates. I will grandfather all subscribers at their current rates for as long as they maintain their subscriptions. Thank you for your support.


Please keep safe and healthy in this environment.




Until next week,


Andy Hecht


Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal.  This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.