The analysis of the USDA supply demand report will be provided in the upcoming Weekend Wrap.

Soybeans:

August soybeans gained 7.25 cents on volume of 169,945 contracts. Total open interest increased by 2,360 contracts, which relative to volume is approximately 40% less than average. The July contract accounted for loss of 847 of open interest. As this report is being compiled on July 12, August soybeans are trading 29.25 cents lower, after failing to make a new high for the move. August soybeans made their high on July 9 at 14.79 1/2, and on subsequent days has failed to break above it. We have said it before, but it is worth repeating, soybeans have a tendency to top out in July, and although the balance sheet is very tight, it is important that speculators have sell stop protection in place. The market is significantly overbought relative to its 50 day moving average of $14.09. The pullback on July 12 may be a correction, but there is no way of knowing whether this is the case. Soybeans remain on a short and intermediate term buy signal.

Soybean meal:

August soybean meal gained $8.30 on very healthy volume of 94,439 contracts. Total open interest increased by 953 contracts, which relative to volume is 50% less than average. The July contract accounted for loss of 1,016 contracts. August soybean meal made a new high for the move at $459.40, and it was disappointing that open interest increased by a number that was significantly less than average. This indicates a reluctance on the part of new participants to make commitments at higher levels. As this report is being compiled on July 12, August soybean meal is trading $9.60 lower, however, August meal made a new high for the move at 461.60. We tend to think soybean meal has further to go on the upside, however a correction is perfectly normal at this juncture, especially since soybean meal has been outperforming soybeans. Soybean meal remains on a short and intermediate term buy signal. It should be noted that the July contract is trading $12.10 higher and has made a new high for the move at 545.10, which is approximately $7.00 from its all-time high made during September 2012.

Corn:

September corn gained 7 cents on volume of 274,833 contracts. Total open interest increased by 6,749 contracts, which relative to volume is average. The July contract accounted for loss of 2,235 of open interest. As this report is being compiled on July 12, corn is trading 10.25 cents lower. Again, we want to repeat that we don’t think it is wise to short corn despite it being on a short and intermediate term sell signal. Weather related problems can crop up at any moment, which could turn corn sharply higher, especially because of the tight ending stocks for the 2012 2013 season.

Wheat:

September wheat gained 4 cents on heavy volume of 117,233 contracts. Volume increased approximately 17,000 contracts from July 10 when wheat advanced 1.50 cents and open interest increased by 3,126 contracts. On July 11, open interest increased 419 contracts, which relative to volume is approximately 75% less than average. The July contract accounted for loss of 138 of open interest and September, 2,290 contracts. In short there was sufficient buying in the December forward contracts to offset the decline in July and September. We are becoming more friendly to wheat, and will discuss the fundamentals in more detail in the upcoming Weekend Wrap. As this report is being compiled on July 12, September wheat is trading 1.25 cents higher, and the long wheat-short corn spread continues to widen, which is positive for wheat futures.

Cotton:

December cotton lost 2.05 cents on volume of 18,070 contracts. Volume was the highest since June 21 when 22,042 contracts were traded and open interest declined by a massive 6,951 contracts while December cotton declined 72 points. On July 11, open interest increased by 770 contracts, which relative to volume is approximately 55% above average meaning that new shorts were entering the market aggressively and driving prices lower. As we mentioned in yesterday’s report, we would wait for a rally of approximately 75-100 points before initiating bearish positions. This would put December cotton futures at approximately 86-86.25 to initiate positions. We would use the July 11 high of 87.11 as an exit point for bearish positions.

Live cattle:

October live cattle gained 5 points on heavy volume of 64,993 contracts. Total open interest declined by 2,862 contracts, which relative to volume is approximately 75% above average meaning that liquidation was heavy on the fractional advance. Accounting for the total open interest decline was the August contract which lost 12,172 of open interest. As this report is being compiled on July 12, October cattle has declined 52 points. As we have said in previous reports, cattle is going to need a catalyst in order to move out of its current trading range.

Crude oil:

August WTI crude lost $1.61 on heavy volume of 934,688 contracts. Volume declined 247,826 contracts from July 10 when WTI advanced $2.99 and open interest increased by 7,884 contracts. On July 11, open interest increased by 16,649 contracts, which relative to volume is approximately 25% less than average. The August contract lost 15,982 of open interest. On July 11, August crude made a high of $107.45, which was made early in the evening session of July 10 and then proceeded to decline into the day session on July 11. As this report is being compiled on July 12, August WTI is trading 70 cents higher. As indicated in yesterday’s report, keep an eye on thefront month of Brent crude, as this may provide the best clue about a potential top in WTI. The reason is: it appears likely that the spread between Brent and WTI will continue to narrow, and Brent provides the most accurate measure of fair market value. Crude oil remains on a short and intermediate term buy signal.

Brent crude oil:

August Brent crude lost 78 cents on volume of 797,051 contracts. Open interest declined by 25,545 contracts, which relative to volume is approximately 25% above average, meaning that market participants were liquidating on the decline. As this report is being compiled on July 12 August Brent crude is trading 91 cents higher and has made a new high for the move at $109.02. Brent remains on a short and intermediate term buy signal.

Heating oil:

August heating oil lost 0.67 cents on volume of 122,442 contracts. Total open interest declined by 304 contracts, which relative to volume is dramatically below average. The August contract lost 4,031 of open interest. As this report is being compiled on July 12, August heating oil is trading 4.18 cents higher, and has made a new high for the move at $3.0415. Heating oil remains on a short and intermediate term buy signal.

Gasoline:

August gasoline gained 0.65 cents on heavy volume of 198,759 contracts. Volume declined by 19,929 contracts from July 10 when gasoline advanced 8.89 cents and total open interest declined 3,499 contracts. The August contract accounted for loss of 1,693 of open interest. On July 11, open interest increased by 3,808 contracts, which relative to volume is approximately 20% less than average. During the past 3 sessions beginning on July 9, August gasoline has advanced 13.77 cents while open interest has declined 1,067 contracts. In short market participants have been liquidating as gasoline prices have moved sharply higher during the past 3 days. As this report is being compiled on July 12, August gasoline is trading 10.21 cents higher and has made a new high for the move at $3.1455, which is the highest price on the gasoline continuation chart since March 2013. Gasoline remains on a short and intermediate term buy signal.

Natural gas:

August natural gas lost 6.7 cents on volume of 281,804 contracts. Total open interest increased by 6,005 contracts, which relative to volume is approximately 20% less than average. The August contract accounted for loss of 7,920 of open interest. As this report is being compiled on July 12, August natural gas is trading 2.9 cents higher. Natural gas remains on a short and intermediate term sell signal.

Euro:

The September euro gained 2.15 cents on volume of 379,148 contracts. Volume was the highest since July 5 when 432,233 contracts were traded and the September euro declined 1.84 cents while open interest increased by 22,496 contracts. On July 11, open interest increased only 798 contracts, which is minuscule and dramatically below average. The contrast between price, volume and open interest on July 5 and July 11 is readily apparent. During the sharp move lower on July 5, open interest increased massively (bearish) and volume was considerably higher than on July 11 when open interest barely increased on an equivalent move higher. This confirms that market participants did not believe in the rally and their lack of commitments  average or above average open interest increases) confirm this. We think the high of 1.3212 made on July 11 will be the top of the market. The September euro remains on a short and intermediate term sell signal.

S&P 500 E mini:

The S&P 500 E mini gained 21.50 points on light volume of 1,459,505 contracts. Remarkably, volume was 5,128 contracts below July 10 when the E mini advanced 3.00 points and open interest increased 22,158 contracts. On July 11, open interest increased by 19,134 contracts, or 3024 contracts less than July 10 when the E mini gained a couple of points.

From July 5 through July 11, the E mini has advanced 61.00 points while open interest has increased only 43,870 contracts. This is miserable open interest action when compared to the price advance during 5 sessions. Additionally, average daily volume of the 5 day period has been 1,450,510 contracts, which compares to year to date average daily volume of 1,988,093 contracts and average daily volume for June of 2,644,807 contracts. In short, open interest relative to volume during the past 5 trading sessions has been dismal and volume has been significantly below year to date. This indicates that many market participants are on the sidelines and those involved are only willing to make commitments at a very low-level. It appears inevitable that the E mini is going to make an attempt to test the May 22 high of 1685, but we are skeptical about its ability to move much beyond this.