Interest Rate Futures – Confounded

There’s been no shortage of talk surrounding the interest rate complex. I believe the recent Federal Reserve Board’s meeting was the most highly anticipated since the economic collapse. Their decision to leave rates unchanged sent everyone back to their drawing boards. I’ve read tons analysis since then by people who really know the inner workings of the Fed, the economy and the interest rate markets. The general consensus among these people is as clear as mud. When the brightest of minds come down on opposite sides of an argument it leaves us mere mortals incapacitated in a head shaking way. Since we can’t count on the experts, we’ll go straight to the source, the markets themselves.

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Soybean Futures Early Harvest Rally

Historically, September is a bad month for soybeans. This is about the time the harvest numbers begin to crystallize, shortly to be followed by the actual harvest. October, on the other hand, tends to be one of the strongest months of the calendar year for beans as the battle begins between Mother Nature and the farmers in the fields. Given the benign weather patterns we’ve been experiencing and expect to continue into the near future, we believe the September sell off could’ve gotten ahead of itself. Correspondingly, October’s strength may have arrived a week early.

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Metal Markets Setup for Critical Test

We’ve been writing about the metal markets quite a bit, having recently published articles at Futures Magazine, Equities.com and TraderPlanet. We’ve seen major churning by the commercial traders which is indicative of a broader change in sentiment. Obviously, when it comes to the metals markets like gold, silver, platinum and copper, the major questions on everyone’s mind is, “Have we bottomed?” We’ll review the current setups in these markets and attempt to answer just that question.

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COT Report Shows Large Cattle Bid

We frequently discuss the effectiveness of using the commercial trader position as a proxy for fundamental data. We began looking at this years and years ago in the agricultural markets due to the inelastic nature of these annual markets. Adding that these markets are controlled by individuals whose livelihoods are based on the successful calculation of supply and demand and you begin to see the value in their collective forecasting ability. Thus using the commercial hedging activity as a proxy helps put us on the side of the sellers when there is forward production to be sold above their predetermined value area just as  the end users put us on the side of the long hedgers supporting undervalued prices.

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Copper to Continue its Decline

The most heavily anticipated Federal Reserve meeting in the last seven years turned out to be a non-event. No change. The ticker flashed across the bottom of the screen, “The Federal Reserve Board has left interest rates at 0. No change.” There are lots of variables factored into their decision but the end result is that they simply didn’t feel our economy was ready strong enough to withstand even the slightest of interest rate increases. Assuming they’re right, what do we make of copper’s recent rally? Clearly an expanding economy will need more copper. Apparently, the commercial traders weren’t too keen on this idea as they’ve been net sellers in each of the last four weeks. Furthermore, the Commitment of Traders report reveals a unique imbalance that bodes poorly for copper’s future prices.

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2015 El Nino and the U.S. Energy Markets

The El Nino event of 2015 is expected to become the strongest on record. Considering the impact this event is supposed to have on our southern states, it’s time to review what has happened in the past as well as what may be coming. We’ll let the National Oceanic and Atmospheric Administration (NOAA), finish our intro. From NOAA’s analysis of the 1997 event. “The winter of 1997-1998 was marked by a record breaking El Nino event and unusual extremes in parts of the country. Overall, the winter (December 1997- February 1998) was the second warmest and seventh wettest since 1895. Severe weather events included flooding in the southeast, an ice storm in the northeast, flooding in California, and tornadoes in Florida. The winter was dominated by an El Niño influenced weather pattern, with wetter than normal conditions across much of the southern third of the country and warmer than normal conditions across much of the northern two-thirds of the country. ”

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Coffee Futures Catching a Bid

The coffee market has always been one of the speculative stars of the futures’ markets. This is due to the large contract size of 37,500 pounds and this market’s typical volatility. Even at the currently depressed prices and low volatility, the average range is still more than $1,300 per contract, per day. This market is famous for its fast, giant swings and the associated sums of money made or lost. Fortunately, the recent decline in coffee’s volatility comes at a time when commercial long hedgers, the coffee roasters, are laying in stores for future production. Their buying serves as a proxy for fundamental data and valuations. While we can’t afford to hold positions the way hedgers do, we can put the leverage of their hedges to work for our own speculative purposes.

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COT Report Tips Corn Traders

While many of the agricultural markets are finding increasing acreage on a global basis thus decreasing U.S. domination, the corn market is still the primary domain of the U.S. agricultural markets. As such, the Chicago Mercantile Exchange Group’s corn futures contract is the primary hedging tool. As such, the actions of this market’s biggest players are tracked on a weekly basis by the Commodity Futures Trading Commission’s, Commitment of Traders (COT) report. Here’s how to use this report to determine market bias in advance of major governmental agricultural reports by the USDA and World Agriculture Board. While the illustration is based on the current events of the corn market, the methodology is robust across many commodity markets.

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