By Andrew Hecht

MartinKronicle: Commodity Report
Report for the Opening of markets on December 21, 2015

Summary

Last week we saw two major events that affected markets. The U.S. Federal Reserve Open Market Committee raised interest rates for the first time in nine years and energy markets continued to plummet. The price of crude oil fell to lows of $34.29 per barrel on the soon to expire January contract. Crude oil is now approaching key support at the December 2008 lows of $32.48 per barrel. Meanwhile, natural gas traded to the lowest level in fifteen years.

Higher interest rates in the U.S. have been supportive for the dollar and a negative for equity and commodity prices on a historical level. While the Fed only raised the Fed Funds rate by 25 basis points in a move that was widely expected, the central bank said that they would be sensitive to data in 2016 but if all goes to plan we can expect 3-4 more hikes in the coming year.

Highlights

Precious Metals- Gold and silver diverged on a week-on-week basis. Silver traded to the lowest level since August 2009 at $13.62 per ounce early in the week but recovered to close at the $14.08 level, 19 cents higher than the previous week’s close. February COMEX gold finished down $8.10 on the week at the $1065.60 level. Meanwhile, platinum group metals also moved lower on the week. Platinum closed the week at $859.50 per ounce up $18.70 on the week. Palladium was up $16.55 last week, closing at $558.95 per ounce.

Divergences continue in precious metals. However, the silver-gold ratio moved lower and is now at the 75.3:1. The platinum-gold spread closed at $205– platinum under gold. The changes in the spread reflect the relative strength on a week-on-week basis in industrial metals over gold.

Precious metals have been in a bear market since 2011. As we now are in the holiday season, it is likely that liquidity will decrease in these markets as the end of the year approaches.

Energy – Crude oil closed the week at $36.06 per barrel, new multiyear lows on the active month NYMEX February futures contract. Processing spreads continued to diverge with weakness in heating oil and strength in gasoline. Term structure in crude oil remained wide with contango on the February 2016 versus February 2017 spreads in WTI and Brent above the 20% level. The Brent premium over NYMEX crude moved lower to under $1 premium for Brent over WTI. The move lower reflects a decrease in the political premium of Middle Eastern crude oil which could come back to bite the market in the future. Crude oil fundamentals and technicals are bearish but the political premium on crude remains very low considering that over half the world’s reserves are located in the Middle East.

Natural gas made new decade and a half lows on January futures when they traded down to lows of $1.684 last Friday. Support now stands at the 1998/1999 lows of just over $1.60 per mmbtu. Natural gas closed on December 18 at $1.765 with the market reeling from negative price action last week. Inventories reported by the EIA fell by 34 bcf last week but there are enough natural gas stockpiles at this point to deal with whatever Mother Nature throws at the United States this winter, which will likely continue to add bearish fuel to the natural gas futures market. Temperatures across the United States remain unseasonably warm for this time of the year, which is a bearish sign for demand for heating commodities, natural gas and heating oil. Natural gas open interest fell by around 28,000 contracts, which is likely a sign that shorts took profits during the deluge in prices. The contango remains high with February futures trading at a 9.6 cent premium to January futures, 3.6 cents higher than last week reflecting that demand will rise this winter and that there are ample stocks.

Base Metals – We saw mixed results in the performance of nonferrous metals on the LME. Over the past week, aluminum, nickel and tin moved higher. Copper, lead and zinc posted losses. The moves in all metals were marginal. On COMEX, the price of active month March copper futures marginally lower closing at the $2.1080 per pound level last Friday.

Grains – Grains continue to be volatile. January soybean prices fell rose from the $8.70 per bushel level to around $8.92 while March corn was little changes at $3.745 per bushel. Wheat moved a touch lower on the week to settle just under $4.87 per bushel last Friday. All eyes will be on the progress of the South American crop and whether El Nino has any effect on these agricultural markets.

Soft Commodities – Last week was a continuation of volatility and bullish action in the soft commodity sector. While the FCOJ futures market dipped by around 6 cents to the $1.44 per pound level. Sugar moved higher over the week and closed at 15.10 cents per pound, resistance is at 15.85 cents. The March-May 2016 sugar spread, closed at a 39-point backwardation up two ticks from the prior week. Cocoa futures moved lower in end of year profit taking and position squaring closing the week at $3252 per ton down $101 on the week. Coffee moved lower closing at $1.1900 per pound on Friday December 18. Cotton did not change much on the week closing at 63.69 cents per pound on the active month March futures contract.

Animal Proteins – Meat markets diverged as cattle were steady and hogs moved lower on the active month February futures contracts. The long-term average of the live cattle versus lean hog spread has been around 1.4 pound of pork value in each pound of beef value. The spread in February is at the 2.22:1 level — the spread moved 0.12 higher from last week’s level.

Final Comments

The Fed has spoke and interest rates have moved higher. This is likely to be supportive for the dollar. The inverse relationship between the dollar and commodity prices is likely to keep pressure on the raw material asset class as we move into 2016. Meanwhile, energy prices continue to plunge and the divergence between crude oil, natural gas and the XLE is worth watching. There will be plenty of opportunities for profits in 2016 in the commodity sector. Many of these opportunities will present themselves in the market structure or spreads within the commodities markets.

By Andrew Hecht

Summary

Last week we saw two major events that affected markets across all asset classes. In the wake of the OPEC meeting on December 4 the price of crude oil fell below the August 24 lows at $37.75 per barrel. Crude oil is now approaching key support at the December 2008 lows of $32.48 per barrel.

Late last week, there were signs of troubles in the high yield bond market when a major fund froze withdrawals for reasons of liquidity. This could present markets with major worries. This week, the Federal Reserve Open Market Committee will meet for the last time in 2015 and most expect them to raise the Fed Funds rate by 25 basis points. This will be the first interest rate hike in the U.S. in nine years. While the move is widely expected, it will be the Fed’s statement after the meeting that is likely to move markets. The Fed has kept us guessing all year long about “liftoff” for U.S. rates, this week’s meeting is their last chance to make good on their promises.

Highlights

Precious Metals – Both gold and silver moved lower on a week-on-week basis. Silver traded to the lowest level since August 2009 at $13.75 last Friday making yet another new low. February COMEX gold finished down $12.10 on the week at $1073.70 level and silver moved down 65.5 cents on the week settling at the $13.89 per ounce level. Meanwhile, platinum group metals also moved lower on the week. Platinum closed the week at $840.80 per ounce down $39.60 on the week. Palladium was down $24.20 last week, closing at $542.40 per ounce.

Divergences continue in precious metals. The silver-gold ratio moved higher and is now at the 77.3:1, which continues to be a bearish signal for the sector. The platinum-gold spread closed at $2343 — platinum under gold, at all-time lows for this relationship.

The action in precious metals markets will be interesting in the sessions ahead. Gold did not follow through to the upside after the bullish technical action during the prior week and silver made a new low. Watch the inter-commodity spreads between precious metals. It is likely that an interest rate hike will weigh on the price of precious metals but they may be more sensitive to the statements rather than the action of the U.S. central bank. After Wednesday, it is likely that liquidity will decrease in these markets as the end of the year approaches.

Energy – Crude oil closed the week at $35.62 per barrel, new multiyear lows on the active month NYMEX January futures contract. Processing spreads diverged with continued weakness in heating oil and strength in gasoline. Term structure in crude oil widened dramatically with contango on the January 2016 versus January 2017 spread in WTI making a new high at over the $9 level. Brent spreads in the same months also widened. Widening contango is yet another bearish signal for the energy commodity. The Brent premium over NYMEX crude moved lower to $2.31 premium for Brent over WTI level. The move lower reflects a decrease in the political premium of Middle Eastern crude oil which could come back to bite the market in the future. Crude oil fundamentals and technicals are bearish but the political premium on crude remains very low considering that over half the world’s reserves are located in the Middle East.

Natural gas made new contract lows on January futures contract on four out of five days last week and traded at lows of $1.9590 per mmbtu before recovering slightly and closing last Friday at the $1.98 level as the market prepares for winter. Inventories reported by the EIA fell by 76 bcf last week but there are enough natural gas stockpiles at this point to deal with whatever Mother Nature throws at the United States this winter, which will likely continue to add bearish fuel to the natural gas futures market. Temperatures across the United States remain unseasonably warm for this time of the year, which is a bearish sign for demand for heating commodities, natural gas and heating oil. Natural gas open interest rose by over 30,000 contracts, which could be a sign that some shorts are returning to the market. The contango remains high with February futures trading at a 6 cent premium to January futures reflecting that demand will rise this winter and that there are ample stocks.

Base Metals – We saw mixed results in the performance of nonferrous metals on the LME. Over the past week, copper, lead and zinc moved higher. Lead was the best performer as it gained $92 per ton on the week. Aluminum, nickel and tin posted losses. On COMEX, the price of active month March copper futures moved higher in what was likely a delayed reaction to weakness in the dollar closing at the $2.1135 per pound level last Friday.

Grains – Grains continue to be volatile. January soybean prices fell from the $9 per bushel level to around $8.70 while March corn dipped to $3.75 per bushel. Wheat moved a touch higher on the week to settle just over $4.90per bushel last Friday. All eyes will be on the progress of the South American crop and whether El Nino has any effect on these agricultural markets.

Soft Commodities – Last week was a continuation of volatility and bullish action in the soft commodity sector. While the FCOJ futures market rallied by around 10 cents to the $1.50 per pound level, other soft commodities fell. Sugar moved lower over the week and closed at 14.58 cents per pound, support is at just below 14 cents. The March-May 2016 sugar spread, closed at a 37-point backwardation down seven ticks from the prior week. Cocoa futures were quiet closing the week at $3353 per ton. The forward curve in cocoa displays some tightness as a backwardation has emerged. Coffee moved lower closing at $1.2120 per pound on Friday December 11. Cotton also moved lower shedding a penny on the week closing last week at 63.71 cents per pound on the active month March futures contract.

Animal Proteins – Meat markets diverged as cattle fell and hogs moved higher on the now active month February futures contracts. The long-term average of the live cattle versus lean hog spread has been around 1.4 pound of pork value in each pound of beef value. The spread in February is at the 2.08:1 level — the spread moved 0.10 lower from last week’s level.

Final Comments

Commodity markets find themselves in a precarious position. Energy prices are falling dramatically. This means that production cost for many raw materials will fall. At the same time, the dollar has moved lower. Bullish and bearish factors are likely to confused markets raising the potential for volatility.

If the Fed raises interest rates on December 16, it is inherently bearish for raw material prices but the market is likely to focus on the statement and future intentions of the central bank rather than the action after the meeting. I remain cautiously bullish on the U.S. dollar, I believe the recent dip is a buying opportunity and this means that I believe that commodity prices remain in a long-term bear market with interest rates heading higher and the price of all energy commodities falling.

There will be plenty of opportunities for profits in 2016 in the commodity sector. Many of these opportunities will present themselves in the market structure or spreads within the commodities markets.

by Andrew Hecht

Report for the Opening of markets on December 7, 2015

Summary:

Last week we saw three major events that affected markets across all asset classes. On Wednesday, a tragic terrorist attack in San Bernardino, California is yet another reminder of the dangerous world in which we live. On Thursday, the ECB surprised markets by not delivering the level of stimulus expected and the U.S. dollar fell. The dollar index made a new high at 100.60 and then proceeded to fall over 2600 points on the session. The dollar put in a bearish key-reversal trading pattern on both the daily and weekly chart.

On Friday, the jobs report supplied another data point in support of an interest rate hike by the U.S. Federal Reserve later this month. OPEC met in Vienna last Friday and the result of the meeting could be a free for all of selling in oil from members. in a surprise move, OPEC adopted a “wait and see” policy in terms of the low level of oil prices while at the same time the cartel unofficially raised their production ceiling to 31.5 million barrels per day.

Highlights:

Precious Metals – Both gold and silver made new multiyear lows last week as they fell to $1045.40 and $13.805 respectively before the correction in the dollar caused a rally in both precious metals. February COMEX finished up on the week at $1085.80 level and silver moved up to $14.545 per ounce. Meanwhile, platinum group metals also moved higher on the week. Platinum fell new lows at $825 but closed the week at $880.40 per ounce. Palladium traded down to under $523 but closed the week at $566.60 per ounce.

Divergences continue in precious metals. The silver-gold ratio is around 74.4:1, which is continues to be a bearish signal for the sector. The platinum-gold spread closed at $203.50 — platinum under gold.

The action in precious metals markets will be interesting in the sessions ahead. It is possible that gold will follow through to the upside after the bullish technical action last week. Watch the inter-commodity spreads between precious metals.

If the silver-gold ration and platinum gold spread move lower, it could mean that we will see a sustained recovery rally. However, I would look at any price recovery as another selling opportunity as the fundamentals for the U.S. dollar remain bullish for the medium-term.

Energy – Crude oil closed the week below the $40 level on the active month NYMEX January futures contract at $39.97 per barrel. Processing spreads weakened slightly in heating oil but continued to strengthen in gasoline. Term structure in crude oil widened with contango on the January 2016 versus January 2017 spread in WTI making a new high at the $7.77 level.

Brent spreads in the same months also widened. Widening contango is yet another bearish signal for the energy commodity. The Brent premium over NYMEX crude moved marginally higher to $3.03 premium for Brent over WTI level. The move higher is likely due to fears surrounding Middle Eastern crude flows in the wake of increasing terrorist attacks.

Crude oil fundamentals and technicals are bearish but the political premium on crude remains low considering that over half the world’s reserves are located in the Middle East.

Natural gas made new contract lows on January futures contract at $2.131before recovering and closing last Friday at the $2.1840 level as the market prepares for winter. We saw the first inventory withdrawal of the season last week and stockpiles fell below 4 trillion cubic feet.

There are enough natural gas stockpiles at this point to deal with whatever Mother Nature throws at the United States this winter, which will likely continue to add bearish fuel to the natural gas futures market. Natural gas open interest rose slightly which could be a sign that some shorts are returning to the market.

The contango remains high with February futures trading at a 6.1 cent premium to January futures reflecting that demand will rise this winter and that there are ample stocks.

Base Metals – We saw mixed results in the performance of nonferrous metals on the LME. Over the past two weeks, copper and zinc moved marginally lower with aluminum, nickel, lead, zinc and tin posting small gains. Most of the gains came late last week when the dollar moved lower. On COMEX, the price of active month March copper futures made new multiyear lows at $2.002 on November 23 as concerns about China and the prospects for an interest rate increase in the U.S. in December dominated trading. The dollar lifted copper to close last Friday at $2.0760 per pound. The rally in copper was tepid considering moves in precious metals and the dollar.

Grains – Grains saw volatility over the past two weeks. January soybean prices moved back above the $9 per bushel level while March corn rallied to over $3.80 per bushel. Wheat moved lower to a new low at $4.655 and then recovered to $4.845 by last Friday. Grain prices received some support from the potential for El Nino to flip to a La Nina during next year’s pollination season. La Nina has caused nasty droughts in the U.S. in the past.

Soft Commodities – Last week was a continuation of volatility and bullish action in the soft commodity sector. While the FCOJ futures market pulled back to just under the $1.40 per pound level, other soft commodities gained. Sugar moved higher over the past two weeks and closed at 15.44 cents per pound after making new highs at 15.85 on Friday. The March-May 2016 sugar spread, closed at a 44-point backwardation up five ticks from the prior week. This signifies the potential for a supply issue this March.

Cocoa futures continued to show strength closing the week at $3390 per ton. The forward curve in cocoa is moving into backwardation on supply concerns. Coffee continues to show signs of life closing at $1.2695 per pound on Friday December 4. Cotton also rallied on dollar weakness closing last week at 64.89 cents per pound, the highest level since late August.

Animal Proteins – Meat markets diverged as cattle fell and hogs moved marginally higher. The long-term average of the live cattle versus lean hog spread has been around 1.4 pound of pork value in each pound of beef value. This spread, on December futures, closed at 2.17:1 last Friday, down on the week. The spreads in February is at the 2.18:1 level — both months spreads moving lower from levels two weeks ago.

Final Comments:

Yet another terrorist event last week means it is likely that volatility across all asset classes will increase. While the correction in the dollar was bullish for commodities, the outcome of the OPEC meeting certainly yielded the opposite effect. The prospects for an interest rate hike in the U.S. continue to rise, which is historically bearish for raw material markets.

There is volatility ahead for all markets and that means there are plenty of profitable opportunities in the weeks and months ahead in the commodity markets for those who understand these markets. The volatile dollar and deviation between U.S. interest rates and others around the world will surely create a bumpy road in all assets classes, particularly in commodities, which tend to be the most volatile of all. The majority of these opportunities will come from spread relationships.

I remain bullish on the U.S. dollar, I believe the dip last week was a buying opportunity and this means that I believe that commodity prices remain in a long-term bear market.

MartinKronicle: Commodity Report
November 23, 2015

Summary:

Markets largely ignored the terrorist attack in Paris on Friday, November 13 last week. Equity prices moved higher and many commodities continued to move lower. Copper, gold, iron ore, nickel and the Baltic Freight index all posted new multiyear lows. In the case of the freight index, it traded to the lowest level since 1985.

The release of Fed minutes from the last meeting told us that the Fed is on course to raise the short-term Fed Funds at the December meeting. The dollar moved higher on a week-on-week basis and this contributed to weakness in commodity markets.

Highlights:

Precious Metals- Both gold and silver continue to display weakness. Gold traded to the lowest level since February 2010 as the December COMEX futures traded to lows of $1062. The yellow metal finished up on the week at $1076.70 and silver moved to $14.15 per ounce, just 25 cents above recent lows and key support. Meanwhile, platinum group metals a mixed bag. Platinum fell $5.40 on the week to $855.70, the lowest level since December 2008. Palladium was up around $20 on the week.

Divergences continue in precious metals. The silver-gold ratio is around 76:1, which is a bearish signal for the sector. The platinum-gold spread is now approaching another test of all-time lows established on October 2; it closed at a $220 spread, platinum under gold.

The action in precious metals markets continues to point to new lows however; a delayed reaction to the events in Europe could bring some fear based buying back into these markets, particularly if there are any new attacks. I would look at any price recovery as another selling opportunity for the time being as the trend and path of least resistance remains lower.

Energy- Crude oil was little changes on the week closing at $41.90 on the active month NYMEX January futures contract. Processing spreads weakened in heating oil but strengthened in gasoline. Term structure in crude oil widened with contango on the December 2015 versus December 2016 spread in WTI making a new high above the $8 level. Widening contango is yet another bearish signal for the energy commodity. Brent futures have rolled to January and the Brent premium over NYMEX crude moved marginally higher to $2.76 premium for Brent over WTI level. The move higher is likely due to fears surrounding Middle Eastern crude flows in the wake of the terrorist attack. However, the spread did move below $1.50 during the week. The trend in the spread seems to indicate that Brent will eventually return to a discount to WTI crude oil.

Natural gas made new contract lows on December futures closing at the $2.1410 level as the market prepares for winter. Inventories rose to new all-time highs at 4 trillion cubic feet. It is likely that increasing inventories have caused price weakness as we head into the winter season but inventories are at a level that is close to full capacity. Natural gas open interest continued to fall, which could be a sign that some shorts have closed positions. The contango remains high and widened by 0.3 cents over the past week with February futures trading at a 19.4 cent premium to December futures reflecting that demand will rise this winter.

Base Metals- Nonferrous metals on the LME moved lower, with the exception of lead and tin, this past week. On COMEX, the price of active month December copper futures made new multiyear lows as concerns about China and the prospects for an interest rate increase in the U.S. in December dominated trading. Copper is now just above $2 per pound, the low of the week was $2.0305 per pound. Nickel fell to twelve-year lows as demand for stainless steel in China continues to be weak.

Grains- Grains were quite this past week. Soybeans and corn moved marginally higher and CBOT wheat is testing support. Wheat closed just below the $4.90 level on the active month December futures contract.

Soft Commodities- Last week was a continuation of bullish action in the soft commodity sector. While the FCOJ futures market pulled back to the $1.50 per pound level, other soft commodities gained. Sugar moved higher on the week and closed at 15.30 cents per pound, only 23 points away from recent highs and key resistance. The March-May 2016 sugar spread, closed at a 39-point backwardation up two ticks from the prior week. This signifies the potential for a supply issue this March. Cocoa futures made new multiyear highs trading up to $3420 before closing the week at $3366 per ton. The forward curve in cocoa is moving into backwardation on supply concerns. Coffee showed some signs of life and rallied from $1.1530 to over $1.24 per pound in aftermarket trading on Friday November 20.

Animal Proteins- Meat markets were stronger as December futures are rolling to February. Cattle futures moved slightly higher on the week as did lean hog futures. The long-term average of the live cattle versus lean hog spread has been around 1.4 pound of pork value in each pound of beef value. This spread, on December futures, closed at 2.24:1 last Friday, down on the week. The spreads in February is at the 2.26:1 level.

Final Comments:

Recent terrorist event and the eventual response are likely to increase volatility across all asset classes. There are plenty of profitable opportunities in the weeks and months ahead in the commodity markets for those who understand these markets. The strong dollar and deviation between U.S. interest rates and others around the world will surely create volatility in all assets classes, particularly in commodities, which tend to be the most volatile of all. The majority of these opportunities will come from spread relationships. I remain bullish on the U.S. dollar and this means that I believe that commodity prices remain in a long-term bear market.

There will be no report next week. Have a happy Thanksgiving holiday.

MartinKronicle: Commodity Report
Report for the Opening of markets on November 16, 2015

Summary:

Last week, many key commodity prices continued to move lower. Precious metals, base metals, energy and many agricultural commodities moved to the downside. The only bullish action in the raw material markets was in sugar, cocoa and frozen concentrated orange juice futures. The dollar, which has been rallying since the middle of October, finished the week close to unchanged.

At the end of last week, the terrorist attack in Paris will leave traders with a new spin on markets as they return to their trading desks this week. The fear factor will certainly rise to a new level given the brutal nature of the attack that killed scores of innocent people and injured hundreds. Fear tends to breed volatility in markets and we are likely to see an increase in both in the weeks ahead as the civilized world digests and responds to the horrific events.

Highlights:

Precious Metals- Both gold and silver continue to display weakness. Gold made a new contract low by 70 cents as the December COMEX futures traded to lows of $1073. Continuous contract lows are at $1072.70 the July 24 lows. While gold marginally and closed the week at $1083.40, silver moved to $14.23 per ounce, just 30 cents above recent lows and key support. Meanwhile, platinum group metals moved aggressively lower last week. Platinum fell over $80 on the week to $861.40, the lowest level since December 2008. Palladium was also down over $80 on the week. It is fast approaching key support that is $20 below its current price.

Divergences continue in precious metals. The silver-gold ratio moved higher to over 76:1 which is a bearish signal for the sector. The platinum-gold spread is now approaching another test of all-time lows established on October 2.

The action in precious metals markets continues to point to new lows however; the events in Europe last Friday could bring some fear based buying back into these markets. I would look at any price recovery as another selling opportunity for the time being.

Energy- Crude oil moved lower on the week and broke short-term support at the $42.58 level and closing at $40.74 on the active month NYMEX December futures contract. Processing spreads weakened in crude oil adding to bearish sentiment. Term structure in crude oil widened with contango moving higher in both WTI and Brent crude. Widening contango is yet another bearish signal for the energy commodity. Brent futures have rolled to January and the Brent premium over NYMEX crude moved lower to $2.47 premium for Brent over WTI level. The move lower is the result of growing inventories. The IEA said last week that global inventories of crude oil are now around the 3 billion barrel mark.

Natural gas recovered marginally this week with December futures closing at the $2.383 level as the market prepares for winter. Inventories rose above the November 2012 all-time highs to 3.978 tcf. It is likely that increasing inventories have caused price weakness as we head into the winter season but inventories are at a level that is close to full capacity. Natural gas open interest fell a bit, which could be a sign that some shorts have closed positions. The contango remains high and widened by 0.8 cents over the past week with February futures trading at a 19.1 cent premium to December futures reflecting that demand will rise this winter.

Base Metals- Nonferrous metals on the LME moved lower, with the exception of tin, this past week. On COMEX, the price of active month December copper futures made new lows concerns about China and the prospects for an interest rate increase in the U.S. in December. Copper now seems to be on a path towards $2 per pound.

Grains- The USDA issued its monthly WASDE report this week. The report confirmed a third straight year of bumper crops in grains. All major grain prices moved lower in the wake of the report.

Soft Commodities- The only bullish action in commodities was in the soft commodity sector last week. The biggest volatility last week once again came in the FCOJ futures market, which moved to highs of over $1.60 per pound on Friday before pulling back. Citrus greening in Florida is causing supply concerns and is fueling the explosive action in FCOJ futures. Sugar moved higher on the week and is only again above the 15 cent per pound level. The March-May 2016 sugar spread, which I highlighted in last week’s report, closed slightly higher at around a 37-point backwardation. This signifies the potential for a supply issue this March. Cocoa futures appreciated and they are now at the highest level since July. The forward curve in cocoa is flat nearby and in backwardation in deferred delivery months.

Animal Proteins- Meat markets continue to show signs of weakness. Cattle futures moved lower on the week and lean hog futures made another new low at 52.80 cents per pound before recovering. The long-term average of the live cattle versus lean hog spread has been around 1.4 pound of pork value in each pound of beef value. This spread, on December futures, closed at 2.385:1 last Friday, down marginally on the week.

In October, this spread moved higher before collapsing down to 1.8:1 as the contracts neared expiration.

Final Comments:

Events in France at the end of last week will likely increase volatility across all asset classes. There are plenty of profitable opportunities in the weeks and months ahead in the commodity markets for those who understand these markets. The strong dollar and deviation between U.S. interest rates and others around the world will surely create volatility in all assets classes, particularly in commodities, which tend to be the most volatile of all.