Summary

Just as grain producers have been taking advantage of the rally in the agricultural markets these past two weeks, US Crude Oil producers have been hedging future production at current price levels in the event that April’s rally is only a correction in what has been a sustained bearish downtrend. Evidence suggests that when markets reach octaves or 8th divisions of a natural cycle, such as 360 divided by 8 being 45, prices tend to respond to those levels as natural support or resistance. The June Crude Oil futures contract made it’s high of the week on Friday last week at 46.78 closing at 45.92. If prices are able to hold above the 45 mark and it’s up through 50 major producers could turn their sites toward adding rigs. Last week, Pioneer Natural Resources Company indicated it would add rigs with Crude Oil above 50 per barrel. According to the Baker Hughes Rig Count report, US Oil drillers took another 11 rigs offline bringing the number of North American rigs that were shut down last week up to 14. The US rig count currently sits at 420 and the North American total is at 457 which is well below both last year’s and the 5 year average.

Speaking of rig counts, the oilfield services giants Halliburton and Baker Hughes have cancelled merger negotiations amidst opposition from the current president’s administration. The Texas companies initially sought to "vigorously contest" the US Department of Justice's lawsuit against Halliburton's acquisition of Baker Hughes but the obstacles appear to have been more daunting than anticipated. Halliburton will pay Baker Hughes a $3.5 billion breakup fee to compensate for the deal's collapse.

The investment community is wanting to believe that a major low in the commodity markets has occurred and they are looking to the Bloomberg Commodity Index as potential confirmation. The Bloomberg Commodity Index measures the returns for 22 components. Last month in April it advanced 8.5% eclipsing the returns of the global equities indices, high-yield bonds, investment grade bonds, treasuries and all major currencies. Two of the components in the Bloomberg Commodity Index responsible for much of its recent returns are Gold and Crude Oil. Gold recently reached levels last seen in January of last year. Meanwhile, Crude Oil has been on a tear since January 20th of this year breaking 4 month highs as of last week. The US Dollar has been steadily declining after the Fed failed to raise rates as they indicated that they might leading into the December 2015 meeting. It topped on December 2nd followed by a sharp drop. It traded sideways through January where it made another sharp decline and has been trending down since.

After suffering through weeks of dry and hot weather in central Brazil, a strong cold front swept into Brazil last week bringing with it much needed precipitation and the coldest temperatures of the year. Widespread frosts and freezing temperatures were recorded across the region and even some snow in the higher elevations. Alas, the rainfall may have helped to stabilize the Safrinha Corn crop temporarily, but generally the rainfall was not heavy enough to maintain the crop from further deterioration, let alone reverse any of the damage already done to the crop. Current reports are suggesting the 2015-16 Brazilian Safrinha Corn crop could come in as much as 5-10 million tons below initial estimates. Faced with the supply shortages, with import taxes lifted Brazil is reported purchased Corn from the US for the 1st time in 20 years.

Weather related interruptions and weather scares in South America have clearly been a factor in the recent support in Agricultural prices but the supply still remains strong in the US. The weeks ahead look to bring additional clarity to the landscape.

Investors have taken notice of the strength in the commodity funds and last week the Wall street journal reported that commodity funds brought in more capital during the 1st quarter of 2106 than any other type of hedge fund. In fact the commodity funds group saw an inflow of $4 billion. That is the largest inflow for any quarter over the last six years. Over the last seven consecutive months, the commodity space has brought in more money that it has had to redeem setting the longest winning streak on record.