Good morning,
DXZ0 92.920 +0.321 GCZ0 1907.7 -21.8 ESZ0 3427.00 -5.50 CLZ0 40.19 +0.16
Markets continue to mark time, waiting for news on a stimulus plan, updates on the magnitude of wave 2 and ahead of the election and all of the theatre that comes with that. Equities, oil and gold all are caught in a choppy trade, trying to find equilibrium amidst all of the surrounding variables. Commodities have been the benefactor of much of the global unknowns, as money is looking for markets to get involved with, where there is a decent fundamental story, either developing or in place. Goldman is presently forecasting a 12 month return of 28% for commodities in 2021, even in the face of additional pandemic led drags.
The grain markets continue to be the hotbed of late, with the same inputs continuing to drive them. Strong demand from China and other importing countries, along with continued weather issues impacting production in many exporting nations continues to drive prices up. Corn futures traded at a 14 month high yesterday, while wheat futures have recently traded at the highest prices in 6 years. Soybeans also continue to push to new highs for this move, with beans up over 12% on the year. Funds continue to support the drive higher, adding to long positioning with buying another 15k in corn, 8k in beans and 6k in meal. China continues to be an aggressive buyer, and that is expected to continue. In corn, China’s domestic demand is expected to outweigh production by 25-30 mmt. Exporting countries, such as the US, could capture additional market share from this shortfall. On the topic of the US capturing additional market share, the US potentially could be the recipient of an additional month of bean sales to China, as the delayed planting in Brazil will lead to a later harvest, which allows for the US to capture the additional sales in the interim. The soybean story in Brazil will also impact its corn market, as the second season corn crops get planted after the bean harvest. Given the current situation, a shorter corn season and thus a diminished crop size is being priced into the market.
Argentina has a story worth paying attention to, and it primarily applies to the soymeal market. La Nina is expected to have a major impact on the size of the Argentinian bean crop, which matters as Argentina is the world’s largest exporter of soybean products, primarily meal. It will be a challenge to replace the meal deficit, as the US doesn’t have much capacity to increase crush and Brazil crushers face an issue with the high freight costs to get the meal to the ports. Thus prices may need to continue to rise, as import demands may be forced to move away from Argentina and look to the US and Brazil. In order for the Brazilian producers to be incentivized to export, the prices will need to rise to a comfortable level above the freight costs.
As mentioned, wheat prices recently hit the highest prices in 6 years. The very dry weather in Russia and the US Plains has been widely discussed, and the current rotation down is in part due to some rains/snow being received in both areas. While this may not be enough to completely alleviate crop stress, it will certainly provide a bit of reprieve in the short run. The longer term weather outlooks do have dry conditions returning, so wheat markets should be supported at lower prices. Funds continue to maintain spec long positioning in Chicago and Kansas City wheat.
Cotton prices also continue to drive higher, reaching the highest prices in the last 18 months. The US is the world’s top cotton exporter, and production estimates continue to be whittled away, as crop damage from the recent hurricanes continues to be assessed. Prices did take a breather yesterday, in part as China announced it was purchasing 500k mt of cotton produced in Xinjiang, to add to its state reserves.
Cocoa futures continue to trade well, in spite of recent weakness driven by a pandemic led drop in consumption. Political tensions in the Ivory Coast, the top global cocoa producer, ahead of a Presidential vote scheduled for Oct 31, could create some disruptions to production. Sugar prices also continue to push higher, moving back towards the highs for the year. Dry weather conditions in Brazil have again brought about talk of decent drop in forward supplies. Coffee is the only market which appears to be bucking the bull trend in commodities. Prices continue to plunge to new lows for the move. Funds had been carrying a decent sized spec long position in coffee. The combination of good weather for crop development increasing an already expected to be large harvest, coupled with more countries going back into full lockdown to contain wave 2 of the pandemic hits demand.
Technical Moving Averages:
Product 50 day 100 day 200 day
SX0 989.25 936.25 912.00
CZ0 368.75 353.25 359.25
WZ0 560.5 539.75 545.75
KWZ0 490.75 473.25 485.50
MWZ0 537.50 534.50 546.00
SMZ0 330.4 313.1 308.8
BOZ0 32.97 31.24 30.39
CLX0 41.18 40.92 40.70
GCZ0 1932.9 1890.3 1774.0
LHZ0 61.410 56.750 57.835
LCZ0 110.725 108.765 108.305
KCZ0 116.95 111.40 113.50
CCZ0 2514 2398 2425
CTZ0 65.96 63.75 62.77
SBH1 13.47 13.07 12.93
JOF1 118.05 122.50 118.75
HGZ0 301.5 290.1 269.0
HOX0 118.60 122.22 129.48
XBX0 117.57 114.62 111.60
NGX0 2.771 2.578 2.471
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404