Commodity Corner: Morning Comments

Good morning,


DXZ9  97.720  +0.057               GCZ9  1468.3  -3.6                                                           ESZ9  3129.00  +7.25                CLZ9  56.50  -0.55


Trade prospects, positive and negative, continue to drive the markets.  As witnessed yesterday morning, trade pessimism from China due to President Trump not willing to roll back some of the tariffs quickly turned equities negative and brought a quick bid into a declining gold market.  However, the news of the meeting between President Trump, Fed Chairman Powell and Treasury Secretary Mnuchin quickly restored the positive vibe, which has carried on through the evening trade.   With the impeachment hearing likely to capture a portion of the market’s attention today, the markets will always be at risk for any trade blasts. 


With trade the dominant theme behind most trading, including the commodities, I’ll just attempt to take a quick spin around some of the markets. 


The grain markets are up a touch today, following renewed trade hopes and crop progress data yesterday showing a continued lag, although not bad, on the harvest pace.   With the colder temperatures and snow having pushed through, and now with rain systems moving in, harvest completion could be challenged.  The grain markets have digested the latest WASDE report last week, showing larger than expected projections for production and inventories in corn and soybeans.  If harvest can’t be completed, there could be some pullback here.  The wheat market has been trading well of late, as the inventory data in WASDE was less than expected, and some of the recent weather is posing a risk to winter wheat crops that have yet to hit dormancy. 


Aggressive short covering has been the theme in some of the other soft commodities, as concerns about supply shortfalls heading into next year have created a sharp bid to prices and forcing the hand of the short community.  Over the past few weeks, there has been a sharp decline in the size of the short position reported in the COT report from the CFTC.  Coffee, sugar and cocoa have all been in uptrends of late.  Using a more minute lens for coffee, prices were lower yesterday, and could remain under pressure through tomorrow, which is first notice day for the December contracts.  Cotton has come off the past few sessions, following trading up last week on trade prospects and the WASDE report showing a reduction in production and inventories, in part created by increased export expectations.  Cotton, along with the other softs, will have a similar fate to its price action from any meaningful trade rhetoric. 


The oil market continues to chop around, as we now are getting close to the next OPEC+ meeting, on Dec 5-6, where production quotas are certainly to be a hot topic.  WTI prices were flirting with $58 yesterday in the early trade, on the trade hopes, only to get knocked back when the trade pessimism out of China hit the tapes.  In addition, the weekly US production and inventory data continue to show a sharp build to stocks, which put some additional pressure on prices yesterday.  As has been the case for the better part of the past 6 months, you can expect to see some very aggressive, choppy price action in the oil markets, but it always seems to find its way back to the $54 to 56 median. 


There really isn’t any need of a deep explanation for the gold market.  Given all of the uncertainty that has been out there over the past 6 months, from monetary policy, to geo-political risks, to trade and global economic growth, gold has been the safe haven, and an asset which saw large inflows.  As the market begins to feel more comfortable with other assets, the unwind of the safe have trade has been weighing on gold prices.  In addition, funds which caught the move from the long side have been getting out as well.  It is still a ways away, but the $1407.8 price level in GCZ9, the 200 day moving average should be a key support area.  Obviously, this number will change daily, but keep the concept in the back of your mind if gold prices keep declining. 


This Friday is December options expiration for many markets.  Excessively large open interest in a particular put or call strike can tend to cause prices to migrate in that direction, in relatively quiet markets.  This is a fairly light economic calendar week, and with the impeachment hearings and waiting for the next trade blast possibly muting trading activity, options expiration could come into play.  If you are trading in a particular market, you may what to take a glance at the size of some of the options positions, as it might provide a clue for what the risks are for the price action this week.   


Technical Moving Averages:

Product               50 day                100 day               200 day

SF0                       925.00                   912.50                   918.50

CZ9                      381.25                   393.25                   399.50

WZ9                     501.75                   498.00                   499.75

KWZ9                  415.75                   424.50                   451.75

MWZ9                 529.25                   528.75                   548.50

SMZ9                   302.9                     304.4                     310.9

BOZ9                   30.22                     29.48                     29.50

CLZ9                     55.59                     55.76                     57.47

GCZ9                    1497.0                   1486.5                   1407.8

LHG0                    74.580                   74.155                   76.015

LCG0                    118.550                 116.160                 117.665

KCH0                    104.20                   105.50                   106.60

CCH0                    2486                       2429                       2397

CTH0                    63.84                     63.09                     67.93

SBH0                    12.42                     12.61                     13.17

JOF0                    101.55                   104.00                   111.35

HGZ9                   262.90                   263.50                   273.35






Michael Clifford


141 W Jackson Boulevard                             

Ste 1065                                                              

Chicago, IL 60604                                              

Trean Group, LLC