Commodity Corner: Morning Comments

Good morning,


DXZ9  97.775  -0.016                 GCG0  1478.0  +8.8                                       ESZ9  3092.00  -22.25                CLF0  55.39  -0.57


Trade progress talk, or lack of it to be exact, was the driver across most markets yesterday.  President Trump talking about the possibility of implementing additional tariffs created a quick reversal in many markets.  Gold, on the other hand, quickly found support and firmed up.  Equity markets appeared to have stabilized in the Asian trade, and then early in Europe, as President Trump spoke at the NATO summit, stocks resumed the trek lower.  Trump’s comments basically said a trade deal with China may not get done this year, and it may not even get done until after next year’s election.  Commodities having turned sharply lower on yesterday’s comments (except for coffee, more below) are mixed today with these additional comments. 


Grains are supported by a couple of factors today.  Yesterday afternoon’s harvest progress report showed corn and soybeans still a little ways from completion.  The Thanksgiving winter storm that swept across the Midwest and Plains didn’t  help.  There appears to be a window this week where decent progress can be made, but cooler temperatures keep creeping into the picture, posing a risk to the unharvested crops.  The wheat market is supported today from rising prices around the globe, as is witnessed in today’s purchase tender by Egypt.  In this tender, 11 companies placed bids, mostly from the Black Sea, with a couple from France as well.  The next potentially significant input for the grains, outside of trade headlines, is the WASDE report, which comes next Tuesday (Dec 10).  Typically, this report doesn’t present too many surprises, but this hasn’t exactly been a normal year for these markets, so we’ll see.    


About that coffee market.  While most commodities came under pressure from yesterday’s trade news, coffee had a very strong, technically driven rally.  As key resistance points were taken out, more buying found its way into the market from “buy stops” and the algo community.  On this move higher, the coffee market ignored the weakness in the South American currencies, which typically would act as a drag on higher prices as producers sell to capture the dollar strength.


The oil market finds itself in wait and see mode, ahead of the OPEC+ meeting at week’s end.  Of course the trade headlines can create some choppy price action in the interim, with the comments of the past couple days knocking prices down a few bucks.  There has been discussion on the possibility of seeing additional cuts to production quotas for 2020.  It remains to be seen how many of the OPEC partners would be on board with that.  Russia would probably take issue here.  Also as the markets wait for the news, the US will again release its weekly production and inventory data.  Last week, production and inventory levels were higher than what the market was expecting to see, but this news really didn’t create the type of sell-off it could have. 


Cotton prices were lower yesterday on the trade news, and are continuing to leak in this direction today.  A major delay to the trade deal, which is being hinted from the Trump camp, would not bode well for cotton, even with projections of lower supplies than what was expected earlier in the year.  Projections on cotton supplies will also be updated in next week’s WASDE.  Lean hogs also were hit yesterday on the trade news.


Gold prices, which continue to see safe haven unwinds hitting its market, quickly found support as most markets appeared to enter “risk off” mode.  The equity sell-off from last December remains firmly entrenched in the back s of all traders’ minds which will probably limit any continuations to a major move lower in gold from here.  If prices do continue to leak, keep an eye on the 200 day moving average for gold (GCG0), which comes in today at 1419.5.


Yesterday afternoon, the CFTC released the COT report from last week (lagged release due to the holiday).  The most notable thing was a big jump in spec shorts for soybeans.  Funds had been spec long as of a few weeks ago, but have now spun to over 50k short.  Aside from the bearish tone for beans, short covering is seen in this report in corn, wheat, sugar, cotton and coffee.  Lean hogs, which were carrying a massive spec long position this past spring and early summer, and the height of the African Swine Flu epidemic, have now seen the position pared back to almost flat.  The lagging trade negotiations and China finding other sources for hogs the main culprit. 


On the economic front, today is a relatively quiet day, data wise, but fresh inputs on manufacturing and employment are on the docket over the next 3 days.  Any data which comes in much different than forecast will bring some discussion and concern into the market, ahead of next week’s Federal Reserve monetary policy meeting.          


Technical Moving Averages:

Product               50 day                100 day               200 day

SF0                       923.25                   910.00                   915.25

CH0                      391.75                   397.75                   408.50

WH0                    514.00                   504.50                   508.50

KWH0                  431.50                   434.75                   463.50

MWH0                 541.25                   538.25                   558.00

SMF0                   305.0                     304.6                     311.4

BOF0                   30.63                     29.88                     29.68

CLF0                     55.51                     55.50                     57.31

GCG0                   1495.9                   1497.1                   1419.5

LHG0                   73.640                   73.410                   76.025

LCG0                    121.125                 117.005                 117.935

KCH0                    106.20                   105.50                   106.55

CCH0                    2528                       2437                       2410

CTH0                    64.49                     62.96                     67.50

SBH0                    12.56                     12.56                     13.11

JOF0                    100.55                   103.10                   110.10

HGH0                  264.30                   264.20                   273.40






Michael Clifford


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