Commodity Corner: Morning Comments

Good morning,


DXZ9  97.595  -0.086                  GCG0  1483.4  -1.0                                       ESZ9  3105.00  +14.00                CLF0  57.14  +1.04


This being OPEC week, it only makes sense that oil takes center stage on the focus here.  Oil prices were sagging early in the session, being drug down by poor economic prospects with the equity market under pressure.  Prices did find support, aided by comments from Iraq’s oil minister saying the production quotas in place need to be cut by an additional 400k barrels/day.  Part of the rationale for the deeper cuts is the record production coming out of non OPEC countries.  Then, giving prices an additional boost late in the day, and into the overnight hours was API projecting US crude inventories declined by 3.72m barrels last week.  The market expects to see a stocks draw of 1.5m barrels.  The DOE releases its weekly data on production and inventories later this morning.


The equity market is attempting to bounce today, as some positive chatter of the China trade talks and apparent productive meetings from the NATO summit provide economic hope.  In the sell-off over the past couple of sessions, driven by the trade concerns, fixed income markets shot higher (lower yields), as the Fed has been consistent in saying delayed Fed negotiations pose a real risk to economic growth, and may cause the Fed to add additional stimulus.  The next 3 days will provide the market with plenty of actual economic data to look at, in manufacturing and employment, beginning with the ADP employment index, to be released within the hour of this writing (6:30 AM CST).   The data may carry a bit more significance, as the Federal reserve meets next week for its last monetary policy meeting of 2019.  No change to policy is expected, but trade headwinds and any economic data well off market expectations can certainly create some tension here.


Gold prices, which have had a decent bounce over the past couple of sessions, as the haven trade, which was thought to have gone away, reappeared as equities broke.  Prices this morning are slightly lower, but not likely to fall out of bed, given all of the uncertainty the market has experienced over the past few sessions.  If gold prices were to rotate back up, the $1500 area should pose as some resistance to a rally (there are a couple of moving averages that come just in front of 1500). 


The grain market has a slight bid to prices this morning (except for corn, which is around unchanged).  Prospects for decent global demand for wheat is helping to support US prices, although US wheat remains too expensive compared to global competitors.  Soybeans are a few cents higher, as renewed trade hopes should bode well for beans.  It is also not uncommon for prices to bottom as harvest concludes, so beans and corn may attempt to stage a bit of a rally on that.  In all likelihood, not much will take place, in terms of price action, ahead of next Tuesday’s WASDE report from the USDA.  Not much is expected in this report, but it has been a strange year, so one never knows. 


Coffee prices continued to surge ahead, moving up to a 1 year high, as spec longs continue to push prices.  What had been a decent sized spec short position, has been whittled down, according to the most recent COT report from the CFTC, and may even have now switched to core long.  This market has extended into extreme overbought conditions, so a correction could be in order.  However, there are concerns about the supply outlook for next year, so an underlying bid should prevail.  Another market experiencing a strong rally, driven by concerns about a supply deficit next year is the cocoa market, in part from strong global demand.  In addition, weather risks in the Ivory Coast and Ghana are raising concerns about growing conditions in the top growing countries.  The spec long position in cocoa has grown to a 5 year high.  In addition to the spec funds adding to long positions, the supply deficit concerns is forcing end users to get some forward coverage for protection.  This is another market in extreme overbought territory, but the fundamentals would suggest there should be bids below on a correction.  Cotton prices, which had come under pressure the past few sessions on the apparent stall in trade progress, is higher today, with this renewed optimism.  Comments in the early European trade, the phase 1 of a deal could still happen, although the handling of the tariffs remains a bit of a mystery, is where this renewed trade hope stems from.  Of course, the market has been dealing with these starts ands stops on trade for over a year and a half, so most in the market prefer to wait until some type of a deal is actually in place.        


Technical Moving Averages:

Product               50 day                100 day               200 day

SF0                       922.50                   909.25                   914.75

CH0                      391.75                   397.00                   408.50

WH0                    514.50                   504.50                   508.50

KWH0                  431.75                   434.00                   463.00

MWH0                 540.75                   537.75                   557.50

SMF0                   304.9                     304.3                     311.3

BOF0                   30.64                     29.90                     29.68

CLF0                     55.47                     55.46                     57.30

GCG0                   1494.8                   1497.6                   1420.0

LHG0                   73.505                   73.350                   76.035

LCG0                    121.355                 117.080                 117.965

KCH0                    106.60                   105.60                   106.60

CCH0                    2530                       2438                       2411

CTH0                    64.54                     62.97                     67.45

SBH0                    12.58                     12.55                     13.10

JOF0                    100.40                   103.00                   109.95

HGH0                  264.30                   264.10                   273.25






Michael Clifford


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