Commodity Corner: Morning Comments

Good morning,


DXZ9  97.535  +0.150               GCG0  1470.0  +1.9                           ESZ9  3139.00  +3.00                CLF0  58.99  -0.25


The markets continue to play the wait and see game, with the Federal Reserve announcement and press conference, regarding US monetary policy later today and the UK election coming tomorrow.  Trade remains a major focus for the market, as discussion about a delay to the tariffs to be implemented on December 15 and an apparent agreement in the UMSCA trade deal were positive developments for numerous markets.


Oil is chopping in a higher trading range, established with the new production quotas that were announced from OPEC+ last week (although, the market has ascertained that since Saudi Arabia was underproducing from the old quota, very little oil production is actually taking place here).  Positive trade developments are supporting oil prices, while concerns about ramped up production from non OPEC countries tends to keep a lid on prices.  More production and inventory data for the US comes from the DOE today.  Yesterday afternoon, the API projected US crude stocks grew by 1.41m barrels, where a decline of 3m barrels is expected in the market.  This release knocked prices back a touch in the late trade yesterday, but the overall positive sentiment in the market kept a the break contained.


Gold prices are up a bit this morning, having traded in a fairly narrow range on light volumes ahead of all of the events over the next couple of days.  With all of the perceived positive sentiment in the markets, the need for a safe haven investment is somewhat mitigated.  However, as the markets move towards year end, there will be nervousness about a type of liquidation trade, similar to the one in equities last year, which should keep some underlying support in place for gold.  Copper prices have been in a solid up trade of late, moving to a 7 month high, taking its directional clue from an expected increase in demand from China.  Palladium prices traded at a new high yesterday, and aluminum trades at the highest prices since April of 2018. 


The USDA released the December WASDE yesterday, which contained very few changes or surprises.  Nothing was changed in corn or soybeans, on the domestic view, but inventories were raised slightly on the global level.  Wheat had a reduction in domestic stocks, in part due to an increase in export expectations.  Wheat demand has been increasing, as have been global prices, which could bode well for the US wheat market in the future.  An example of global wheat demand was again seen yesterday, as Egypt purchased 355k tons of wheat from the Ukraine, Romania, France and Russia. 


Another surprise from the USDA came from the treatment of the cotton balance sheet.  There was a significant drop in domestic production and inventories.  World numbers were also lowered, but not by the same magnitude.  The cotton market, which was already trading well on heightened trade prospects, responded favorably on the data, reaching overbought levels from a technical viewpoint.  Prices are correcting lower a bit today, btu the fundamental backdrop remains positive.  Sugar also received some bullish news yesterday, as output was cut by 110.8k short tons, making total domestic output 8.28m short tons vs 8.61m.  It was also reported that US sugar imports from Mexico would bee almost 709k short tons.  Sugar has been in a very strong bull market, as concerns about global supplies going forward force the spec shorts to cover and are bringing spec longs into the market.  In Brazil more cane is being allocated to ethanol production from sugar, adding to the potential sugar deficit. 


But the market that has been en fuego is the coffee market.  The massive rally continues, driven by spec longs continuing to add to positioning and pushing prices higher.  In addition to the strong technical picture, luring spec buyers into the market, there are some fundamental drivers as well.  Tighter supplies going forward have been a concern, and this was enhanced yesterday as Brazil’s export data showed exports of green coffee were down over 22% in November.  Total exports for the year, compared to last year remain higher, but the recent trend is concerning.  A couple of other factors for the push upwards.  Producer selling in Brazil has been very aggressive during this rally, far ahead of years past, leaving a potential shortfall in available supplies.  This same potential shortfall has forced end users and exporters to be aggressive buyers.  In some cases, purchases are being made for several crop years out.  Lastly, central bank decisions out of the US and Brazil today can have a big impact on the value of the Real, which can influence producer sales.


The other breakfast drink, orange juice, saw prices move higher yesterday, aided by the trade discussions and not any significant changes from the USDA.  Cocoa prices also traded higher, as supply concerns also exist in this market, following weather related issues in Ghana and the Ivory Coast.  Global demand has been increasing as well, leaving the potential for a supply squeeze down the road.  Hog futures were higher yesterday, even as China has found other markets to source hogs while the trade war has been ongoing.  The hope is that implementation of even phase 1 of a trade deal could help the US hog market. 


So, the markets will have plenty to digest over the next 2 sessions, beginning with the US CPI data in a few minutes.  Trade rhetoric, central bank decisions and the UK election all  have potential to create some volatility for the markets.                       


Technical Moving Averages:

Product               50 day                100 day               200 day

SF0                       921.00                   907.50                   913.00

CH0                      390.75                   393.50                   407.75

WH0                    517.75                   504.25                   508.75

KWH0                  433.00                   431.75                   461.25

MWH0                 536.00                   535.50                   555.50

SMF0                   304.8                     303.4                     310.7

BOF0                   30.81                     30.02                     29.66

CLF0                     55.80                     55.57                     57.31

GCG0                   1490.5                   1499.3                   1422.7

LHG0                   72.575                   72.805                   76.040

LCG0                    122.285                 117.455                 118.075

KCH0                   108.85                   106.15                   106.95

CCH0                   2541                       2443                       2417

CTH0                    64.94                     63.04                     67.22

SBH0                    12.64                     12.57                     13.07

JOF0                    99.95                     102.35                   109.15

HGH0                   265.40                   264.05                   272.65






Michael Clifford


141 W Jackson Boulevard                             

Ste 1065                                                              

Chicago, IL 60604                                              

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