Commodity Corner: Morning Comments

Good morning,


DXZ9  97.135  +0.079              GCG0  1487.4  +12.4                      ESZ9  3138.00  -5.00                CLF0  58.94  +0.18


Most markets have experienced a relatively calm trade overnight, as the Fed decision is now behind and markets await the UK election results (there is an ECB meeting and US PPI data before that, but probably not a primary focus) and a potential trad deal with China.  The Federal Reserve left monetary policy unchanged, and signaled rates would remain unchanged through 2020, if economic conditions and the outlook were to remain as they are now.  The Fed’s dot plot suggested there could be 1 hike of rates in 2021.  At Chairman Powell’s press conference, he said the committee cited muted inflation pressures and continued concerns about global developments.  The market interpreted this as a slightly dovish stance from the committee.  Fixed income markets rallied a bit following the presser. 


The gold market responded to Powell’s comments by trading higher on the notion of rates being steady to a slight chance of lower down the road.  Stable to lower rates, both for the US and globally brings support to the gold market.  Brazil announced a cut of 50 basis points to its short term rates, taking the rate to 4.5%, in a move that was widely expected.  The ECB left rates unchanged at it’s meeting, the first with new President Lagarde in charge.  Gold should remain confined to a relatively tight range into the weekend, where the decision about the 15% tariffs scheduled to be placed on $165b worth of Chinese goods will be implemented.


A trade deal, or at least Phase 1 of a deal, has the attention of most markets these days.  The oil market was able to shake off weekly data showing a modest build to inventories, when the market was expecting to see a draw down.  Trade optimism appears to be the primary reason for oil prices holding in and inching back up.  Potential caps to prices moving much higher include continued strong production from non OPEC countries, concerns about a decline in global demand going forward, disappointment that the newly agreed upon OPEC+ production quotas only carry through March and questions regarding compliance of the new quota levels from all OPEC+ members. 


The coffee market continues its surge higher, reaching a 2 year high in yesterday’s trade, and having extended up even further in the overnight trade.  Technical signals continue to draw in fund buyers, with ongoing supply shortfall talk fueling the move from a fundamental viewpoint.  Also aiding the rally is the correction higher of the Brazilian Real and Columbian Peso.   This reduces the incentive for producers to sell the crops, denominated in dollars.  As was mentioned yesterday, a very big percentage of the forward crops have already been sold, possibly also serving as a restraint from more sales taking place at this time.  Sugar, cotton and cocoa prices all had modest declines yesterday, as prices remain near the highs, driven by supply deficit concerns for all 3.  In addition, global demand for cocoa has increased, while cotton anticipates a phase 1 deal bringing in more Chinese purchasing.   


Grain prices found themselves lower yesterday, despite some relatively friendly news.  The export wires reported as sale of 585k tons of soybeans to China, and another 140k tons to unknown destinations (presumed to be China as well).  China recently lifted its tariffs on soy exports, possibly accounting for the purchases, along with a belief of this being a good will gesture as trade talks continue, especially with the Dec 15 US tariff deadline approaching.  Corn prices were lower even with the USDA acknowledging earlier in the week that over 1 billion bushels of corn remain in the fields unharvested, and a good portion of that is under a blanket of snow at the moment.  It remains to be seen, most likely in the next WASDE report on Jan 10, how the USDA treats this in its production and stocks tally.  The wheat market, while lower yesterday, remains well supported by rising global wheat prices, driven by strong demand.  France’s available supply is dwindling, and while Russian is expecting a decent wheat crop, Australia and Argentina have had weather related production issues.  This lower supply with strong demand story can be seen in the USDA’s inventory projections for wheat both domestically and globally. 


There could be another leg developing in the African Swine Flu story that impacted the Chinese hog herd last year.  There was an incident of ASF in a wild boar reported in China, and it is beginning to be talked about in more frequency of more ASF outbreaks in central China.  Given how China lost almost 50% of its herd from last year’s epidemic, if this story emerges, it could be a crushing blow to the hog stocks in China.  While China found other avenues to source hogs while the US trade debate has been taking place, this could being more demand back for US hogs.  Not to mention if phase 1 gets put in place, hog prices could get a quick bid on the anticipated additional buying out of China.


**Just released, US Nov PPI came in at 0.0% m/m vs 0.4% last and expect +0.2%.  The core inflation came in -0.2% m/m vs +0.3% and expected +0.2%.  Annualized it was 1.1% vs 1.1% (expected 1.3%) and the core 1.3% vs 1.6% (1.7%).   Another friendly number was this week’s Jobless Claims rising by 49k. last week.**   


In the short run, the UK election results will be in view, but a much more important event will be the December 15 deadline for the US tariffs.  If the tariffs are delayed or suspended, the market will likely view that as phase 1 of the trade deal is not far behind.  If the tariffs are put in place, the market will interpret that as any partial trade deals remain very far off, and markets should respond accordingly.        


Technical Moving Averages:

Product               50 day                100 day               200 day

SF0                       920.00                   907.25                   912.75

CH0                      390.00                   392.75                   407.50                  

WH0                    518.00                   504.25                   508.75

KWH0                  433.00                   431.25                   460.75

MWH0                 535.50                   535.25                   555.25

SMF0                   304.5                     303.2                     310.6

BOF0                   30.86                     30.05                     29.66

CLF0                     55.92                     55.59                     57.30

GCG0                   1490.0                   1499.6                   1423.3

LHG0                   72.410                   72.670                   76.040

LCG0                    122.475                 117.530                 118.100

KCH0                   109.45                   106.40                   107.05

CCH0                   2543                       2443                       2418

CTH0                    65.02                     63.05                     67.18

SBH0                    12.65                     12.58                     13.07

JOF0                    99.85                     102.25                   109.05

HGH0                   265.85                   264.10                   272.60






Michael Clifford


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