Commodity Corner: Morning Comments

Good morning,

DXM9  97.445  +0.125                     GCM9  1272.7  -0.5              ESM9  2936.00  -2.00                      CLM9  66.22  -0.08

The equity market trades at an all-time high yesterday, as oil continued to press upwards with the end of the waivers on sanctions  against  countries buying  oil from Iran continues to keep supply concerns in the market.  The oil market is waiting to see how  Saudi Arabia will respond here, as they and their allies (Russia, Iraq and United Arab Emirates) can replace the amount of oil possibly lost from Iran (1.1m b/d) in about  3 to 4  months, as they have cut production  by 1.3m b/d since October.  Adding to tightening supply concerns, Russia announced its output, month to date, is 11.24m b/d, down from the baseline 11.418m b/d established last October.  Back to the end of the waivers on sanctions, it is believed that the US is likely to have a grace period on eliminating the waivers, giving those currently buying from Iran time to wind down the current program.  Oil prices  had a corrective  dip in the overnight trade, only to have recovered in Europe and resume the upwards march.

The grain markets remain under pressure, as an opportune window for planting develops, and overall weather conditions allow for good  conditions.  Prices continue to trade on the lows, with soybeans leading the  way down yesterday.  Beans traded at a 7 month low, as demand concerns remain.  Swine Fever, and its impact on the Chinese hog herds, have the markets spooked.   China’s pork production is projected to be down 16%, and March imports in China were reported lower.  US export sales have been soft, and as the US / China trade talks drag on, soybeans get hit.  Funds added to spec shorts in yesterday’s trade, as open interest increased by almost 9k.  Corn was also under pressure yesterday, as a planting window gave farmers a chance to get some work down.  Recent flooding and persistent rains have kept alive the planting delay conversation, but as the market well knows, farmers just need a small window for progress to be made.  Funds added to spec shorts yesterday, as funds traded to new lows, with open interest up over 25k.  From Monday’s trade, open interest was up almost 16k, putting the spec short position possibly around 350k, which continues to be a record sized short.  It’s hard to argue with this positioning, given the price action.  Wheat, while experiencing an anemic uptick yesterday, is leaking lower again today.  Lower prices in Russia, in part driven by increased expectations for the current crops and a stronger dollar continues to bring into question the US ability to price competitively.  This fact remains, even with US wheat trading at the lows.  Very good crop conditions on the winter wheat, beneficial rains continuing to hit these areas, and windows to get spring wheat planted all keep pressure on wheat prices.  Adding to the pressure, it was reported yesterday that western Canada’s winter wheat crop is in very good condition as well.

Some resistance levels for grains:
CN9:  378.75 (50 day MA);  386.75 (100 day MA);   389.25 (200 day MA)
SN9:  917.25 (50 day MA);   928.0 (100 day MA);  918.5 (200 day MA)
WN9:  471.25 (50 day MA);  500.75 (100 day MA);  528.25 (200 day MA)

**Just released** Statistics Canada releases its crop area estimates.  It is calling for canola acres to fall to 21.3m from 22.8m last year.  (market estimates  were for 21.9m).   Total wheat acres is 25.67m vs  24.74m last year (estimates were for 25.38m).  Soybean acres are 5.65m vs 6.32m (estimated 6.1m).

Frozen orange juice futures traded at its lowest prices since 2015.  It was reported last week that the funds are carrying the biggest short position in the last 5 weeks.  A good growing season in Florida has large supplies expected.  US demand is seen as poor, as concerns about the high amount of sugar in orange juice is curtailing consumption.  Cocoa prices were lower yesterday, as the harvest in the Ivory Coast is underway, and optimism is growing for a larger crop than last season.  Sugar prices continue to trade higher, led by the surging oil prices, as prospects for strong demand for cane ethanol in Brazil remains strong.  Egypt could be in the market, looking to make a sugar purchase, which should be supportive for prices as well.

Gold prices trade at a 4 month low yesterday, as the firming dollar and the stock market making new highs reduced the safe haven status of gold.  Copper prices were also lower yesterday, as Chinese officials have commented they are uncertain if they will continue to add stimulus to the economy in the 2nd quarter.  China’s efforts to stimulate the economy in the 1st quarter played a key role in the economic recovery, both in China and in Europe.   Copper is trading higher this morning, as this market returns to worrying about diminishing inventories, and away from China’s stimulus going forward.

On the weather front, there is  another rain system forecast to fall across the corn belt next week, creating some more delays to corn planting.  There is some drier weather in the extended forecast beyond next week.  This weekend, snow could develop in the Plains and into Minnesota and Wisconsin.  Brazil is receiving rain, which is seen as beneficial for corn.

Have a good day,

Michael Clifford

141 W Jackson Boulevard
Ste 1201A
Chicago, IL 60604
Trean Group, LLC
312-896-2012  (fax)