Good morning,

 

DXH0  96.660  +0.080               GCG0  1481.6  +1.1                                      ESH0  3199.25  +0.75                CLF0  60.52  +0.31

 

The coffee market earns center stage today, as prices moved 6% higher yesterday, in the biggest 1 day move in over 2 years.  A strengthening Brazilian real and a continued push from the spec longs propelled prices higher.  This extremely overbought market appears to be due for a long overdue correction, as prices are coming off following Brazil’s slightly higher revision to its total coffee output to 49.3m bags from prior projections of 49.0m bags.  Arabica production is expected to be 34.3m bags, compared to a 34.5m projection in September, while robusta production is 15.0m vs 14.5m.  In 2018, Brazil produced 61.7m bags (47.5m arabica, 14.2m robusta).   It is this significant drop in 2019 supplies that has been driving prices up.  Hot and dry weather in some of the coffee producing areas of Brazil is a cause of the shortfall.  Overall low prices of coffee, and the value of the real are discouraging farmers from investing more in the care of the 2020 crops, thus a return to production levels of 2018 is being doubted at this time. 

 

The wheat market had a huge move higher yesterday as well, driven by the prospects of increased trade with China, along with short covering from funds.  The massive winter storm that swept across the Plains over the weekend poses as a risk to the winter wheat crops that have yet to reach dormancy.  Argentina is raising the export tax on wheat to 12% from 7%, which should help make US wheat more competitively priced.  Concerns about frost/freeze risk to EU wheat, and Ukraine’s planted wheat area being lowered by 10% also aids US prices. 

 

Phase 1 of the trade deal with China also caused some short covering to take place in corn and soybeans, where the funds are carrying a decent sized spec short.  Expectations of increased purchases from China, with talk of between $40 to 50 billion worth of product, supported prices.  The possibility of the USMCA trade deal getting in place later this week is also helping prices.  The recent winter storm also makes it more challenging for the completion of the corn and bean harvest.  Soybeans also are facing some supply concerns, as dry weather in Argentina is creating downward revisions to expected production.  However, Brazil’s soybeans have been receiving some beneficial moisture, and are thought to be in decent shape.  Soymeal prices were higher yesterday as well, as Argentina is also introducing an export tax on meal.

 

The positive vibe from Phase 1, along with USMCA, have been supportive for oil prices, with WTI crude attempting to form a bit of a base around the $60 area.  Some analysts are projecting these prices could move back up to the $65 area, which was the upper end of the trading range earlier in the year.  A test for oil could come with the weekly production and inventory data from the US, where strong production and large stocks have tended to be the norm of late.  Industrial metals have also been trading very well on the back of trade and on stronger than expected Chinese economic data.  Prospects for an improving global economy are pushing up these metals, such as copper.  Gold prices are also holding in, in sympathy with the industrial metals.  It is the precious metal sector that some investors think faces a risk of a move down, possibly not until early 2020, as safe haven bets are switched to more riskier products. 

 

A strong housing starts and permits report just hit the market, which should keep the growing economy outlook alive.  The market will remain focused on trade talks, and looking for additional clues on the economy.  This is probably the last decent trading week of the year, so year end strategies could be dominating the flow of trade.             

 

Technical Moving Averages:

Product               50 day                100 day               200 day

SF0                       919.00                   907.00                   912.00

CH0                      389.00                   391.00                   407.00

WH0                    520.50                   505.00                   509.25

KWH0                  434.75                   430.75                   460.25

MWH0                534.50                   534.75                   554.25

SMF0                   304.0                     302.7                     310.3

BOF0                   31.02                     30.16                     29.68

CLF0                     56.36                     55.70                     57.32

GCG0                   1487.6                   1500.7                   1425.5

LHG0                   72.070                   72.285                   76.065

LCG0                    123.065                 117.785                 118.190

KCH0                   111.35                   107.20                   107.40

CCH0                   2545                       2444                       2422

CTH0                   65.31                     63.11                     67.06

SBH0                    12.69                     12.59                     13.06

JOF0                    99.55                     101.90                   108.65

HGH0                  267.20                   264.30                   272.35

 

Thanks,

Mike

 

Michael Clifford

 

141 W Jackson Boulevard                             

Ste 1065                                                              

Chicago, IL 60604                                              

Trean Group, LLC                                              

312-604-6404