Commodity Corner: Morning Comments

Good morning,


DXH0  96.320  -0.201                 GCG0  1578.5  +26.1                                    ESH0  3217.00  -18.50                CLG0  63.67  +0.62


Happy New Year!  Wishing you the very best in 2020!


The markets certainly kicked 2020 off with a bang last week, with the US/Iran/Iraq tensions bringing an unexpected jolt to numerous markets. 


Oil markets shot higher last Friday, and  have continued to press on up to new highs in the overnight trade.  This last leg driven by the Iraqi parliament voting to have US troops leave Iraq, which keeps concerns about supply disruptions heightened.  Clearly the price action here will be led by comments/actions in the Middle East.  If prices keep pushing to new highs, it makes sense to check some old highs (on a settlement basis) made in the nearby oil futures contract.  These old highs, all made during October of 2018, are as follows:  66.57;  68.16;  71.66;  72.22. 


Gold also shot higher at the end of last week, on a flight to quality trade.  The over $20 spike on Friday was more than duplicated in last night’s trade, as gold prices were almost $40 higher from Friday’s settle ($1590.9), but are retreating a bit now.  This move puts gold at its highest price in over 6 years.  During Q4 of 2019, numerous forecasts were put out for a run to $1600, which now is clearly the first target for this rally.  Aside from the safe haven bid to gold, it is also being supported by the notion of higher oil prices being a hindrance to economic growth, which could shift monetary policy to a dovish from the apparent neutral bias it presently is at. 


Equity markets, having made a new high on Thursday, have come off last Friday and today with this “risk off” environment.  The Middle East tensions, and higher oil prices, are thought to be a potential hindrance to economic growth.  Tensions will be at the forefront for trade, but the first full week of 2020 brings a pretty full economic calendar, with manufacturing surveys and employment data all slated to be released throughout the week. 


The dollar index spiked higher on Friday, and many commodities came under pressure, partially due to this.  Declining prospects for economic growth also weighed on prices.  Prior to last Thursday/Friday’s event, commodity prices had been moving higher, as Phase 1 of the trade deal with China is to be signed on January 15. 


Grain prices followed this script, as the potential for increased trade with China was pushing prices higher.  This was primarily talking place in soybeans and wheat, with corn being drug along.  This Friday brings that latest supply and demand picture from the USDA in the WASDE report.  A look at cotton will also happen, as cotton prices had a similar trade as the grains. 


Coffee prices appeared to have made a high in the late trade of 2019, as the supply deficit concerns for the coming year eased a bit.  Prices were gradually moving down, then the dollar firmness late last week allowed for some speculative shorts to be set.  Sugar prices have moved higher with the rally in oil, as higher energy prices creates more incentive for Brazilian mills to use cane for ethanol production instead of sugar.  Sugar could be in for a volatile trade, not only with reactions coming form the Middle East, but also from the reported positioning of hedge funds, putting the long at a 13 month high.  Cocoa prices are lower today, as the seasonal bid to prices abates and improving weather helps ease supply concerns.


Technical Moving Averages:

Product               50 day                100 day               200 day

SH0                      929.50                   924.25                   921.50

CH0                        385.50                   386.75                   406.25                 

WH0                    528.75                   510.50                   512.50

KWH0                  444.00                   432.50                   458.75

MWH0                531.75                   534.50                   551.75

SMH0                   305.2                     305.5                     311.5

BOH0                   32.22                     31.06                     30.16

CLG0                    58.15                     56.28                     57.20

GCG0                   1488.4                   1504.2                   1436.2

LHG0                   70.640                   72.080                   76.040

LCG0                    124.875                 118.980                 118.475

KCH0                   118.75                   110.15                   108.55

CCH0                   2542                       2458                       2435

CTH0                    66.35                     63.89                     66.67

SBH0                    12.94                     12.65                     13.04

JOH0                    101.45                   103.60                   109.65

HGH0                  272.00                   266.45                   271.65