Commodity Corner: Morning Comments

Good morning,


DXH0  96.540  +0.190              GCG0  1566.8  -2.0                       ESH0  3245.00  +1.50                CLG0  62.79  -0.48


The markets are continuing with the trade that took place from mid-session, in spite of the Middle East tensions, with equities in positive territory, oil correcting lower, gold up a touch and most commodities coming off (as of 6:30 am cst). 


Numerous wall street banks and analytic shops have revised higher the call for the price of Brent crude in 2020 by $4-5 (up to $64-65 from $60), but with front month Brent trading above $68, it would suggest the reactionary spike from last week and over the weekend may have been a bit overdone.  Given the market is on edge, waiting for what, if any response Iran will have, oil will probably find some underlying support.  Another potential reason for today’s correction could be the CFTC  showing money managers increased the net long position in WTI oil by almost 4k, up to 284k, which is an 8 month high.


Gold prices are hovering around unchanged today, which still remains above last year’s high.  In light of the present geo-political landscape, this makes sense.  Iran has declared it has 13 retaliatory scenarios prepared, and is assessing the most suitable course of action.  Gold is also benefitting from concerns that global monetary policies may need to become more accommodative if the Middle East becomes a strain to growth. 


This same notion of concerns about economic growth in the face of this tension weighted on commodity prices yesterday.  Not only is a potential reduction in forward demand concerning, but potential delays to the Phase 1 agreement with China, scheduled to be signed off on next Wednesday put pressure on prices.


Grain markets are also marking time ahead of this Friday’s updated supply and demand picture from the USDA in the WASDE report (estimates on Current Data attachment).  Also being released is the quarterly stocks report and winter wheat seeding projections from the USDA.  This number has created some decent sized moves in the “ags” complex over the years, so positions are being squared up accordingly in advance.  Given all of the issues with last  year’s corn and soybean crops, there still remains a few questions out in the marketplace, regarding the actual size of the crop.  Production numbers and inventories, both domestic and global, are expected to be revised down.  On the quarterly stocks report, the amount of inventories are expected to be lower than last year.  The amount of winter wheat planted is also expected to be lower than last year.  So, overall, friendly news is anticipated in the reports, which may alleviate some of the selling taking place on demand/trade concerns.  Also being released will be updated projections for the corn and soybean crops in South America. 


Coffee remains a very interesting trade in the commodity space, as it continues to rotate back down, following the huge spike in December.  Pressure on future demand, in part caused from a slowing economy in the face of Middle East escalation, along with improved growing conditions aiding the health of this year’s crops are pushing prices down.  The funds, which were very involved on the rally, in pushing prices up and through key technical levels, are at it again, only now to the downside.  Cocoa prices also have been working lower of late, as improved growing weather in the Ivory Coast and Ghana helps alleviate concerns about a supply deficit going forward.  Also pushing prices down is a continued exit of a long position from the fund community, as shown in the COT report.  Sugar prices are down a touch today, but have had a huge rally on the notion of Brazilian millers producing more ethanol and less cane, especially with the current situation in the Middle East.  The latest COT report showed funds carrying a spec short in sugar, down from a massive long position it was carrying in Q4 of 2019.  Since this data was collected prior to last week’s event, and with sugar rallying afterwards, it is likely this position has flipped back to long.   


On the economic front, today in the US brings the trade balance report, along with a non-manufacturing index report.  Tomorrow brings the ADP employment survey, which tends to be a precursor for Friday’s Non-Farm Payrolls report.           


Technical Moving Averages:

Product               50 day                100 day               200 day

SH0                      929.25                   924.75                   921.50

CH0                      385.25                   386.75                   406.00

WH0                    529.25                   511.25                   512.75

KWH0                  444.75                   433.25                   458.75

MWH0                531.50                   534.75                   551.50

SMH0                  305.0                     305.5                     311.4

BOH0                   32.29                     31.10                     30.18

CLG0                    58.30                     56.35                     57.22

GCG0                   1489.7                   1504.7                   1437.4

LHG0                   70.510                   72.065                   75.980

LCG0                    125.010                 119.170                 118.490

KCH0                   119.15                   110.30                   108.65

CCH0                   2542                       2460                       2437

CTH0                   66.43                     63.99                     66.64

SBH0                    12.97                     12.66                     13.04

JOH0                    101.35                   103.55                   109.50

HGH0                  272.25                   266.60                   271.60