Commodity Corner: Morning Comments

Good morning,


DXH0  97.120  +0.124               GCG0  1553.4  -6.8                              ESH0  3269.50  +9.25                CLG0  59.71  +0.10


“Risk on” became the theme following President Trump’s comments to the nation mid-morning yesterday, as a de-escalation of the US/Iranian tensions was the interpretation.  Equities exploded to new highs, while oil and gold plummeted down following the sharply higher highs made the previous night.  Part of the spiral down can be attributed to poorly positioned longs from the prior night’s spike bailing as the markets cratered down. 


Commodity prices were pulled down in sympathy with the sharp moves lower in oil and gold.  Coffee resumed the downward path it has been on for the past couple of weeks, as the ICE exchange reported the amount of bags waiting assessment to be included in its warehouse inventories rose to the highest level since September 2018.  Year to date, coffee prices are down 8%.  Sugar prices traded lower yesterday, as the drop in oil reduced some of the incentive for Brazilian millers to use cane for ethanol instead of sugar.  Cocoa prices were lower yesterday, as the Ivory Coast announced a cut to the export tax on processed cocoa products.


Grain prices ended up around unchanged to slightly higher yesterday, after being lower earlier in the session.  The apparent easing of geo-political tensions allowed for concerns about a potential delay to the phase 1 signing to abate.  Tomorrow brings the updated WASDE report from the USDA (estimates on Current data attachment), where downward revisions to production and inventories are expected.  The quarterly stocks and winter wheat plantings reports are also released tomorrow.  With the WASDE report expected to have a bullish spin, and with continued optimism from phase 1, grain prices are higher today.  Winter wheat is also expecting another reduction in the amount of acres planted.  Egypt conducted another purchase tender yesterday, buying 300k tons of wheat from the Black Sea region.  The prices on these purchase tenders continues to creep up.  Weather related concerns, impacting the eventual size of the wheat crops in the Black Sea and Europe are being paid close attention to.  Cotton prices also get an updated look at production and inventories tomorrow from the USDA.  Last month’s report saw a fairly big revision down on cotton production and ending stocks, both domestically and globally.  Another slight adjustment down is expected tomorrow.


So, back to oil and gold, which, along with equities continuing to push higher, appears to be where the action is at.  Gold dropped almost $75 from the peak on Tuesday night, to the valley established in this overnight session.  It presently sits in the vicinity of what the old highs were, prior to the spike.  It’s hard to believe that everything that transpired over the past week will just be forgotten, sol there should be some underlying support for gold, especially after the poorly positioned longs get shaken out.  Oil saw an over $6 drop from the peak to the valley, and is hovering around $60.  Yesterday’s breach below the $60 price in oil was the first time seeing a “5” handle since December.  Similar to gold, there should be underlying support, but the weak longs need to get blown out first.


As mentioned yesterday, the next major US economic event comes tomorrow with Non-Farm Payrolls and the Unemployment Rate.  Yesterday, the ADP Employment Index came in stronger than what the market was looking for, so the market could be anticipating seeing a stronger Non-Farm number than what is being anticipated (expected +160k vs +266k last).  The Unemployment Rate is expected to remain unchanged at 3.5%.  Next week brings fresh readings on inflation, retail sales and the phase 1 signing.            


Technical Moving Averages:

Product               50 day                100 day               200 day

SH0                      929.00                   925.50                   921.50

CH0                      384.75                   386.75                   405.75

WH0                    530.50                   512.75                   513.25

KWH0                  446.50                   434.25                   458.50

MWH0                531.25                   535.00                   551.00

SMH0                  304.6                     305.4                     311.2

BOH0                   32.41                     31.20                     30.22

CLG0                    58.50                     56.51                     57.24

GCG0                   1491.9                   1505.4                   1439.6

LHG0                    70.335                   72.030                   75.875

LCG0                    125.245                 119.510                 118.510

KCH0                   119.95                   110.70                   108.75

CCH0                   2543                       2466                       2440

CTH0                    66.60                     64.19                     66.57

SBH0                    13.02                     12.68                     13.03

JOH0                    101.20                   103.40                   109.15

HGH0                   272.75                   267.00                   271.50