Commodity Corner: Morning Comments

Good morning,


DXH0  98.640  +0.046                GCJ0  1568.5  -1.6                                         ESH0  3371.00  +13.50                CLH0  51.06  +1.12


Equity markets are again higher this morning, prompting continued liquidation of safe haven positioning in gold. Oil futures again look to be one of the more interesting stories out there, with another 1 cent gap on the intraday chart from yesterday’s settle and the overnight low.  Grains are lower today, digesting yesterday’s WASDE report, with moderate adjustments to the domestic and global balance sheets.


A quick virus update from China.  The death toll now stands at 1,113 (+97) and the number of confirmed cases is 44,653 (+2,015). 


Looking at oil, API projected inventories rose by 6m barrels last week, where the market is expecting a build of 3.1m barrels.  OPEC just hit the tape a few minutes ago, with its January monthly report.  OPEC has cut global oil demand for Q1 of 2020 by 440k barrels a day, due to the coronavirus.  The cartel is now facing a surplus of 570k barrels a day in Q2.  This report is lending confirmation to Saudi Arabia’s plea to OPEC+, specifically to Russia, that the additional cut of the production quotas by 600k barrels is needed.  One last thing to point out for CLH0.  Options expire on Friday, and taking a quick glance, the 52 call has an open interest of 5.5k, and the 53 call carries an OI of 9k.  If the market can mount some type of corrective bounce, given the numerous peeks below $50 thus far, a squeeze situation could develop. 


Sticking with the options theme, I’ll spin this over to the sugar market, which continues to surge to the highest prices in over 2 years.  Also pushing sugar prices up was the USDA projecting a drop in Mexico’s output in the WASDE report.  This decline matched the projection from a Mexican industry group last week.  Options on the SBH0 contract expire next Tuesday, and the 15.50 call has the largest OI there, of over 11k.  SBH0 is currently hovering around this level, and given the overbought condition of this contract, this market could attempt to catch its breath and possibly pin the 15.50 strike into expiration.  Many think a correction lower is due in this market, but given the dire situation in Thailand, it is tough to jump in and sell. 


Coffee prices continue to mount a corrective bounce, following the huge move lower in January, as production concerns that plagued this market into the end of 2019 have eased as Brazil’s crop projections grow.  Cocoa prices are also trading higher, as demand remains strong in spite of the virus raising demand concerns everywhere.  Hot weather continues to be a problem for the growing areas of Ghana and Ivory Coast as well. 


As mentioned the WASDE brought some slight adjustments to the balance sheets for the “ags” complex.  Most notable, exports were increased in US soybeans and wheat by 50m and 25m bushels respectively.  This resulted in a decline in the domestic inventory estimates by the same amounts for soybeans and wheat.  Corn had a decrease in exports of 50m bushels, but an increase in use for ethanol by the same 50m bushels, leaving the domestic inventory number unchanged there.  For global inventories, increased production expectations in South America for soybeans led to and increase in the inventory projection globally.  In other news, Egypt conducted another purchase tender yesterday, acquiring 360k mt tons from Romania and Russia.  Wheat prices found support, having been down early on the Egypt story and on concerns about expected additional demand coming out of China being thwarted by the virus, on the increased export number from the USDA.  The USDA also raised expectations for European wheat exports.  Wheat is also receiving some support today from heavy rains in the southern US possibly bringing some damage to the winter wheat fields in that portion of the country. 


Orange juice futures also received some friendly news in the WASDE report, as the production in Florida was cut by 2m boxes.   Futures prices traded up on the news, having been lower on continued concerns about overall demand.  Cotton futures, on the global level, received some bearish news, as global production and inventories were increased there.  The impact on Chinese demand for cotton is thought to be the reason for the big increase to the global inventory number.                    


Technical Moving Averages:

Product               50 day                100 day               200 day

SH0                      916.75                   926.75                   917.75

CH0                      384.00                   388.00                   403.75

WH0                    552.00                   532.00                   520.75

KWH0                  468.75                   449.75                   458.00

MWH0                539.00                   540.75                   547.75

SMH0                  299.4                     304.0                     308.6

BOH0                   32.71                     31.79                     30.43

CLH0                    57.25                     56.17                     56.13

GCJ0                    1534.6                   1518.8                   1473.2

LHJ0                     73.045                   76.650                   78.610

LCJ0                     125.035                 123.665                 120.065

KCH0                   118.35                   111.90                   109.00

CCH0                   2627                       2576                       2485

CTH0                   68.30                     66.31                     65.72

SBH0                    13.90                     13.21                     13.10

JOH0                    98.35                     100.90                   105.85

HGH0                  272.90                   268.50                   268.50






Michael Clifford


141 W Jackson Boulevard                             

Ste 1065                                                              

Chicago, IL 60604                                              

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