Commodity Corner: Morning Comments

Good morning,


DXH0  98.830  -0.092                GCJ0  1575.7  +4.1                                        ESH0  3360.00  -20.50                CLH0  51.12  -0.05


There was a surge in the number of new cases of coronavirus in China, increasing the number by 15k due to revising the methodology for accounting for cases of the virus, revealed last evening.  Global equities have moved lower on this and gold regains some of its safe haven value.  Commodity prices have moved lower on this news, which can be viewed as corrective in nature, given some strong rallies in the commodity sector.  Oil, which is in a bigger term bear market, is down a bit today as well, putting in a nice bounce off the lows in the mid $49’s.  The IEA’s monthly report showed an expected decline in global oil demand in Q1 of 2020, due to the coronavirus.


Oil prices have slipped from the overnight highs of 51.96, in part on the IEA report and in general on the same sentiment of the additional virus cases declared in China weighing on the global economy.  Interestingly, options on the CLH0 contract expire tomorrow, and the 52 call carries a decent sized open position.   So, there could be some selling in front of the strike, to defend any short positioning there.  In the US yesterday, the DOE reported a larger than expected build to inventories last week, and a ramped up level of production.  Oil prices basically ignored this news, and kept inching higher throughout the session.  Perhaps the API inventory projection from the night before, which was also higher than market expectations for last week, softened the blow from yesterday’s data.  Updates on the virus, and implications for the economy, along with some trading into options expiration should drive the oil trade. OPEC, and the rest of the oil trade participants, continue to wait for Russia’s response to the additional production quota cuts.  This issue comes more into view following the IEA report.


The sugar market had its own story going yesterday, as the lead contract is switching from March to May.  March futures exploded higher, while the rest of the curve traded up, but not nearly in the same magnitude.  Part of that can be attributed to a bit of a squeeze on the front March contract, as any short positions would want to close out or roll ahead of first notice day, where making delivery could become an issue with the supply concerns in sugar.  The March/May spread blew out as if some type of squeeze was taking place on the March contract, and this spread is correcting itself today, as all commodities soften up. 


Coffee futures are bucking the trend today, and are trading higher, staying the course of the past few sessions.  Short covering has been the predominant driver of this uptick in coffee.  Yesterday’s bid for coffee also came from the Brazilian real hitting a new record low.  Soft retail sales data in Brazil added to the bearish tone for the real.


Grains and cotton traded higher yesterday, as the prevailing thought throughout the markets was that China had a handle on containing the virus.  The new declaration of the different methodology for counting has caused a rotation down to these markets.  Improved demand out of China is expected following Phase 1 of the trade deal, and the USDA even emphasized that as well by increasing export expectations for soybeans and wheat.  With the WASDE now in the rear view mirror, the grain markets are looking ahead to next week’s Ag Forum, where projections for the coming crop season will be made.  South America continues to have favorable weather, as the harvest of expected large crop sizes also weighs on prices a bit. 


Orange juice futures are rotating higher again today, even with demand concerns impacting most markets.  The demand story has already worked its way into the orange juice market, as shifting consumption preferences have caused a large decline to prices.  Following the WASDE on Tuesday, OJ prices spiked higher, as a reduction in production out of Florida caused shorts to cover.  Lack of follow through to the upside drove prices back down yesterday, and in this morning’s trade it would appear that some shorts that couldn’t get covered in on Tuesday’s spike are taking advantage of yesterday’s rotation down.    


US data today includes January CPI, where inflation is expected to remain basically in the same place it was reported last month, +2.4% y/y (vs +2.3% last) and the core CPI +2.2% (vs +2.3% last).      


Technical Moving Averages:

Product               50 day                100 day               200 day

SH0                      916.75                   926.50                   917.75

CH0                      384.00                   388.00                   403.75

WH0                    552.00                   532.50                   521.25

KWH0                  469.25                   450.00                   458.25

MWH0                539.50                   540.75                   547.75

SMH0                  299.3                     303.9                     308.5

BOH0                   32.71                     31.80                     30.44

CLH0                    57.18                     56.11                     56.08

GCJ0                    1536.5                   1519.4                   1474.5

LHJ0                     72.840                   76.475                   78.495

LCJ0                     124.865                 123.685                 120.045

KCH0                   117.95                   111.85                   109.00

CCH0                   2634                       2581                       2487

CTH0                    68.36                     66.39                     65.68

SBH0                    13.96                     13.25                     13.11

JOH0                    98.30                     100.85                   105.75

HGH0                   272.75                   268.50                   268.30





Michael Clifford


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