Commodity Corner: Morning Comments

Good morning,


DXH0  99.000  +0.042               GCJ0  1580.5  +1.7                                           ESH0  3382.00  +4.50                CLH0  52.11  +0.69


Risk on continues as the markets move towards the holiday weekend, with the numbers for the coronavirus still getting larger.  Gold prices are stable, as the belief that gold has value not only from a safe haven perspective, but also from an alternative investment if interest rates are to have another move lower.  Aiding the lower interest rates thoughts was yesterday’s 30 year bond auction in the US, which came at an all time low yield of 2.061%.  Many firms are lowering expectations for China GDP, which is allowing for the softer monetary policy stance thoughts.


Oil remains in view, following through on the recovery grind higher, having made numerous tests now below $50.  After trading up to, and failing just in front of, the $52 level in CLH0, the market managed to punch thru in last night’s trade.  March options expire today.  The OI in the 52 call coming in to today’s trade stood at 6600, the 52.5 call has over 5k in OI and the 53 call has over 9k.  It is certainly possible that there could be a squeeze to one of these strikes, especially with the market trading at prices not visited in some time.  The market is still waiting on Russia, to see if it is willing to agree with the additional cuts to the production quotas agreed upon in December, with the expected decline in global oil demand due to China. 


Commodity prices are also moving higher into the weekend.  Coffee prices had a big short covering jump yesterday, assisted by a reversal in the Brazilian real, following government intervention.  The technically driven short cover was given an additional boost from this fundamental factor, as producers are more reluctant to sell in the face of a rising domestic currency.  Also boosting coffee prices to the biggest 1 day move in 6 weeks, as coffee export numbers in Brazil and Vietnam were reported lower on a y/y basis.  The reason for the decline is the increased domestic consumption, which is pulling available supplies away from the export market.  Brazil is expecting a large harvest this season, so it remains to be seen how far this rally can extend.   Sugar prices, while having corrective set back yesterday, are steady today and remain hovering at the upper end of this move higher.  The March / May spread continues to widen, as positioning is getting settled into first notice day.  The recent rally in sugar has short positions, facing the risk of needing to make delivery, to cover and roll the exposure out to May.  The story on Thailand’s drought remains, keeping the diminished supply story alive.  Cocoa prices continue to work higher as well.  A combination of demand remaining decent, coupled with the convergence of futures to cash prices is pushing the market higher. 


Grain prices are slightly higher today, also on the heels of the risk on sentiment.  While the USDA projected an increase to exports for soybeans and wheat in Tuesday’s WASDE report, it remains to be seen if this will translate, given the impacts from the virus on the economy in China and how the US will work its way into gaining market share for wheat, with the Black Sea and Europe continuing to dominate.  Soybeans are also struggling to trade higher, as Brazil is having a very large harvest this season, and the overall depreciation of the real allows SA producers to offer soybeans much cheaper to China than the US is able to do.  The next big input for the grains market comes at the end of next week, with the Ag Outlook Forum.  Here the market will get a first glance of what might be coming for corn and soybean planted areas.  Cotton prices were lower yesterday, as the thought of much lower demand out of China, and a potentially softening global economy, coupled with Tuesday’s report from the USDA calling an increase to global production and inventories weighs on prices.


US Retail Sales for January were just released, with the data coming in matching market consensus.


As mentioned, Monday is the President’s Day holiday in the US.  Many markets will be closed of have shortened trading sessions.  Liquidity will most likely be lighter as well.            


Technical Moving Averages:

Product               50 day                100 day               200 day

SH0                      917.00                   926.25                   917.75

CH0                      384.00                   388.00                   403.75

WH0                    552.25                   533.00                   521.50

KWH0                  469.75                   450.50                   458.25

MWH0                539.75                   540.50                   547.75

SMH0                  299.2                     303.8                     308.4

BOH0                   32.72                     31.80                     30.44

CLH0                    57.09                     56.06                     56.02

GCJ0                    1538.6                   1519.9                   1475.8

LHJ0                     72.670                   76.310                   78.385

LCJ0                     124.710                 123.715                 120.035

KCK0                    119.85                   114.15                   111.25

CCK0                    2654                       2593                       2496

CTK0                    69.34                     67.38                     66.51

SBK0                    13.96                     13.31                     13.19

JOH0                    98.30                     100.80                   105.70

HGH0                  272.70                   268.50                   268.15






Michael Clifford


141 W Jackson Boulevard                             

Ste 1065                                                              

Chicago, IL 60604                                              

Trean Group, LLC