Commodity Corner: Morning Comments

Good morning,


DXH0  97.575  +0.256               GCJ0  1603.6  +8.8                                     ESH0  3067.00  +2.00                CLJ0  48.04  +1.29


The most significant news from the overnight trade came from the statement released from the G7 at approximately 6:30 AM CST, where it was stated central banks are prepared to take all necessary actions in the event of continued spread of the virus.  The market’s response is disappointment to say the least.  ESH0 dropped from up 24 points to down 11 as the market digested the G7 news.  Oil prices fell over $1 as well and gold, which has been rather difficult to read of late, held its ground above $1600, which is where it was prior to the G7 statement being released. 


The market was expecting/hoping to hear a much more aggressive and immediate tone to some sort of easing of global monetary policy.  The hope was supported by the move from the RBA overnight, cutting policy by 25 bps to 0.50%.  While fairly aggressive easing moves are already priced in to the market, the gradualist approach out of the G7 did not please the market.  The central bankers are prepared to act, but awaiting more information on the spread of the virus. 


Oil has been experiencing a strong bounce from the lows, on the expectations of deep production cuts coming out of the OPEC+ meeting at the end of this week to offset the expected major hit to demand from the industrial obstacles created form the virus.  Russia would appear to be the major player on this, as its reluctance to agree to further production cuts in February pressured prices as the virus was spreading and pressuring global demand.


Commodity markets, for the most part, have been experiencing the same fate as other asset classes with the virus trade.  Weather is also playing a roll in some of the markets’ price action.  Coffee in particular is in the midst of a major short covering rally, as the recent coffee crop tour showed that the early frost in July, coupled with the hot and dry conditions observed in September and October created stress to the crops and damaged flowering.  This led to the sharp rally coffee had this past fall, as a smaller crop and a potential supply deficit drove prices up.  Then as rains emerged, the prospects for the crops improved.  However, excessive rains are now posing additional risks to the crops as funds are carrying a decent sized short, forcing the aggressive short covering rally.


Grain prices, which to a spin down to recent lows on the demand story from last week and on the larger than expected size of projected acres to be planted in soybeans and corn, are mounting a bit of a recovery.  This is being aided by continued calls from various weather services for a very wet spring to hit the corn belt.  With memories of the last spring and the torrential rains decimating the fields, the grain markets are putting a bit of weather related risk premium into the prices.  It is worth noting, that in spite of the disastrous May and June for the planting and early development of the crops, the final production tally in corn and soybeans was stronger than what was feared it could be.  So that and the fact that it is only March 3, probably keeps grain prices from shooting higher.  Especially when the demand side of the equation remains in question from the virus.  It’s not just the demand, but the logistics of being able to transport the grains.  South America is well into its harvest season, and with big crops expected, there is real concern about the inability to ship due to transportation delays created from the virus. 


So virus stories, and political responses, will dominate the price action.  This would typically be a busy week for the US markets from a data perspective, with numerous manufacturing indices and employment reports released.  However, since all of this data is expected to be somewhat  impacted by the virus, it probably won’t carry as much weight as it typically may.      


Technical Moving Averages:

Product               50 day                100 day               200 day

SK0                       924.00                   934.00                   929.25

CK0                      388.25                   391.75                   408.00

WK0                     555.75                   540.75                   528.75

KWK0                  481.75                   462.75                   468.25

MWK0                 549.75                   546.75                   555.25

SMK0                   302.0                     306.5                     311.2

BOK0                   32.53                     32.10                     30.83

CLJ0                     55.20                     55.51                     55.22

GCJ0                    1569.5                   1530.9                   1492.6

LHJ0                     70.470                   74.450                   77.235

LCJ0                     122.315                 123.380                 119.915

KCK0                    114.85                   114.55                   111.65

CCK0                    2699                       2628                       2520

CTK0                    69.28                     67.81                     66.19

SBK0                    14.24                     13.52                     13.26

JOK0                    100.65                   102.85                   107.85

HGK0                   269.95                   269.15                   267.70

HOJ0                      178.55                   183.45                   185.70

XBJ0                       176.65                   177.90                   175.75

NGJ0                     1.985                     2.131                     2.262






Michael Clifford


141 W Jackson Boulevard                             

Ste 1065                                                              

Chicago, IL 60604                                              

Trean Group, LLC