Commodity Corner: Morning Comments

Good morning,


DXH0  97.435  +0.313                GCJ0  1639.1  -5.3                                      ESH0  3053.00  +56.00                CLJ0  47.91  +0.73


Another start to the day with all apparently right in the world, following the Fed’s surprising cut of 50 bps, other central banks also on board to provide stimulus and Joe Biden’s strong showing coming out of Super Tuesday.  Even with the Fed delivering 50 bps yesterday, the markets are commanding much more, as US fixed income markets rallied sharply further, implying additional cuts coming from the Fed as the US 10 year yield broke thru 1%.  Gold had a monstrous rally, as global central bank easing pushes investors towards gold.  With the great deal of uncertainty still surrounding the virus, and the numerous impacts to the economy, gold should continue to stay supported. 


Oil prices had another volatile session yesterday, bouncing to the session highs early in the day, only to get hit, along with other assets, when the smoked cleared following the Fed cut.  The early bid came from expectations of an aggressive cut to production quotas coming out of the OPEC+ meeting at the end of this week.  However, when the size of the additional cuts of 600k to 1m barrels was being discusses in the market, this also brought some disappointment to prices.  The market would like to see the additional production quota cuts coming in at over 1m barrels (which Saudi Arabia is also pushing for).  The OPEC meeting begins tomorrow, and Russia gets included in the conversation on Friday.  Russia appears to be the key to where the production quota cuts conversation goes.  Oil has bounced in the overnight trade, following the equity bounce but also as API projected a weekly inventory build in the US of only 1.69m barrels, where the market is expecting a stock build of 3m barrels.  The DOE releases its data later today. 


Weather continues to play a significant role in the price action of other commodities as well.  Coffee feeling the biggest effect, as persistent rains now impact the crops, following a stressful start to the season from hot and dry conditions.  The added risk of the rains, in particular for the Ugandan coffee crop, as the threat of locusts develops.  Coffee prices were up over $6 yesterday, with the move over the past 3 sessions the largest since 2016, bringing the recent rally to a very overbought condition.  This fact, coupled with a decent coffee crop still expected out of Brazil, has prices correcting lower today.


Weather also provided a bid to corn prices yesterday, as above normal rainfall is expected in the corn belt over planting season.  Following the severe flooding last spring, and very long delays to planting, some weather premium is being added to prices.  Soybeans were also slightly higher on this.  Wheat prices were up yesterday, as rumors of purchase inquiries from China circulated throughout the market.  Wheat prices were under pressure on Monday, as the above normal rains forecast throughout the spring, are considered beneficial for the wheat crops that were in danger of facing some moisture deficiencies, due to less snow cover.  Cotton prices are also benefitting from weather this morning, as southern rains are thought to bring delays to cotton planting.  Cotton is also getting a bid from the expectations that the global stimulus coming from the central banks will help with demand.


The economic constraints, stemming from the virus, also reached other markets.  Lumber was locked limit down ($18), putting tis price at a 10 week low.  Copper prices continue to track equities, being down yesterday and having a slight bid this morning.  Sugar is also experiencing a decent correction lower following the recent rally which saw prices shoot to multi year highs on the expected supply deficit, primarily coming from the worst drought in Thailand in several decades. 


While the coronavirus and the global central bank stimulus program remain center stage for all markets, this is a relatively heavy week on the US economic calendar (not that it really matters).  This morning, the ADP Employment Index for February was released, with the number coming in above consensus at +183k (expected +170).  However, last month’s number was revised lower to 209k from an initial report of +291k, thus resulting in a net lower number than expected.  Fixed income markers may have turned bid for a second on this, but any bullish sentiment didn’t last long.  The market also get as look at non-manufacturing ISM (purchasing managers survey), where a slightly lower number from last month is expected.  The Federal Reserve also releases the Beige Book this afternoon, typically used as a precursor for the coming Fed meeting.  However, given yesterday’s action from the Fed, and the market’s forward expectations for the Fed and other central banks, the Beige Book will also be viewed as old or insignificant news.          


Technical Moving Averages:

Product               50 day                100 day               200 day

SK0                      923.00                   933.50                   929.25

CK0                      388.00                   391.25                   407.75

WK0                     555.25                   541.00                   529.00

KWK0                  481.50                   463.00                   468.25

MWK0                 549.50                   546.50                   555.00

SMK0                   302.0                     306.4                     311.2

BOK0                   32.43                     32.08                     30.83

CLJ0                     54.94                     55.46                     55.15

GCJ0                    1572.7                   1532.2                   1494.3

LHJ0                     70.200                   74.280                   77.120

LCJ0                     121.970                 123.290                 119.875

KCK0                    114.60                   114.75                   111.75

CCK0                    2702                       2630                       2522

CTK0                    69.18                     67.81                     66.16

SBK0                    14.24                     13.53                     13.26

JOK0                    100.55                   102.70                   107.75

HGK0                   269.45                   269.15                   267.60

HOJ0                    177.62                   183.18                   185.40

XBJ0                     175.96                   177.72                   175.57

NGJ0                    1.978                     2.126                     2.258






Michael Clifford


141 W Jackson Boulevard                             

Ste 1065                                                              

Chicago, IL 60604                                              

Trean Group, LLC