Commodity Corner: Morning Comments

Good morning,


DXH0  96.975  -0.332                GCJ0  1653.1  +10.1                                    ESH0  3048.75  -66.00                CLJ0  46.65  -0.13


The OPEC meeting beginning today in Vienna is front and center this morning.  Also worth paying attention to is more central bank action, following the Fed move on Tuesday and that of other central banks, including the Bank of Canada cutting rates yesterday.  The ECB and BOE are expected to cut rates at some point, but it may not come until their next meetings. 


Oil prices have been jolted around somewhat with some pre-meeting comments coming out of Saudi Arabia and Russia.  At first, the market was expecting a proposal of an additional 600k to 1m barrels a day further cut to the deeper cut production quotas agreed upon in December.  Given the magnitude and spread of the coronavirus, and the expected larger impact on global oil demand (not to mention the US data yesterday showing record production levels last week), Saudi Arabia has been on the tape this week calling for further cuts to the production quotas of 1.5m barrels.  Russia came out yesterday and said NO to the 1.5m, and even said it wasn’t sure if it agreed to further cuts of 600k to 1m.  So, there it is.  OPEC meets first today, where the Saudi’s will be pitching the 1.5m cut.  Russia joins the conversation tomorrow.  Most feel a compromise will be found, but given the 1.5m cut number has been tossed around in the market, one has to wonder if cuts to a lesser extent will disappoint.  Again, the US pumps presently cranking doesn’t really help the situation any either.  Stay tuned for some back and forth headlines on this, and for the final decision, which may not come until tonight or tomorrow.


The equity markets continue with the volatile and violent swings back and forth, with this morning being on the down slope of the world’s largest (and most expensive) roller coaster.  Once again, fixed income markets and gold are the benefactors, with both markets within spitting distance of the recent highs.


With the coronavirus, and updated news on it, continuing to be the main input for numerous markets, here is an attempt to take a quick look at some of the other markets and what additional factors may be helping drive the trade.


Sugar futures had its 6th straight decline yesterday, and are trading near 2 month lows.  In addition to the known drought induced production issues in Thailand, supply concerns were coming out of Brazil, where millers were looking to produce more ethanol than sugar with the cane.  The drop in oil prices, coupled with the steep sugar rally, has the Brazilian millers rethinking their production choices. 


Coffee futures fell yesterday, as the strong short covering rally observed over the past several sessions appears to have stalled.  The Brazilian real trading at a new low allowed producers to be more aggressive in pricing.  Also hitting coffee was the news the Italy was closing schools and businesses for the first half of the month of March, due to the virus.  Italy is one of Europe’s largest coffee importers, and this news certainly is a hit to short term demand. 


Grain prices were up yesterday, as was cotton, with the exception being wheat.  Perceived improvements on the virus front in China increase the prospects for more demand for goods from China, especially with the Phase 1 of the trade deal hopefully kicking in soon.  The only problem is that South American crops are well into harvest, so its crops are hitting the markets.  However, transportation logistics, due to the virus, may not make shipping very easy for Brazil and Argentina.  Extended forecasts for potentially another wet spring are also supporting corn and soybean prices, fresh off of the disastrous flooding of the fields and extended planting delays experienced.  Cotton prices also traded higher, gaining support from the current heavy rains in the South causing planting delays and hopes for improved demand.  Bucking yesterday’s trend, wheat futures traded lower.  A couple of inputs aided this.  Early in the week, they were rumors circulating of China expressing interest in making US wheat purchases (pushing prices up).  When this didn’t materialize, prices rotated back down.  Also, the calls for above average rainfall should benefit the winter wheat crops coming out of dormancy.


For the metals markets, the industrial metals appear to be passengers on the equity roller coaster, as the equity market is viewed as a solid barometer for the overall health of the global economy.  The precious metals, as was mentioned earlier about gold, are the benefactors of the many uncertainties in the markets right know, and are seen as a safety harbinger.


Not that economic data carries much weight in this environment, but tomorrow brings the February Non-Farm Payrolls and Unemployment Rate reports to the US.  The market is expecting NFP to print +175k, vs +225k last, while the Rate is expected to remain at 3.6%.  The market could be leaning towards even softer numbers than expected, following yesterday’s lower than expected (when all the revisions are factored in) ADP Employment Index.  Also released are January Trade Balance figures, where improvements to trade are expected as well.  Much of this trade data should be pre-virus, and on the heels of the Phase 1 euphoria. 


Virus news, OPEC+ and Central Bank actions are the key ingredients today.              


Technical Moving Averages:

Product               50 day                100 day               200 day

SK0                      922.25                   932.75                   929.25

CK0                      388.00                   391.00                   407.75

WK0                     554.50                   541.00                   529.00

KWK0                  481.00                   463.25                   468.00

MWK0                 549.25                   546.00                   554.75

SMK0                   302.0                     306.3                     311.2

BOK0                   32.34                     32.07                     30.84                    

CLJ0                     54.67                     55.41                     55.08

GCJ0                    1575.8                   1533.4                   1496.0

LHJ0                     69.935                   74.100                   77.015

LCJ0                       121.660                 123.205                 119.835               

KCK0                    114.35                   114.90                   111.85

CCK0                    2705                       2632                       2523

CTK0                    69.07                     67.81                     66.14

SBK0                    14.24                     13.54                     13.26

JOK0                    100.40                   102.65                   107.70

HGK0                   268.95                   269.15                   267.50

HOJ0                    176.68                   182.89                   185.13

XBJ0                     175.29                   177.58                   175.40

NGJ0                    1.971                     2.122                     2.254






Michael Clifford


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