Commodity Corner: Morning Comments

Good morning,


DXM9  97.25  -0.311                        GCM9  1283.5  +2.0                         ESM9  2941.00  -2.00                      CLM9  64.72  +1.22


**Today is First Notice Day for May futures contracts.  Any long positions are at risk of being stopped for exchange delivery**


The end of the month brings some action to the  overnight trade, even with Japan remaining out for the Golden Week holiday.  China’s April PMI data came in at 50.1, vs  being 50.5 in March.  While still above 50, indicating the economy is ok, this data brings some concern about China’s economy going forward.  The market continues to dissect last week’s better than expected GDP report from the US, attempting  to gauge the health of the economy here.  This week brings many more clues for the US, with a string of key economic reports and the Fed meeting.  Trade talks between the US and China resume this week, with hopes that a deal is not too far away.


Oil prices, which on the recent correction down, traded to the level things were trading at before President Trump announced the end of the waivers on Sanctions (which take effect on  Thursday), have bounced in the overnight trade.  The down trade yesterday was partially driven by news that the Russian pipeline was almost set to resume.  There is a large position imbalance from the fund community, as long positions outweigh short positions by an approximate ratio of 14 : 1.  The data was reported on Friday afternoon, and this imbalance may have caused some selling yesterday as well.  The move higher overnight was  driven by talk that Saudi Arabia is signaling that it and its OPEC allies could keep production cuts in place through year’s end.  In addition, tensions in Venezuela are on the rise, as the opposition leader is calling for a military uprising.  Disruptions to Venezuela’s oil output will challenge Saudi Arabia and its allies to make up the shortfall.  On a side note, June Brent Crude oil futures stop trading today, so there could be some noise  surrounding that.


The grain markets continue to sag to new lows, with hard red wheat (Kansas City) trading at the lowest level in 13 years.  Soft red wheat (Chicago) is also under pressure, with the lead July contract trading down as much as 1.4% in the overnight trade (all-time low).  Yesterday afternoon’s crop conditions report showed another uptick to the good to excellent conditions for winter wheat (64% vs 62%).   The reading for Kansas is the best for this  time of year since 2012, and both Oklahoma and Texas had a solid uptick.  An updated look at the winter wheat will come, beginning today, from the Wheat Council’s crop quality tour.  Stay tuned to your Twitter feeds for reports.  Soybeans also traded lower yesterday, as another soft export inspections number keeps the market concerned about the expected large inventory overhang to the bean market.  Even when a trade deal with China is signed, it may not be enough to offset.  Even with the move lower, it is believed funds took advantage and covered shorts to book profits.  Open interest in futures declined by over 20k yesterday.  Corn managed to close in slightly positive territory yesterday, even with the other markets under pressure.  The last 3 sessions appear to have had an enormous amount of short covering taking place, from the announced record speculative short positioning from last Friday.  Open interest in futures was down over 58k yesterday, and has come off almost 200k in the last 3 days of trading.  In spite of this apparent large buying, corn prices have remained contained to the recent trading range, even sagging a bit.  Part of this may be attributed to While the short remains, it appears that it is becoming more balanced.  Persistent rains and cooler temperatures remain in the forecast for the better part of the next week, keeping the farmers from getting into the fields.  Yesterday afternoon, corn planting was reported at 15%, as expected but behind the 5 year average for this time of year.  Switching gears, President Trump’s economic  advisor, Larry Kudlow, announced $12B of relief aid was being allocated to US farmers.  There have  been several reports recently, showing US farm values, and farmers’ incomes are at the lowest levels in years.  The low flat price of grains, the large inventory surpluses expected and the strong dollar are not helping this situation. 


Grain Moving Averages:

CN9:  376.25 (50 day);  385.5 (100 day);  388.75 (200 day)

SN9:  911.5 (50 day);  925.25 (100 day);  917.875 (200 day)

WN9:  464.625 (50 day);  497.25 (100 day);  526.0 (200 day)

KWN9:  443.75 (50 day);  483.5 (100 day);  523.0 (200 day)


All commodity prices are in positive territory at the moment, as the dollar is having a price correction lower today.  Many of these commodities have been hit hard of late, in part due to the  stronger dollar, and in part due to anticipated large supplies of the product.  Frozen concentrated orange juice traded at a 6 year low yesterday, and coffee and cotton were down as well.  Coffee also faces a large supply situation, while cotton is correcting down from its recent rally led by increased demand expectations.  Part of the bounce in coffee could be coming from a story that the Brazilian farmer is not willing to sell coffee at such deeply discounted prices.    


Gold and copper were both lower yesterday, but have reversed higher today.  Gold had its first loss in 4 sessions, as a good consumer spending report supported the dollar.  Copper was hit, both on the dollar and as the market attempts to gauge how healthy the US economy truly is, following questions surrounding last Friday’s GDP report.  Copper also had some selling pressure from a report from the LME that freely available copper inventories were at the highest level since August.  Today begins the 2 day monetary policy meeting for the Federal Reserve.  There is much uncertainty surrounding where the Fed presently stands on policy, and while a no change to rates decision is expected, the comments will be analyzed closely, as the market looks for dovish, neutral or hawkish tones.  This should have a direct effect on the dollar trade, which in turn will impact the commodity trade.    


The live cattle market continues to have long liquidation profit taking occurring.  Futures open interest declined by over 4k yesterday.  Lean hog prices also finished lower yesterday.   These markets continue to focus on the supply/demand story.   The poor weather, with flooding, colder temperatures and even snow impacts the cattle market, while the swine fever epidemic remains across Asia and Africa.  Fund positioning, even with some of the profit taking that has taken place, remains very long in both. 


A closer look at the US weather, has excessive rains into  the first part of May remains across a good portion of grain country.  There are also flooding concerns in several areas.  Planting delay talk will remain, however it’s hard to gauge how much of an impact it has had in the market.  It’s probably a decent assumption that a good portion of the short covering in corn is from this.  If delays extend deep into May, it could put even more pressure on bean prices.  The market is currently has the price ratio between new crop soybeans (SX9) and new crop corn (CZ9) at 2.31 : 1, which is where this tends to be at, historically. 


As mentioned at the top, today is month end, which can bring some late movement to prices, as accounts either exit positions, or do some window dressing.  There also will be a lot of economic data over the course of the remainder of the week, along with monetary policy decisions in the US and UK.


Have a good day,



Michael Clifford


141 W Jackson Boulevard                             

Ste 1201A                                                              

Chicago, IL 60604                                              

Trean Group, LLC                                              


312-896-2012  (fax)