Commodity Corner: Morning Comments

Good morning,


DXH0  100.590  +0.786             GCJ0  1498.0  -27.8                                ESM0  2393.50  -92.50 (locked 5% limit down)                 CLJ0  23.85  -3.10


So this roller coaster ride continues, with US equities again locked at the first limit down (5%) barrier, with global equity markets following suit.  Unlike the recent history (with the exception being the last couple of days, presumably because of margin calls), gold and fixed income markets (the safe havens) are under pressure as well.  More margin pressure is part of the issue, but as all of the global fiscal packages get announced, markets have realized that this will all need to be paid for at some point, thus fixed income assets, in particular longer dated maturities have come under severe pressure over the past 18 hours or so.  So, this new development now is quickly turning the only markets that were performing well overall, into a bit of turmoil as well.  Unfortunately, this could exacerbate the margin call squeeze. 


The other story to note is in the oil market, where WTI crude dropped below $25 in the European trade today.  **A quick update to my oil comments here, the price has now dropped below $24, as the assault continues**.  This is the lowest price seen in 17 years.  The announcement out of the Middle East yesterday that export amounts will be ramped up, to as much as an additional 3m barrels per day drove oil prices down sharply yesterday.  Saudi Arabia announced its exports could be increased to 10m barrels per month.  In addition to the sharp drop in the WTI price, the spread between WTI and Brent crude has been converging as well, with this spread at the tightest levels in many years.  Yesterday afternoon, the API projected US crude inventories declined by 421k barrels last week.  The market was expecting a build of 3.5m barrels.  This should have provided a little relief to the price fall, but with the feud between Russia and Saudi Arabia getting even more heated, this data wasn’t really paid attention to.  With most economists calling for a global recession, the oil demand story continues to weigh on the prices.


Copper prices are also getting hit on the demand story, along with other commodities.  For the most part, commodities have been tracking the direction of the equity markets.  Cotton prices are at the lowest levels since August.  The strength of the dollar index is not helping commodity prices either.  There are a couple of exceptions to this general rule of thumb in the commodities world today.  Coffee and cocoa are both bouncing off depressed levels this morning.  The story there is that these markets were facing supply deficits before the coronavirus story hit prices on the perceived sharp drop in demand.  While the lower demand should alleviate some of the supply concerns, the self-isolation movement is putting a premium into some commodities.  Coffee prices are trading higher today, as there is a short term supply squeeze taking place in many areas, with consumers grabbing many products viewed as essential.  Cocoa prices are also a touch firmer today.  Typically there is a seasonal bid to cocoa this time of year, although it doesn’t feel like that could be the catalyst today.  However, there could be transport issues in play, which could be making the accessibility of cocoa an issue.  Sugar prices continue to move to new lows for the year.  Not only is the demand story impacting this market, but the drop in oil prices has Brazilian millers looking to produce more sugar now, and less ethanol.  Also, there has been some improvement in the weather conditions in Thailand, which had been experiencing its worst drought in decades which had driven sugar prices up. 


I apologize for this commentary being rather brief and choppy, but that’s how the markets are acting as well, so I guess it fits the mood for the time being.  Keep watching the same inputs, and stay safe!                      


Technical Moving Averages:

Product               50 day                100 day               200 day

SK0                      904.75                   923.50                   927.50

CK0                      383.00                   387.50                   404.50

WK0                     546.75                   539.75                   528.25

KWK0                  473.00                   462.50                   464.50

MWK0                 541.50                   541.25                   551.50

SMK0                   300.9                     304.8                     310.4    

BOK0                   30.91                     31.72                     30.76

CLJ0                     49.81                     53.67                     54.00

GCJ0                    1590.9                   1542.4                   1509.2

LHJ0                     67.015                   72.095                   75.995

LCJ0                     117.005                 121.415                 119.075

KCK0                    110.30                   115.65                   111.90

CCK0                    2708                       2631                       2526

CTK0                    67.41                     67.41                     65.77

SBK0                    13.99                     13.51                     13.21

JOK0                    99.15                     101.75                   106.80

HGK0                   262.70                   267.75                   266.45

HOJ0                    162.21                   177.11                   181.66

XBJ0                     160.01                   171.49                   171.97

NGJ0                    1.911                     2.082                     2.220






Michael Clifford


141 W Jackson Boulevard                             

Ste 1065                                                              

Chicago, IL 60604                                              

Trean Group, LLC