Commodity Corner: Morning Comments

Good morning,


DXM0  101.690  -1.555             GCJ0  1675.9  +108.3                                    ESM0  2333.50  +113.00 (5% limit up)                  CLK0  24.30  +0.94


Where to begin?  While US equity futures toy with the 5% limit up boundary for the overnight session, gold is the star of the show.  Currently trading around up $100 from yesterday’s settle, on the heels of being  up $83 yesterday.  The price of GCJ0 fell just shy of $1700 ($1698).  The gold surge began after the Federal Reserve stepped in yesterday with the additional stimulus to attempt to support the economy and stock market.  It is believed the unlimited liquidity added by the Fed will alleviate the recent need for market participants to sell gold in an effort to raise cash.  Thus gold began its rebound.  With numerous questions surrounding growing deficits for many countries as they attempt to throw money at supporting the economy, gold gets more attractive.  A major Wall Street shop renewed its 2020 forecast for gold to trade $1800.


Many other commodities are also seeing prices impacted by the global shut down taking place, and the resulting changes to consumption habits.  While oil prices appear to have formed a bottom just above $20 last week, and have been trading back and forth with an upward bias.  Production discussions amongst Saudi Arabia, Russia and the US continue to impact the supply side, while the inevitable much lower demand is also factored in to the price.  Gasoline futures, with the US on stay at home lock down, saw prices plummet to the lowest levels in 20 years, with the front contract trading below $40.  Prices are attempting to rebound today, aided by the equity momentum. 


Grain prices are also being swayed by changed consumption demands with the recent crisis situation.   Corn prices are under pressure, as ethanol margins are getting squeezed hard on the lack of demand for fuel, and corn prices would need to be much lower to offset this.  Wheat prices spiked higher yesterday, as staples such as bread are in high demand for any country in the midst of shelter in place restrictions.  Couple this with Russia talking about restricting the amount of wheat available in the export market, to insure domestic needs are covered, and talk of China, along with other countries aggressively buying wheat, and prices are bid up.  Soybean prices are also well supported.  Actions by the governments of Argentina and Brazil, to limit the exposure of COVID-19 by placing restrictions on port activity has created a huge obstacle for soybean shipping, at a time of year when South America, as harvest winds up, dominates the trade.  This is creating a bit of a panic bid for soymeal, and US beans appear likely to benefit.  In addition, the continues devaluation of the Brazilian real keeps disincentivizing producers from selling.  Producers prefer to hold inventory, as a means of accumulating wealth, as opposed to bringing the beans to market.   


Hog and cattle futures were trading at limit bid levels yesterday, as consumers load up on meat products in light of the shelter in place mandates.  While this short term demand on products such as meat and some of the grains is a quick boost to prices, there are lingering effects that is causing some concern.  Notably, there could be a large decline in future demand, as all the supplies scooped up in the “panic” shopping spree takes time to be consumed.  Orange juice futures also are seeing a response to quick shifts in consumption, spiking to a 9 month high.  Tighter supplies of oranges are also a concern, and Florida has been in the midst of a moisture deficit, with only about 20% of normal rainfall being observed to this point.  The extended forecast also has limited precipitation in it.  Coffee prices are also trading higher, with the quarantine effect driving short term demand, shipping logistics at the ports and a reduced amount of rain recently all applying some pressure to the demand side of the equation. 


While coronavirus updates, fiscal stimulus packages and investors’ confidence/fear will be the main drivers of the sentiment for most markets, it is worth noting that the consumers’ reaction to all of the safety measures such as shelter in place that have gone into effect are having a direct impact on commodity prices.  This is also true for gold, which was viewed as the asset of choice to sell to raise cash, and now with the global central bank infusions and additional liquidity available, gold is repricing itself as the safe haven, as the world is far from out of the woods from all of the implications that come with COVID-19.                    


Technical Moving Averages:

Product               50 day                100 day               200 day

SK0                       896.25                   919.25                   926.00

CK0                      379.00                   385.00                   402.25

WK0                     545.00                   540.00                   528.00

KWK0                  471.50                   463.50                   463.25

MWK0                 538.50                   539.75                   550.00

SMK0                   302.0                     304.9                     310.2

BOK0                   30.16                     31.47                     30.69

CLK0                    46.91                     52.24                     53.21

GCJ0                    1585.4                   1542.0                   1512.2

LHM0                   79.700                  84.085                   86.420

LCM0                   107.000                112.470                 111.215

KCK0                    109.70                   116.10                   111.95

CCK0                    2686                       2621                       2523

CTK0                    66.06                     66.93                     65.48    

SBK0                    13.76                     13.44                     13.16

JOK0                    99.30                     101.65                   106.45

HGK0                   257.45                   265.60                   265.45

HOK0                   154.37                   172.90                   179.19

XBK0                    149.86                   166.81                   170.18

NGK0                   1.919                     2.084                     2.207