Commodity Corner: Morning Comments

Good morning,


DXM0  100.090  +0.176                GCM0  1692.0  +8.3                                     ESM0  2681.00  +39.00                  CLK0  24.21  +0.58


Equities are up slightly this morning, following yesterday’s 4% rally, only to sink into the close and settle in the red.  Oil prices traded down yesterday, as the market talk of a possible agreement from the OPEC+ meeting of a 10m barrel/day production cut quickly hit the realization of that not being enough to offset the potential loss of up to 30m barrels/day in demand from the stagnant economy.  With the race to safety complete for the time being, gold prices sunk back below $1700 in the trade yesterday, and have remained there overnight.  With all of the questions persisting, regarding the economy and equity prices, investors continue to have interest in parking money into safe assets. 


Grain markets, while continuing to work through the fundamental supply / demand dynamics created by the virus and its effects such as self-quarantine,  transport issues and economic woes.  Tomorrow brings the latest WASDE report from the USDA.  An increase to corn inventories, both domestically and globally is expected.  While a severe drop in the corn used for ethanol is expected to show up on the balance sheet at some point, it may not happen tomorrow.  Soybeans are also expecting to see an increase in domestic stocks, but a decline in global stocks.  Soybean exports have been running behind USDA projections, and due to the virus, real activity regarding the phase 1 trade deal is expected to be delayed until the latter portion of the year.  This adds to the domestic stocks number.  On the global front, the big crops expected from South America are being drawn back some, as weather has cut into the size of the crops.  At the present time, while Brazil’s second corn crop is in development stages, the past 30 days have been the driest in almost 40 years.  Production estimates are being shaved rapidly there.  Not much is expected in wheat tomorrow.  Wheat came off a bit yesterday, primarily on some profit taking coupled with Monday afternoon’s crop conditions report for winter wheat being better than expected.  A cold front moving across the Plains over the next week is supporting wheat prices today, as the emerged crops are without protective cover to face the cold.


Estimates for WASDE can be found on current data attachment


With the uncertainty in equities, investors are looking for alternative places to trade.  Commodity spaces where there is a story to tell could attract some investor and algo interest.  Here’s a quick look at a couple of markets that might attract some interest.


Pork prices flirted with limit up yesterday and could become interesting.  Demand from China is on the rise, with US shipments to China have grown to 200m pounds a month, which represents demand levels expected following the ASF outbreak last year.  Exports have been strong for the past 4 months.   The problem is that domestic demand, has been crushed from changing consumption choices with the virus. 


Copper prices have firmed up recently, with the presumption that the economy could begin a quick rebuild once the virus curve flattens.  In addition to the improving health conditions from the virus across much of Europe, and with portions of the US appearing close to peak, which creates economic optimism, Panama’s government may have created a short term bid.  In a protective move against the spread of the virus, all operations at a major copper mine in Panama are to be closed temporarily to combat the spread of COVID-19.  Copper prices, which have been on the rise, have taken out some key resistance points.  Prices are now trading at levels not seen since mid-March, when the reality of the pandemic was beginning to be fully appreciated. 


Coffee prices have been In a very volatile trade, from the end of last year to the present.  Available supply concerns have been a big part of the story.  Favorable weather saw coffee prices spiral lower earlier in the year.  With the coronavirus, and the shifting demand from quarantine consumption preferences, along with shipping logistics with some port closures, caused coffee prices to firm back up.  The Brazilian real, which has plummeted to new lows, as is the case with most currencies of 2nd and 3rd tier countries has also had a big influence on coffee prices.  The softer real creates more incentive to sell for higher profits, as coffee is denominated in dollars. 


Sugar prices are also back down near the lows.  Sugar has been taking direction for oil prices, and gasoline consumption.  The dramatic decrease in drivers, with the shelter in place edict, has taken a tremendous toil on gasoline, which in turn, impacts ethanol prices.  As ethanol prices decline, cane producers are more inclined to produce sugar instead of cane based ethanol. 


So back to what is likely to be the primary focus, outside of any new virus developments, for the markets over the next few days will be the OPEC+ discussions.  The market is hopeful that an agreement, primarily between Saudi Arabia and Russia, can be met on production cuts to offset the decimated hit oil demand is taking as global economies are effectively shut down.  The market has been talking about a cut of 10 to 15 million barrels a day.  Even if this amount gets put in place, it is estimated the demand side of the equation is down close to 30 million barrels a day, so there will be many headlines surrounding this topic over the next few days.  Sharp moves in oil prices, especially with the markets thinner as we move into a holiday weekend, can impact the pricing in numerous markets.     


Technical Moving Averages:

Product               50 day                100 day               200 day

SK0                       882.00                   910.00                   922.25

CK0                      367.25                   378.50                   395.75

WK0                     542.50                   544.25                   528.50

KWK0                  467.50                   467.75                   460.75

MWK0                 531.00                   537.50                   546.75

SMK0                   304.3                     305.3                     309.4

BOK0                   28.68                     30.88                     30.54

CLK0                    39.53                     48.74                     51.57

GCM0                  1606.9                   1562.8                   1531.7

LHM0                  73.850                   80.625                   84.820

LCM0                   100.495                 109.270                 110.050

KCK0                    110.85                   117.15                   112.55

CCK0                    2586                       2596                       2510

CTK0                    61.70                     65.23                     64.61

SBK0                    12.96                     13.23                     12.99

JOK0                    103.05                   102.90                   106.55

HGK0                   244.30                   260.20                   262.80

HOK0                   136.82                   163.86                   174.77

XBK0                    123.69                   153.91                   164.26

NGK0                   1.832                     2.010                     2.164






Michael Clifford


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