Good morning,
DXM9 97.17 -0.031 GCM9 1283.5 -2.2 ESM9 2955.50 +7.00 CLM9 63.45 -0.46
Well there have been plenty of April showers (and more to come over the next couple of weeks), and while it will eventually bring May flowers, it has brought a bid to equities to begin the month. There has been lighter participation in the markets today, with both China and Japan out on holiday, and a portion of Europe is out for the May Day holiday. Oil is correcting lower this morning, following data yesterday afternoon showing an inventory build. In the US today, we get a glimpse of Friday’s Non-Farms Payrolls report in the ADP Employment Index. ADP reported a gain of 275k for April, vs an expected increase of 180k. Prior to ADP, the dollar was trading lower today, which should be beneficial for commodity prices. The grain markets agree with that, other commodities, not so much, so far. There was a lot of optimism yesterday afternoon about a trade deal with China being completed soon. ADP could help the dollar find some support (and it did).
Some of the comments, regarding the China deal. Early in the day, President Trump said he would not be afraid to walk away from the deal, if it is not great for the US. USDA’s Perdue was on the tape yesterday afternoon, saying he was cautiously optimistic about the deal with China. Iowa Senator Grassley said he sees a very good deal coming. Keep an eye out for more “tape bombs” regarding the trade deal for the remainder of this week, and next.
Oil was higher yesterday, as increased tensions in Venezuela led prices up. Oil was also driven higher by OPEC reporting that output had fallen by 115k b/d in April. US oil production in February was down 1.6% m/m, as reported by the EIA. There was talk in the market that OPEC has a strong impetus to defy President Trump’s wishes for lower oil prices with production increases. Key producers would be comfortable if prices were to rise another $10/barrel, before being concerned. A report from the Venezuelan Oil Minister mid-session, saying oil operations were functioning normally, seemed to allow prices to rotate off the highs. Then, API came out projecting US crude stocks rose by 6.81m barrels last week, which set the negative tone for the overnight trade.
The grain markets are mostly higher this morning, as another pounding to low prices occurred yesterday, only to bounce a bit into the close, with the favorable prospects on the China trade deal. Wheat was the worst performing commodity in the month of April. Yesterday saw HRW (Kansas City) trade at a 13 year low (-10% m/m) and Chicago wheat trade at the lowest level since January 2018. The stronger dollar (aside from yesterday), the anticipated large global supplies and all of the recent rain being very good for winter wheat kept pressure on prices. Yester day was day 1 of the Wheat Council Quality Tour. The results for northwest Kansas projected yields of 46.9 bpa vs 38.2 bpa last year. This is the highest projection for this area since a 47.1 bpa estimate in 2016. In Nebraska, yields were estimated to be 44.0 bpa vs 43.0 bpa last year. Colorado was 46.5 bpa vs 35.0 bpa. The tour continues today, and a final tally for all should come tomorrow afternoon. As the calendar turns to May, and the crop progress reports have shown corn and spring wheat planting behind the 5 year averages, concerns about all the of the rain forecast in the extended forecast has planting delays and possible switches to planting intentions is the market’s focus. All of the heavy rain, and severe flooding that took place in March didn’t really phase the market much, as it was March. But now, that it is May and the next 10 days have numerous rain events in the forecast, the market is becoming worried. While it is believed there has been some sizable short covering taking place in corn since mid-week last week (funds actually may have jumped back in a bit on the short side, as prices pushed lower most of the day; open interest was up over 7k), there is still a large spec short position in the market, which could exaggerate a move higher in prices, if the planting delays and lost corn acres story gains momentum. Soybeans are lagging this morning. A couple of reasons for this are if there should be a planting intentions shift, more soybeans would be planted, with the later planting dates. Also, even when the trade deal with China is completed, there is still concern about how much it will help even out the soybean balance sheet.
Looking at some of the other commodities, frozen orange juice remains a big story, as prices trade at the lowest levels since 2009. They are down 38% in the past year, closing down 5.15 yesterday. Large supplies from a good Florida crop and lower consumption, due to high sugar content continues to drive prices down. Your other breakfast beverage, coffee, managed to bounce yesterday, after several down days itself. The large supply story also has been an anchor on coffee prices. The trade higher can be attributed to the Brazilian farmers choosing not to sell with prices at these low levels. There also was probably some short covering taking place. Sugar was higher yesterday, as it has tended to follow the oil market of late, with Brazil’s cane ethanol prices going up with oil. As mentioned, the other commodities are softer today. With it being a new month, there is always the possibility of asset re-allocation taking place. The way the equity market continues to find a way to keep moving higher, funds could be moving into that sector.
Gold and copper are both lower this morning, which is a bit head scratching, as the softer dollar should help gold and the good ADP report should help copper. Perhaps the downtick in China’s PMI for April raises demand concerns for copper. Aluminum traded down yesterday. 2 major producers forecast weaker demand for the metal for the remainder of this year, which hit prices. Today’s Fed meeting results, and ensuing comments, could have an impact on many asset classes, including the metals.
The weather is going to be a big story for the grain markets for the next couple of weeks. In the US, numerous severe rain events are forecast over the next 2 months, which will keep planting progress well behind the 5 year averages. Aside from the heavy rains keeping the farmers out of the fields, the adverse rain could be an issue for some areas that were able to plant early, from washing out what was planted. While the continued rains will be good for winter wheat crops, there will be colder temperatures in the northern areas, which will not be good for crop development. In South America, heavy rains may impact harvest in both Brazil and Argentina. However, this rain will help Brazil’s safrinha corn crops.
Technical Moving Averages:
Product 50 day 100 day 200 day
SN9 909.875 924.25 917.75
CN9 375.625 385.0 388.625
WN9 463.0 496.25 525.5
KWN9 441.75 482.25 522.25
CLM9 60.72 56.52 60.79
GCM9 1304.2 1300.6 1267.1
LHM9 87.376 83.583 81.228
LCM9 120.132 118.437 116.176
KCN9 97.50 103.09 110.33
CCN9 2293 2306 2280
CTN9 76.68 76.64 79.73
SBN9 12.80 12.82 12.65
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