Commodity Corner: Morning Comments

Good morning,


DXM9  96.750  +0.088                     GCM9  1290.1  -5.1                          ESM9  2877.75  -2.00                      CLK9  62.59  +0.13


It has been a relatively quiet trade overnight, across most markets, as key economic data comes tomorrow in the US with Non-Farm Payrolls.  Average estimates for this report are an increase of 180k, compared to +20k reported last month.   Following yesterday’s ADP Employment Index being +129k, many forecasters may be lower their guesses a touch, to the +160k to +170k range.  The Unemployment Rate is expected to remain at 3.8%. 


Yesterday afternoon, the USDA’s Sonny Perdue said the US is giving China until 2025 to fulfil its trade pledges.  He also said China appears to be meeting its pledges for agriculture purchases.   US equities came off the day highs on this announcement, but still managed to close higher for the day. 


The oil markets were center stage early in the day yesterday, as Brent Crude oil made a push to $70 (high was 69.96) and WTI moved towards $63 (high was 62.95).  OPEC maintaining production cuts, and the announcement that Russia would reach its production cut level in April continued to support the bid in prices.  The DOE Crude Inventories poured some water on the fire, reporting inventories rose by 7.24 m bbl for the week ending March 29, when the market was expecting to see -800k bbl reported.  This caused for a rotation down in prices, as some profit taking likely occurred.  The oil markets did find some support in the afternoon trade, and have rotated back up in the overnight trade.  Another test of the $70 and $63 levels seems inevitable. 


The grain markets had a quiet, range trade day, as the market waited for news on the US / China trade negotiations.  Chicago wheat was the best performer of the group, as flooding in the Ohio River Valley leaves concerns about SRW.   This was also seen in Monday afternoon’s crop conditions report, which showed Ohio G/E at 28%, compared to 55% in Kansas and 69% in both Nebraska and Oklahoma.  Some of the strength was short covering, as open interest declined by 2k in Chicago wheat.  In contrast, Minneapolis spring wheat was lower on the day, as there are less concerns of floods and improving weather reduces the odds of planting delays.  Corn was up a bit as well, also in a short covering trade.  Open  interest in corn declined by over 8k yesterday.  Part of this covering could be an attempt to square positions ahead of the USDA’s next WASDE report, coming on Tuesday, April 9.  Soybeans finished a touch lower, in an uneventful trade.  They are up a touch today, having digested the Perdue headlines and in front of this morning’s export sales report.


Lean Hogs had another strong day yesterday, coming off a Limit bid day on Tuesday and being able to trade as the limits were expanded (limits will move back down to 3 cents for today’s trade).  Continued concerns about the swine disease moving throughout Asia remains a threat to the large hog industry.  Open interest increased by over 3k yesterday in hogs.  The live cattle market closed down yesterday, but open interest increased by over 2k, suggesting long positions may have been adding on the dip. 


In the soft markets, coffee and cocoa were up yesterday, presumed to be more  short covering.  In cocoa, it  marked the 9th consecutive day of closing higher, and prices are near a 2 month  high.  This rally continues to be driven by hot and dry weather in the Ivory Coast.  The COT reported last Friday that the size of the short position in cocoa was at an 18 month high.   For coffee, the short covering was believed to be driven by a strengthening Brazilian Real, which made producers less likely to sell.  Also, weather in Vietnam was turning warmer and drier than it has been of late.


Gold is working lower today, also in a quiet trade ahead of tomorrow’s data.  The industrial metals were higher yesterday, and are also trading lower this morning.  Perhaps the market preparing for somewhat disappointing news on the trade talks could account for some of this rotation down.


It was reported yesterday that the Iowa state farm Bureau estimates this season’s flood damage may be above $2B.  It cites some of the impacts from the floods as planting delays, not only from the length of time for the water to recede, but then the amount of time needed to remove debris.  It also mentions road closures creating logistical issues for livestock farmers.


On the US weather, storm systems keep moving though the Midwest, leaving the fields very muddy in the corn belt and the Great Plains.  Planting could be slow in the south as well.  It is expected these planting delays could carry on through the middle of April.  In hard red wheat territory, it is being reported in some areas that conditions are on the drier side, and rain is needed there in the next 10 days, especially in the southern Plains. 


Today’s export sales data was disappointing in corn (below the lower end of estimates), but very good in soybeans (at the upper end of estimates) and wheat (above the upper estimates).  The number didn’t really surprise the market that much, as large sales in both soybeans and wheat were reported last week.


Have a good day,



Mike Clifford

312 604 6404