Commodity Corner: Morning Comments

Good morning,


DXM9  97.41  0.00                            GCM9  1268.9  -15.3                        ESM9  2922.50  -0.50                      CLM9  61.95  -1.65


It was a very interesting trade in the markets yesterday afternoon, following the Federal Reserve meeting.  The results of the meeting brought a cut of 5 bps to the excess reserve rate (viewed by Fed watchers as a necessary move), which the market (already leaning towards a dovish Fed) took as confirmation of the Fed’s softer stance on monetary policy.  The dollar came under pressure following this, as fixed income markets moved higher.   Then, at Chairman Powell’s press conference, he let the market know that the Fed was neutral towards monetary policy, going forward.  This caught market completely off guard, and equities and fixed income markets quickly shot lower.  The dollar firmed back up on this as well.  Most of the global central banks have been carrying a dovish view on policy of late, to supporting economies that are just limping along.  The  market thought the  Fed might have a similar view, to keep the US economy well entrenched on the growth path.  Low inflation (which was pointed out by the Fed as well yesterday), was also thought to afford the dovish tone.  Powell changed that thinking quickly.  Then, just to confirm there isn’t a united global dovish front by the central banks, the BOE announced this morning that while it left rates unchanged, it is looking for an increase to rates down the road. 


Oil remains under pressure in the overnight trade, even with today being the end of the waivers of sanctions on countries doing business with Iran.  The trade lower yesterday was driven by large production numbers (new record) and inventory build (highest since 2017) from the US.  It was thought this could be ahead of the coming Iranian curbs.  In the overnight trade, it was announced that Russia produced more oil in April than what was agreed upon under the OPEC+ production cut deal from last October.   Throw in the market positioning being imbalanced to the long side, and the market has come under pressure. 


Gold prices are in the spotlight today, down over $10 this morning.  Gold is trading at the  lowest levels of the year, and at prices not seen since before last Christmas.  The Chairman Powell’s “neutral” press conference is a reason being given for the decline in gold.  US equity prices, having rebounded in the overnight trade from yesterday afternoon’s post press conference wash out, and the dollar firming also helped prices go down.  A level to watch in gold futures (GCM9) is 1267.2, which is the 200 day moving average.  If prices can take out this level, it could generate some algorithm or stop loss selling, exacerbating the move.  Copper prices were down big yesterday (biggest drop in 8 months), as the weak ISM report in the US, coupled with the downtick in China’s PMI a couple of days ago, put the copper market on alert about potential future economic growth.  Soft auto sales data also weighed on prices.  Palladium futures were also hit fairly hard, with the auto sales data being attributed as the reason why. 


The grain markets, aside from soybeans, appeared to find some support and bounced yesterday.  These markets are in technically in a very oversold state, so a correctio was warranted.  Mounting concerns about the excessive rains and flooding continue to provide a bid to prices for corn and spring wheat.  With the extended forecast keeping rain and cooler temperatures in it, the possibility of extensive delays, leading to a shift in planting intentions, remains in view.  It should be noted that soybean prices have come under heavy pressure of late.  The price relationship between corn and soybeans tends to run, historically,  at a 2.3 : 1 ratio.  This morning, it stands at 2.255 : 1.  This in part, is due to demand concerns stemming from the Asian Swine Fever impacting China hog production, hence soymeal consumption.   Also, the market is still trying to figure out how the USDA is going to explain the apparent 11 m tons shortfall to exports on the bean balance sheet.  Today’s export sales report will not alleviate any concerns about this.  The wheat market is higher today, even with day 2 of the winter wheat crop tour coming in with very good readings.  Like day 1, the tour is forecasting yields well above last year, and at the highest levels since 2016.   Final results from this tour will be released later today.  Part of the price correction in wheat can be attributed to an overdue bounce to prices, especially with wheat trading at very cheap levels.  It was also reported yesterday that a forecasting firm has significantly downgraded Russia’s harvest for this year.   Expected abundant supplies out of Russia were thought to continue to hinder US export business. 


The lean hogs market was limit bid yesterday, as the already mentioned Asian Swine Fever continues to hit China’s pig production, increasing demand prospects for other producing countries.  Argentina announced yesterday that it would be exporting porting pork to China, which quickly brought a bid to US prices.  Today’s trading limits will expand to $4.50, following the locked limit session yesterday.  A look at the options settles in hogs yesterday suggested that the LHM9 contract would have been 0.775 higher than the locked limit price.  LHN9 would have been +0.525 and LHQ9 would have been +0.575 higher. 


As pointed out yesterday, most of the soft commodities were down yesterday, even with the dollar being lower most of the day.  Frozen orange juice traded at its lowest price since October 8, 2009.  Big supplies and diminishing demand remain the story.  Sugar was down yesterday, as the amount of deliveries into the expiring May futures contract was much lower than the amount into this past March’s contract, signaling reduced demand.  Coffee and cotton prices were both lower, on long liquidation.


The US weather continues to keep widespread rainfall in the forecast for the first half of May.  The northern corn belt should see normal amounts, while the south could get increased totals.  The odds appear small for dry weather with decent temperatures over this time.  The planting delays talk will probably remain in the grain markets for some time.   Heavy rains in South America may slow exports from Brazil and Argentina this week.   There could be some delays to coffee and cane harvest from these rains as well. 


Technical Moving Averages:

Product                50 day                   100 day                200 day

SN9                        908.25                  923.25                  917.625

CN9                        375.25                  384.75                  388.5

WN9                      461.75                  495.375                525

KWN9                   440.25                   481                        521.5

MWN9                    546.125                  562.875                587.625

CLM9                     60.84                     56.62                    60.79

GCM9                   1302.9                   1300.9                   1267.2  

LHM9                    87.725                   83.650                   81.330

LCM9                    120.035                 118.425                 116.190

KCN9                     97.25                     102.89                   110.17

CCN9                     2292                       2308                      2279

CTN9                     76.64                     76.58                     79.68

SBN9                     12.77                     12.82                     12.65

JON9                       117.64                     122.25                     136.85

HGN9                      291.7                       282.2                      280.5             


Have a good day,



Michael Clifford


141 W Jackson Boulevard                             

Ste 1201A                                                              

Chicago, IL 60604                                              

Trean Group, LLC                                              


312-896-2012  (fax)