Good morning,
DXM0 99.845 -0.425 GCM0 1706.2 +8.2 ESM0 2933.25 +10.50 CLM0 25.31 +1.17
WASDE day from the USDA is probably the main feature for the commodity world today. This report provides a new look at what the USDA is initially expecting in terms of production and inventories, for the coming season. Expectations are for an abundant crop, given the acreage estimates from March, which are likely to be used in the production calculations, along with a rapid planting pace thus far. A major piece to the puzzle will be the demand side of the balance sheets, as the clear drop off in use, due to COVID 19 will be factored along with Chinese demand from Phase 1 of the trade deal. This will be under close scrutiny from the market. Ahead of the report, the weekly crop progress and condition reports came out yesterday afternoon. Wheat conditions had a slight decline, as was expected given the colder temperatures of a few weeks ago, followed by a lack of moisture. The crops could be enduring some additional stress with the current cold snap moving across the country. This cold front not only could impact wheat, but could cause damage for the corn and soybeans crops which have a planting and emergence pace ahead of the 5 year averages. Estimates for today’s WASDE data can be found on the current data attachment. Many believe today’s numbers could set the tone for the summer trade in the grain markets. Wheat prices are lower today, even with yesterday’s downtick on conditions, as the extended forecast has some rain events which should bring relief to the winter wheat crops. It is also being pressured on the notion that Russia will again have a large crop, even as numerous agencies a revising down earlier projections. The crop size is still expected to be as big, if not larger than last year’s, even with the weather related poor growing conditions.
The oil market continues to be towards the front on everyone’s watch list. Yesterday morning’s announcement from Saudi Arabia of cutting an additional 1m barrels a day from production was good for over almost $2 bounce off the lows. Prices couldn’t hold these gains, and rotated back down throughout the session. Today, Saudi Aramco announced it would pay an $18.75B dividend for the 1st quarter, in spite of profits being down 25%. This is big, as the a major appeal of investing in this was the guarantee of delivering a dividend. This has helped support oil prices today. Also assisting prices is the growing belief for demand to return, as more economies attempt to re-open. There is also a factor that transportation could see a dramatic change, as more people opt for driving, as opposed to public transportation. One last thing to pay attention to in the oil trade. The last trading day for CLM0 is next Tuesday, May 19. As of this morning, futures open interest stands at over 191k. As a point of reference, looking back at the May contract (we all know what transpired there), OI remained at over 100k on the Thursday and Friday ahead of LTD. Most major positioning has been spread out along the futures curve, so there may not be the dramatic effect observed last month, but it remains worth being aware of the size of the June position as we move through the week.
Cocoa prices have rallied for 3 consecutive days, as concerns about coronavirus driven shipment delays, impacting available supply. Ghana, which is already facing a lower coca output, is the African nation with the most virus cases. Ecuador and Nigeria have also seen cocoa exports delayed, due to the virus. Overall, the rally appears to be more along the lines of supply reductions, instead of increased demand. Coffee prices had another down day, as the Brazilian real again moved lower against the dollar. Growing concerns about a second wave of coronavirus is having a large effect on numerous countries, including Brazil. Brazil’s Economics Minister has stated the central bank will do whatever to assist in keeping the economy going, but this pressures the real. The lower real again provides incentive for producers to be more aggressive in their offers. Also pressuring prices is a drop off in consumption, as hoarders of essential products as self-quarantine was beginning, are now in the process of working off what already has been purchased. Thus putting a short term hit on demand.
The metals are on the firm side today. Gold prices are being supported to by the notion that global central banks will remain vigilant, regarding monetary policy, in terms of providing more stimulation for the economy. A country’s underlying interest rates puts pressure on the currency, which makes gold an attractive alternative. Copper prices continue to trade approximately in unison with the equity markets, where the gradual re-opening of economies provides hope.
Aside from the WASDE, the US also gets a look at CPI data from April. Lower prices, are expected for inflation at the consumer level. Data on inflation for the producer comes out tomorrow.
Technical Moving Averages:
Product 50 day 100 day 200 day
SN0 862.00 899.50 920.50
CN0 341.75 367.75 385.50
WN0 533.00 545.00 529.00
KWN0 477.00 483.00 465.75
MWN0 526.75 542.50 548.00
SMN0 301.7 304.1 308.8
BON0 26.89 29.94 30.49
CLM0 26.75 40.99 47.57
GCM0 1661.0 1617.0 1563.9
LHM0 61.660 73.000 80.810
LCM0 89.650 102.080 107.160
KCN0 114.70 116.05 113.80
CCN0 2372 2537 2490
CTN0 55.78 62.98 63.93
SBN0 10.91 12.55 12.68
JON0 109.15 106.50 108.45
HGN0 233.15 252.10 258.90
HOM0 102.51 104.60 162.47
XBM0 84.07 130.13 151.95
NGM0 1.878 1.989 2.157
Thanks,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404