Commodity Corner: Morning Comments

Good morning,


DXM0  99.735  -0.221                 GCM0  1719.4  +12.6                                      ESM0  2867.00  +14.50                  CLM0  25.94  +0.16


The equity market has appeared to have shaken off the negative tone set by Dr Fauci’s very cautious approach regarding reopening the economy, and mounted a nice bounce over the course of the European morning.  Fed Chairman Powell speaks on the economy this morning (8 AM CDT).  The market is hoping the topic of negative rates comes up.  The US also gets a look at US PPI for April today, where declines are expected to the gross and core numbers.


Oil prices are higher today, with the front month trading close to $26 this morning.  Yesterday afternoon, the API projected crude inventories rose by 7.58m barrels last week.  The market expects an increase in stocks of 4.7m barrels.  Even with the slightly bearish number, the prospects of improving demand from economies reopening are driving prices higher.  Also aiding the front contract is the report that crude inventories are projected to be lower at the Cushing hub.  This is not only supporting the flat price, but it is causing the June/July calendar spread to firm up.  LTD for the June contract is next Tuesday, and given the lack of available storage, the cost of taking delivery is off the charts.  Thus one would expect this spread to be converging further into LTD.  However, a vast majority of the positioning has already rolled out of June into deferred contracts, thus mitigating the pressure on the spread.  The June futures contract still has OI of 154k this morning, so there still will be some rolling that likely will need to take place.  Also impacting the oil rally is Russia trying to comply with the increased production quotas agreed upon at the most recent OPEC+ meetings.  Russia faces a logistical issue with just turning the pumps off, as the colder temperatures can damage the pipeline.  Today brings the DOE report on weekly oil production and inventories for oil and gas in the US. 


Gold has been supported today on the notion of central banks continuing to lower interest rates to stimulate global economies.  With the US Fed Chairman speaking today, and the talk of negative US short rates floating around, gold is inching back up.  This talk is putting some pressure on the dollar as well. 


The grain market is still digesting yesterday’s WASDE report from the USDA.  While no major surprises occurred, the fact that this is a first look at much new data was bound to have some type of market reaction.  On the surface, inventories were lowered, both domestically and globally for the new crop soybeans.  Inventories for new crop corn and wheat were also much larger than expected, with the exception being domestic corn, which was slightly lower than the estimates, but still 3.3b carry-out.  The USDA did project corn production to be above 16b for this season.  On the corn demand side, feed demand was raised, while ethanol demand lowered by 100mb.  The increase in next season’s feed demand was interesting, as livestock production appears to be contracting.  The reduction in stocks for new crop beans comes from aggressive projections for crush and exports.  South American bean production for the current season was cut by the USDA, but they projected a very large crop for next season (131mt soybeans for Brazil).  The report was bearish for wheat, even with a smaller wheat crop projected (although larger than estimates).  The very large inventories were a function of reductions to export numbers and lower feed demand.  The USDA did provide its estimate for producer prices paid to the farmers for the 2020-21 season.  Corn is $3.20;  soybeans are $8.20;  wheat is $4.60.


Live cattle was limit bid yesterday, as the short term squeeze on domestic meat supplies continues to drive prices up.  China has been very active purchasing hogs of late, although prices finished lower yesterday.  Some talk circulating in the market is that China is very concerned about the coronavirus shutting down global trade, with ports shutting down, thus leaving food shortages in its country.  Thus, China has been a very aggressive buyer of products such as soybeans, hogs and other essential products, as they are concerned the availability of products could be greatly limited later this year. 


Cotton prices were up sharply yesterday, as the USDA projected production to be lower, while exports would increase.  The carryout figure was higher than last month, but lower than estimates.  At the global level, a similar story, with production lowered, while consumption raised and stocks higher.  Sugar prices have been firming, as news of an outbreak of coronavirus at a Brazilian port raises concerns about port closures and accessibility of supplies.  The recent oil rally is also helping the lower supply story, as cane producers could opt to produce ethanol.  Coffee prices were lower yesterday, in what is being termed as a technically driven sell-off.  Key support areas were taken out, which drew new sellers into the market.  The continued weakness of the Brazilian real puts a fundamental spin on prices as well, as local producers can more aggressively price product.    


Fed Chairman Powell to begin his webinar on the economy in 10 minutes (8 AM CDT), so I will cut this off here.                          


Technical Moving Averages:

Product               50 day                100 day               200 day

SN0                      860.75                   898.50                   920.00

CN0                      340.75                   367.00                   384.75

WN0                    532.75                   544.50                   529.00

KWN0                  477.00                   483.00                   465.50

MWN0                526.50                   542.25                   547.75

SMN0                  301.3                     303.9                     308.7

BON0                   26.83                     29.85                     30.47

CLM0                   26.33                     40.66                     47.42

GCM0                  1663.1                   1619.2                   1565.1

LHM0                  61.340                   72.715                   80.655

LCM0                   89.510                   101.865                 107.080

KCN0                   114.50                   115.75                   113.80

CCN0                   2366                       2535                       2490

CTN0                   55.66                     62.88                     63.89

SBN0                   10.84                     12.52                     12.67

JON0                    109.45                   106.60                   108.45

HGN0                  232.65                   251.60                   258.70

HOM0                 101.15                   139.47                   161.95

XBM0                  82.87                     129.19                   151.52

NGM0                 1.875                     1.984                     2.154






Michael Clifford


141 W Jackson Boulevard                             

Ste 1065                                                              

Chicago, IL 60604                                              

Trean Group, LLC