Commodity Corner: Morning Comments

Good morning,


DXM9  97.37  +0.110                       GCM9  1280.5  -0.8                         ESM9  2901.50  -46.00                   CLM9  61.30 -0.64


A major shift to “risk off” sentiment swept through the markets overnight, as President Trump tweeted new threats of steeper tariffs towards China, citing the slow pace of progress.  Talks were expected to continue this week, with the Chinese delegation coming to Washington.  The market was hopeful that a deal could be announced at the end of this week.  Chinese officials still claim they are planning on coming to Washington, for meetings scheduled for Thursday. 


Most markets were hit hard on this news.  Equities, oil, industrial metals, grains the other soft commodities have been aggressively sold down.  Some of the price moves lower may have  been exacerbated by the bank holiday in the UK.  Gold is the main benefactor of this story, acting as a safe haven or place to park money until this storm blows through.  The overnight trade follows a session last Friday that saw good news delivered on the US economy, in the Non-Farm payrolls number and Unemployment Rate. 


All of the news pertaining to the different market sectors takes a back seat to the trade story.  More news on China, that came out on Friday, was a story that Chinese banks have lowered the amount of daily FX withdrawals to $3k from $5k.  There had been talk in the market that China’s reserves were becoming low on US dollars, and this may be part of the effort to address this.   Another reason given for this move was concern out of China that these trade negotiations could be more prolonged than desired.


The oil market (CLM9) was hammered lower overnight, trading through the key technical support 200 day moving average (60.78), which may have increased the selling pressure.  Funds have been long the oil market, and very possibly had SELL stops in place below this level.  CLM9 traded down to 60.04.  The oil market was already under some pressure late last week, following reports of record production and inventories in the US.  This even with the expiration of the waivers to sanctions on countries trading with Iran last Thursday.  The market believed there wouldn’t be a supply squeeze.  Oil has had an impressive $1.50 bounce from the lows in Europe, and now stands only marginally lower on the day. 


The grain markets were drilled on the trade news, pushing them back down towards the lows for the year.  For soybeans, where this is thought to have  the biggest effect, prices moved down to levels not seen since November of 2015.  Expected good production and large global inventories have been weighing on prices all year, pushing them to the lows.  The weather story, with the excessive rains and flooding was only providing modest support.  It was believed it would take a trade deal for any hope of a decent bounce to prices.  Friday’s COT report from the CFTC showed the funds continue to carry very large short positions in the grains.  The funds are now at an all-time record short for soybeans, and remain close to the all-time record short in corn, having only covered in about 17k of the approximate 334k short position announced a week ago Friday.  While the weather, and any impacts on the crops remains important, it clearly takes a backseat to the numerous headlines surrounding the trade negotiations that are bound to being popping up all week.  The grains do get some fresh crop information, in the form of the progress and conditions report this  afternoon, and the WASDE report from the USDA.  This report will give the market the first look at how the USDA views the 2019-20 US crops.   The soybean balance sheet, and the discrepancy of about 11 m bushels of beans on the export side, remains a hot topic in the market as well. 


Gold, following a week which saw prices move beyond the lows of the year, and down to levels last seen in December, is up today on the potential breakdown of  the trade talks.  The flight to quality bid in the overnight trade follows higher prices  on Friday, even with the bid in the US equity market and dollar last Friday.  It was believed on Friday that gold was being supported by the low wage inflation data reported with the payrolls numbers.  Low wage inflation may keep the Fed contained and monetary policy low.  From a technical perspective, this bounce is a continuation of what was established last week, when prices fell (and held) down to the 200 day Moving Average.  Copper was higher on Friday, following the good NFP data, but has been hit overnight, along with all industrial metals and this trade impasse is not viewed as a positive for global growth. 


The softs are all lower on the news as well, but possibly managed to avoid the same drubbing as the grain markets, due to a delayed opening because of the UK holiday.  These markets had more time  to  digest the news, and not have the same knee jerk reaction.  Nonetheless, the softs are lower as well this morning, with cotton futures leading the way.  Cotton has dropped 2.6%, and is poised to have its biggest decline in 3 months.  Orange juice futures remain in a free fall, and are trading at 10 year lows, following last week being the largest weekly decline in  2 years.


The lean hogs market, where prices have been moving sharply higher on the growing impacts of the Asian Swine Fever on the Chines hog herds.  The trade story will impact this market as well, but the extent of any declines may be curtailed by the epidemic concerns.  Funds remain record long in hogs.  The cattle market, where the funds had been record long as of a few weeks ago, continues to see a liquidating  trade.  The COT report showed funds closed out over 22k of  the longs, and  Friday’s open interest showed a decline of over 10k. 


In the short run, the US weather continues to bode as a problem for planting.  While the weekend may have  provided some relief from the rains for the fields to dry out, there are several more rain events in the forecast this week.  Delays are expected to continue.  However, there  is some hope, and drier conditions and some warmer temperatures  are being  seen in the extended outlook.  The switching of acres from corn to soybeans story will remain in the market this week.  How quickly the fields can become dry enough for work next week will be in view.             


Technical Moving Averages:

Product              50 day                 100 day               200 day

SN9                      904.75                   921.25                   917.125                                

CN9                      374.5                     384.25                   388.375

WN9                    459.75                   493.5                     524.0

KWN9                  437.5                     478.625                 520.0

MWN9                544.5                     561.5                     587

CLM9                    60.99                     56.79                     60.78         

GCM9                  1300.1                   1301.2                   1267.4

LHM9                   88.465                   83.830                   81.555

LCM9                   119.810                 118.400                 116.210

KCN9                   96.77                     102.49                   109.88

CCN9                   2294                       2311                       2279

CTN9                    76.79                     76.52                     79.61

SBN9                    12.72                     12.80                     12.65

JON9                    116.52                   121.26                   136.09

HGN9                   291.24                   282.30                   280.47


Have a good day,




Michael Clifford


141 W Jackson Boulevard                             

Ste 1201A                                                              

Chicago, IL 60604                                              

Trean Group, LLC                                              


312-896-2012  (fax)