Commodity Corner: Morning Comments

Good morning,


DXU0  96.865  +0.183                 GCQ0  1787.5  -6.0                      ESU0  3150.00  -22.00                  CLQ0  40.33  -0.30


The equity market appears to be catching it’s breath this morning, following another strong push higher, starting with the employment data from last Thursday, and carrying through the US holiday.  During the rally, the market appeared to shrug off news of virus rates back on the rise across numerous states, and choose to focus on the potential strength of the economy upon a return to normalcy.   It makes some sense for a bit of a correction following 5 consecutive days of gains in the market.


The oil market is also in a corrective mode today, following a continuation of the rally, aided by Saudi Arabia announcing price increases in August.  Overall, similar to equities, oil prices appear to be more focused on the economic recovery, instead of the implications from a second wave of the virus.  Oil prices are now comfortable with a $40 handle, and could continue to grind higher.  A fresh look at US production and inventory comes, beginning today with the API projection this afternoon and DOE data tomorrow morning. 


Gold prices are also correcting lower today.  Even with the recent rally in equities, gold has been well supported.  The safe haven status for gold may not apply in the current environment (although taking a more macro view easily allows for the safe haven argument), but the overall low level of real interest rates, globally, keeps value in holding gold assets.  The overnight trade saw prices fail just in front of $1800, but gold has been through this level  a couple of times now, so it isn’t quite the resistance point it once was viewed as. 


The grain markets have been absorbed in a large short covering trade, which began ahead of last Tuesday’s acreage report, and became more aggressive following the surprising revelation from the USDA of less acres being planted than what was expected.  Yesterday afternoon, the CFTC revealed how much of the very large spec short had been covered, as of last Tuesday.  The data showed a decline of over 77k in the short corn position.  As prices rallied throughout the week, more of this position was covered in as well.  Wheat also saw short covering taking place, and the report had funds adding to long positions in soybeans.  The combination of very hot and dry growing conditions over the next couple of weeks, along with China remaining aggressive with its US purchases of grains, keeps the bullish story in tact for grains at the moment.  Yesterday afternoon, the USDA provided the weekly crop conditions and progress reports.   The conditions data for corn and soybeans was not much changed from the prior week, a small surprise given the hotter conditions.  Prices are retreating some this morning for these 2 products, as conditions were better than feared.  However, given the very hot extended forecasts, and with the report showing corn and beans are lagging the averages in terms of the development stage, thoughts of a smaller crop will remain, which should keep an underlying bid to prices.   Friday brings a fresh look at US supply and demand with the July WASDE report.   


Coffee prices saw the largest decline since March, as the frost concerns which were helping drive prices higher, have abated for the time being.  The more favorable weather is also allowing for harvest to continue.  The cocoa markets continues to struggle with the demand story, as the pick up in global economies has yet to translate to improving chocolate consumption.  Hog and cattle prices were up slightly, coming out of a major grilling cycle with the US holiday.  Cattle prices are supported as more restaurants come back on line.  However, the recent reclosing of some states casts some doubt on future demand here.  Hog prices were also higher.  At the moment, US hog prices are aided by China curtailing imports from Brazil, due to rising coronavirus numbers there.  Fear of a COVID resurgence in China has them taking extra precautions, thus halting Brazilian imports.  This creates a window for the US.  However, as virus numbers in some states appear to be headed in the wrong direction, this could cap US demand as well.           


Technical Moving Averages:

Product               50 day                100 day               200 day

SQ0                      857.25                   868.75                   911.25

CU0                      329.00                   344.00                   370.50

WU0                    509.25                   526.00                   535.00

KWU0                  462.00                   472.75                   473.75

MWU0                524.75                   534.50                   550.50

SMQ0                  289.6                     296.8                     305.0

BOQ0                   27.42                     27.78                     30.14

CLQ0                    33.68                     35.35                     44.96

GCQ0                   1740.4                   1691.2                   1610.1

LHQ0                   56.155                   63.175                   75.310

LCQ0                    96.615                   96.375                   104.905

KCU0                   103.15                   109.85                   114.00

CCU0                   2334                       2402                       2479

CTZ0                    58.88                     59.29                     63.67

SBV0                    11.30                     11.71                     12.60

JOU0                    122.75                   115.45                   112.65

HGQ0                  250.05                   244.80                   257.55

HOQ0                  106.80                   116.79                   150.75

XBQ0                   107.16                   107.69                   140.14

NGQ0                  1.942                     2.002                     2.160






Michael Clifford


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