Commodity Corner: Morning Comments

Good morning,


DXU0  95.785  -0.427                 GCQ0  1808.9  -4.5                              ESU0  3227.50  +44.00                  CLQ0  40.91  +0.62


Risk on sweeps through the markets today, as prospects for a vaccine appear to be improving smartly.  Not only is this giving equities the big tailwind, but also aiding many commodities.  In addition, Goldman just reported much better than expected earnings, also supporting equities.  Tensions between the US and China are on the rise, and numerous states are reverting back to closures to contain the virus spread, but it doesn’t appear to matter.  The dollar index and gold are both coming off today.  Since both act as safe haven investments to an extent, this could be asset allocation into more risky sectors.  Gold continues to manage to hold around the $1800 and higher area.  There have been numerous plunges through the strike, but the market quickly rejects the trade there.    


Oil prices were under some pressure earlier in the week, on US states reclosures hitting demand and with the OPEC+ meeting expected to agree upon beginning to scale back on the recent production cuts.  Last night,. The API came out projecting US crude inventories fell last week by 8.32m barrels, where the market was expecting to see a decline of only 2.3m barrels.  Also supporting prices today is the talk from OPEC+ that the increased production as quotas get scaled back will be somewhat offset by member countries, who weren’t in compliance with the cuts a few months ago, to make up for this now.  The euphoria around the possible vaccine reigniting economies is somewhat contained by the report of China’s oil inventories grew at a rate of 1m barrels a day in June.  This, as China was believed to be in full motion coming out of the pandemic.  WTI crude prices may be able to stay above $40, but more concrete news of economic recovery may be needed to get a real extension higher in prices.


The grain markets, with the WASDE now fully digested, have moved into a weather market.  The rally of last week, driven by short covering ahead of the WASDE, was responding to the extended weather forecast at that time, calling for extreme heat across the corn belt, with minimal rain events.  Beginning last Friday, the shorter term forecasts had more rain in the picture, allowing for some of the built up weather premium to be pulled back.  It remains a weather market, as corn is now in the pollination stage of development.  Failure for rains to materialize will raise concerns of crop stress and lost yield.  China has been a very aggressive buyer of corn over the past week or so, but any bounce to corn prices from this has been mitigated by the potential for rain.  Funds have also been diving back into the short position in corn.  Now if the rains fail to show up, another leg higher for corn could be in the cards.  It is worth noting that the producers have plenty of inventory that they will be more than happy to begin unloading on any significant rallies in corn prices.  Soybeans have also seen good buying out of China, and US prices still remain better than Brazil, into September.  The weather becomes more of an issue for beans as the calendar turns to August.  Increasing tensions with China also makes the trade nervous as prices attempt to push higher.  Wheat prices continue to trade higher, as the weather across numerous producing countries remains hotter and drier, and production estimates keep getting ratcheted down.  As US wheat keeps rising, it makes itself even less competitive in the export arena.  Yesterday, Egypt conducted another wheat purchase tender, where only Russia and the Ukraine supplied offers.  Egypt ended up buying 2 cargoes of wheat from Russia. 


A quick look at a few of the other commodity markets.  Lumber futures were limit up yesterday, approaching its highest prices in 2 years.  One reason for the sharp spike to prices is the increased demand coming from stay at home projects during shelter in place.  Sugar futures fell to a 6 week low, as the market expects ample supplies this year.  The large drop in oil prices over the first half of this year has swung farmers’ minds to produce more sugar than ethanol.  Beneficial weather, in India and Brazil is also assisting the crop.  Cotton prices are back under pressure, as 2nd wave virus concerns again creates potential demand issues.  This, in spite of the weather in Texas being on the extreme hot side, creating crop stress.  Hog futures were lower yesterday, even with Chinese demand still strong from AFS and supply build up ahead of the pandemic possibly creating more shipping restrictions.  One issue weighing on the hog market, as production gets ramped back up, is the consumer is working off large supplies accumulated throughout shelter in place.           


Technical Moving Averages:

Product               50 day                100 day               200 day

SQ0                      862.75                   866.75                   909.75

CU0                      330.75                   341.25                   368.75

WU0                    508.50                   523.75                   535.50

KWU0                  457.25                   470.25                   473.50

MWU0                524.75                   532.25                   549.00

SMQ0                  289.5                     296.0                     304.4

BOQ0                   27.69                     27.60                     30.07

CLQ0                    35.45                     34.73                     44.62

GCQ0                   1751.2                   1703.4                   1618.1

LHQ0                   54.665                   61.230                   74.115

LCQ0                    97.650                   95.745                   104.665

KCU0                   102.10                   109.10                   113.70

CCU0                   2310                       2360                       2471

CTZ0                    59.55                     58.92                     63.67

SBV0                    11.48                     11.54                     12.58

JOU0                    124.50                   116.65                   113.10

HGU0                  256.85                   246.65                   258.55

HOQ0                  111.12                   114.02                   148.84

XBQ0                   113.03                   105.20                   138.85

NGQ0                  1.888                     1.983                     2.142






Michael Clifford


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