Good morning,
DXM9 97.425 +0.157 GCM9 1279.4 -4.4 ESM9 2914.50 -18.00 CLM9 61.65 -0.60
Markets remain on the defensive this morning, with the delegation from China headed to Washington at the end of this week, to continue and hopefully bring to conclusion the US/China trade negotiations. It can be expected that there will be numerous “tape bombs” between now and then, which could cause some price gyrations in markets. Equities are lower today, as the US, late yesterday afternoon, announced the additional 25% tariffs on China, to take effect Friday. It feels like this announcement, while not good for resolution prospects, is merely posturing by the US ahead of the talks. Gold is slightly lower, and the grains, while down a touch today, are well above the low prices seen yesterday.
The oil market had a wild ride yesterday. First, barreling through the technically significant 200 day moving average in the overnight hours, the lead month found support just in front of the psychologically important $60 level. Oil then proceeded to bounce almost $3, partially driven by the news that the US was sending an aircraft carrier to the Middle East, as a warning to Iran. The high of this bounce, and for the session, was 62.74, where a downward sloping trend line came in on the charts. While the Middle East tension, and production stories out of OPEC+ and the US are still the dominant themes for oil, it is also susceptible to feeling fallout from trade talk (as will most markets, so I’ll just leave that as a general assumption for the remainder of this comment today).
The grains, especially soybeans, took a direct hit to prices from President Trump’s tweets. As prices traded to new lows, the Bloomberg Grain Sub Index hit a 42 year low reading and the Soft Commodity Index posted a 33 year low, driven down by falling grain prices.
Soybeans saw new shorts enter the market, adding to the record large spec short position, as open interest increased by almost 7k. A trade impasse directly hits the bean market. This market is already dealing with poor export sales data, in part seen in the discrepancy, of approximately 11 m bushels, at the USDA between projected sales, and what is actually taking place. A possible increase of bean acres form corn also weighs on prices. Yesterday afternoon, in the crop progress report from the USDA, it was reported that corn and soybeans are well behind last year’s pace and the averages for planting. This wasn’t really a surprise to the market, given all of the rain throughout the Corn Belt recently, but it may give anyone looking to do some bottom fishing, especially as there is more rain in the forecast this week. Corn prices will be the primary beneficiary of this, as it is rapidly approaching the critical time to get the crop planted. Soybeans have more time, as they get planted later. This news could actually end up being a negative for beans, if corn can’t get planted and a switch to beans takes place.
Wheat prices were initially drug down with the other markets, but found some support, aided by a decent reading on export inspections and managed to climb back up towards unchanged levels. After the close, the USDA reported another good reading for winter wheat crop conditions, confirming that the excessive rains, while hindering planting, have been beneficial for the wheat in the ground. For spring wheat, which has had its planting impacted by the rain, the percent planted wasn’t very far off last year’s pace, so not too alarming. Wheat futures traded lower in the overnight trade, with solid production anticipated.
**StatsCan just released projections for Canadian wheat inventories. The numbers came in below expectations.
Cotton also was hit hard on the possible trade setback, touching prices not seen since last September. The supply fundamentals, in the short term remain bearish for cotton, and a removal of China as a trading partner has a big impact on the demand side. The lean hogs market was limit down on the open yesterday, as trade barriers with China have a direct effect on this market. While the news may be negative, the reality is that the swine fever epidemic is real, and having a large impact on the Chinese hog herd. At some point, China will need the US market, tariffs or not. The live cattle market was down for the 11th consecutive day, as long liquidation continues in this space.
It was another tough day for the orange juice market, dropping over $2 again. The song remains the same, abundant supplies and scarce demand. Coffee was lower yesterday, and is trading at 13 year low prices this morning. Similar story, very good harvests are expected from Brazil and Vietnam. Part of the problem for the coffee market is the refusal of the producer to sell at these low prices.
The gold market experienced some price volatility as well yesterday. Initially trading higher, as one would expect, as the tariff tweets slammed global stock markets. However, as the equity markets stabilized, gold lost some of this premium, and traded in negative territory for a good portion of the day. Gold did managed to rotate back up for a higher close, but has again come off in the overnight trade, as the dollar index trades higher. Copper prices were lower, although in a bit of a muted trade with the LME closed for the UK bank holiday. Copper prices were pressured by trade concerns.
Looking at the weather, numerous rain events appear in the near term forecast, continuing to be a detriment to getting the crops, especially corn, planted. The longer this drags on, the bigger the issue becomes. A late planted corn crop could result in lower yields produced. The flip side is the extended outlook shows drier conditions and warmer temperatures towards mid-month, hopefully creating a planting window. As we know, it doesn’t take the farmer long these days to get the seeds in the ground, when the opportunity presents itself. Looking elsewhere, Russia is expecting rains this week, which will be beneficial for the spring crops. With Russia being the dominant player in the wheat export market, this could be problematic for the US wheat market, if the Russian harvest is able to come in at the upper end of projections. The Ukraine has also received beneficial rains, and harvest projections are being increased there as well.
While the main event for markets will be China’s arrival in Washington on Thursday, and the ensuing trade negotiations, markets will have other inputs which may serve as distractions. Oil gets fresh production and inventory data from the US tomorrow. The grain markets have the WASDE report from the USDA on Friday (estimates can be found on the Current Data attachment), where a first glance at projections for the 2019-2020 crop will be released. Overall, higher inventories are expected for corn and soybeans, but production yields are expected to be lowered from previous views. Actual production levels, while expected to be high, will be subject to how many acres are projected to be planted. On the economic front, the end of the week brings fresh data on inflation, which carries some additional weight following the Fed meeting last week, where low inflation was cited. Also, the trade balance numbers can have some relevance, especially with US/China in the limelight.
Technical Moving Averages:
Product 50 day 100 day 200 day
SN9 902.5 920.0 916.75
CN9 374.0 384.0 388.25
WN9 458.625 492.5 523.5
KWN9 436.0 477.25 519.25
MWN9 543.5 560.75 586.5
CLM9 61.07 56.89 60.77
GCM9 1299.0 1301.4 1267.6
LHM9 88.745 83.890 81.650
LCM9 119.665 118.370 116.210
KCN9 96.52 102.28 109.72
CCN9 2295 2312 2279
CTN9 76.79 76.38 79.48
SBN9 12.69 12.79 12.65
JON9 115.89 120.77 135.71
HGN9 291.00 282.40 280.50
Have a good day,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1201A
Chicago, IL 60604
Trean Group, LLC
312-604-6404
312-896-2012 (fax)