Commodity Corner: Morning Comments

Good morning,


DXU0  93.775  +0.454                GCZ0  1987.9  +2.0                                ESU0  3283.50  +20.00                  CLU0  40.16  -0.11


The markets appear to be pricing in the passage of another stimulus package, as equities trade higher and the dollar is in a strong corrective bounce.  While a deal is not expected from Congress until midweek, the market is prepared for it.  This is a heavy week on the economic calendar in the US.  While, the economic data may not be as important, given the pandemic, most of the data to this point, while in reality very bad, have come in better than analysts’ forecasts.  This enhances the positive momentum as well. 


December gold made a significant new high overnight ($2009.5), taking out the old high, made last Thursday night, by $4.  It has quickly reversed course throughout the evening, as equities and the dollar trade higher.  As has been the driving force throughout the entire gold rally, with all of the unknowns presently in the world, gold will remain the safe haven asset, and should have an underlying bid.  The market assumes real interest rates will remain low for an extended time still, to keep the accommodative policies in place globally.  Anything in the data this week which may suggest the economy could have a quicker recovery than what is expected should impact the dollar, equities, rates which would carry a bit more negativity to gold. 


The oil market has been oscillating around the $40 level most of the evening.  This market is also closely tracking the virus, as a strong second wave can create another sharp disruption to demand.  August marks the beginning of OPEC+ loosening up its production cutbacks that were put in place this spring.  OPEC+ will be on the watch for 2 key things.  The first being how they increased production is absorbed by the global market, as some economies are on the verge of slowing down again.  Second, there has been renewed concerns about noncompliance with the production cuts that were already in place, and it remains to be seen how this is resolved going forward. 


The grain markets have been caught in a trading range environment of late, with s slight bias to the upside, driven by demand.  As was highlighted last week, China has been a large buyer of US  corn, as it attempts to control its domestic corn prices that have exploded out of control.  China has been selling off it’s reserves, and replacing with much cheaper US corn.  A good trade, and an attempt to cool an overheated market.  Soybeans have also been a benefactor of Chinese demand.  With Brazil’s season about over, and with the US remaining at a decent discount in price, it is expected this demand picture will continue throughout the US harvest season.  Wheat has also been the recipient of several inquires for wheat.  However, US wheat remains too expensive, compared to the Black Sea.   The flipside for the grains has been the very beneficial weather observed for crop development.  Given the weather already, and what is forecast for August, yield expectations are being increased.  This is keeping a lid on the trading ranges. 


The sugar market has been a very interesting trade of late.  Sugar finished Friday with its 3rd consecutive monthly gain, and traded to a 20 week high.  Driving sugar prices has been expectations of strong imports from China and Indonesia, especially as Thailand is expected to have a poor harvest.  The recent strength in oil prices also creates supply concerns, as cane millers choose to produce ethanol instead of sugar.  Coffee prices have also been in the midst of a strong rally, aided by the real strength vs the dollar and hot and dry weather in Brazil then shifting to cold temperatures with frost concerns.  Coffee prices this morning find themselves correcting lower, as the dollar strengthens and the cold weather in Brazil is believed to not be carrying frost implications.  Cotton prices are higher today, as Tropical Storm Isaias makes its way up the US east coast and is expected to hit production areas in North Carolina.        


Technical Moving Averages:

Product               50 day                100 day               200 day

SX0                      879.50                   868.50                   907.25

CZ0                      339.50                   343.25                   369.75

WU0                    513.00                   523.50                   536.25

KWU0                  450.00                   466.75                   473.00

MWU0                522.25                   527.75                   544.50

SMZ0                   296.1                     298.1                     306.0

BOZ0                   29.11                     28.25                     30.48

CLU0                    39.18                     34.60                     44.07

GCZ0                    1810.3                   1745.6                   1652.3

LHV0                    50.725                   53.410                   63.315

LCV0                    102.100                 99.260                   107.100

KCU0                   101.45                   107.95                   113.60

CCU0                   2274                       2303                       2458

CTZ0                    60.74                     58.58                     63.50

SBV0                    11.81                     11.28                     12.50                   

JOU0                    125.25                   119.25                   113.70

HGU0                   270.60                   251.00                   260.45

HOU0                  120.12                   113.42                   146.68

XBU0                    119.35                   102.78                   134.82                 

NGU0                  1.844                     1.992                     2.121






Michael Clifford


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