Commodity Corner: Morning Comments

Good morning,


DXM9  97.285  -0.114                       GCM9  1291.3  +5.7                         ESM9  2879.75  -15.00                   CLM9  61.54 +0.14


The markets appear to be taking a cautious approach into the US/China trade meetings that are scheduled to begin tomorrow.  The US equity markets, had been slightly higher in the early European trade, but have since reversed course and are back in the red. It feels like another test of the lows for the move may be in order.  A story, which hit the tape around 4 AM CDT, saying China back tracked or reneged on almost all aspects of the trade negotiations, would appear to be the reason for the tone change.  Gold is higher this morning, with “risk off” being a theme of the week so far.  Oil was also higher in Europe, but has since moved back down as well.  Oil also seems to be swayed by trade talk.  Brent crude, which settled below the psychologically important $70 level yesterday, did trade above there overnight, but failed and have moved back below the mark again. 


The oil market will get the latest read on production and inventory levels from the US this morning.  High levels have been the trend of late in these reports.  One explanation was the US was preparing to compensate for any shortages to global supplies as more Iranian oil leaves the market, due to the sanction waivers expiring.  Oil traded lower yesterday, as it was reported Saudi Arabia had increased exports to Asia, to make up for lost supply from Iran.  Although it has now been tested, and violated a couple of times, the 200 day moving average for CLM9 still may be an important level for the market (60.76).  If prices do accelerate to the downside, the low for the week, and this move, is 60.04.  On another note, yesterday afternoon, the US updated its forecast for summer gasoline prices, raising expectations to $2.92/gallon from $2.76/gallon. 


The carnage in the grain market, while probably not coming to halt, has at least paused for the moment, trading higher yesterday, following the move to new lows at the beginning of the week.  The funds continue to carry large speculative short positions across these markets, and taking some profits may not be a bad plan, with so much bad news priced into the market.  This is confirmed with futures open interest posting declines across all markets yesterday.  Friday brings the latest WASDE report from the USDA, where a first glance at expectations for the 2019-20 crop will be seen.  Overall, high production and inventory numbers, both domestically and globally, are expected.  Estimates for this  data can be found on the “Current Data” attachment.  In the wheat markets, it was reported that Russian Agriculture officials project this season’s wheat exports to be 32.6 mmt.  In April, wheat exports totaled 1.3 mmt, which is the lowest monthly total since July of 2017.  Similar numbers are expected for May and June.  Other forecasters think the Russian wheat export number may come in around 34.0 mmt, compared to USDA projections of 37.0 mmt.  This may give the US an opportunity to gain some market share.  Another supportive story for  wheat prices, comes from the reported pace of spring wheat plantings.  Monday’s reported 22% planted figure is behind both last year’s pace and the 5 year average.  This slow pace may cause some spring wheat acres to be lost to soybeans or corn.  If there is a quick turnaround to warmer temperatures, and the wheat can get planted, there still could be an impact to yields from the rapid temperature change.  Also constructive for wheat was yesterday’s release of the Stats Canada grain stocks, showing wheat inventories were lower than last year….Trying to find something positive for soybeans, China is expected to import 2m additional tons of beans next year, as the feed community is looking to grow fatter pigs.  Chinese soybean imports did rise by 10% in April, with commercial buyers purchasing from South America.  Perhaps the US can benefit  some from this if the trade deal can get put in place.        


Soft commodities are awaiting news from the trade talks as well.  The coffee market was hit hard yesterday, trading at a 14 year low.  Large global surpluses, from expected very good harvests in Brazil and Vietnam, continue to weigh on prices.  Pressure on coffee prices is also coming from currency moves, which encourages more exports from producers.  The Brazilian Real traded down to 3.9999 and the Columbian Peso traded at a 3 year low.  The lower domestic currency allows the producer to be more aggressive pricing the commodity, denominated in dollars.  The other breakfast drink, orange juice, also continues to get hit, with the ongoing theme being big supplies and decreasing demand.  The cotton market remains under pressure, as production is expected to be the highest since 2005.  Details will be released Friday in the WASDE.  Again, the trade dispute with China will have a direct impact on the amount of outstanding inventories.  The lean hogs market finished slightly lower yesterday, having been locked limit down from the open on Monday.   The breakdown in trade talks with China has a direct effect on the hogs market.  However, it should not be forgotten that reports on this swine fever epidemic continue to get worse, so there will be a point where China will need the US hog market.  However, with funds carrying very large spec long positions, the trade talks risks warrant lightening up some.  The live cattle market settled unchanged yesterday, but continues to be in a liquidating trade of long positions.  Futures open interest declined yet again yesterday, having been reduced every session over the past 2 weeks.  Funds moved into record long positions in March and April, when the massive flooding wiped out over 1 million heads of cattle. 


Gold, as already mentioned, is higher this morning, as a flight to quality or safety appears to be in order with all of the uncertainty surrounding the trade negotiations and some very fragile markets.  Gold opened lower yesterday, as the dollar index was up, but found support and moved higher.  Another trouncing in the equity market yesterday, coupled with tensions both with the US/China and the US/Iran were grounds to provide support to gold.  Copper prices were down yesterday, getting back to normal trading volumes after the LME was closed on Monday for the UK bank holiday.  Global growth concerns, in part derived from the possibility of the trade talks breaking down, were the reason. 


The weather outlook provides some hope for planting prospects!  A dry period appears from May 10 to the 18th, before more rain comes in for the 4th week of May (19-23).  Planting delays can be expected throughout this weekend, but farmers will be ready to “grip it and rip it” when afforded  the opportunity.  In the Great Plains, as alluded to in the grains paragraph, the soil temperatures are too cold for planting.  So even if the crops do get into the ground, there could be an impact to yields.


In case it has been mentioned enough here, the US/China trade negotiations will be center stage for the remainder of the week.  In addition, US economic releases include PPI, CPI and Trade Balance.   The WASDE report also comes out on Friday.  While all of these inputs may take a back seat to trade, they still could create some gyrations in prices.  Of course, the Middle East tensions, along with production and supply reports, will be in full view of the oil markets. 


Technical Moving Averages:

Product               50 day                100 day               200 day

SN9                      900.375                 918.75                   916.5

CN9                      373.5                     383.5                     388.125

WN9                    457.875                 491.5                     522.875

KWN9                  435.0                     476.0                     518.5

MWN9                542.75                   560.125                 586.125

CLM9                   61.17                     56.98                     60.76

GCM9                  1298.0                   1301.7                   1267.7

LHM9                  89.040                   83.950                   81.745

LCM9                   119.515                 118.330                 116.210

KCN9                   96.22                     102.08                   109.55

CCN9                   2295                       3314                       2279

CTN9                   76.76                     76.30                     79.41

SBN9                   12.66                     12.78                     12.65

JON9                    115.29                   120.29                   135.31

HGN9                  290.65                   282.40                   280.50


Have a good day,




Michael Clifford


141 W Jackson Boulevard                             

Ste 1201A                                                              

Chicago, IL 60604                                              

Trean Group, LLC                                              


312-896-2012  (fax)