Commodity Corner: Morning Comments

Good morning,


DXM9  97.40  +0.012                       GCM9  1282.1  +0.7                         ESM9  2864.75  -22.50                   CLM9  61.85 -0.27


I am trying  to decide what would be a proper theme song for the overnight trade.  It could be “We Didn’t Start the Fire”, by Billy Joel, as President Trump, speaking at a rally in Florida, completely blamed China for the delays in the trade negotiations, claiming they reneged on the agreed upon terms of the deal.  President Trump then reconfirmed the increase on tariffs, set to take effect tomorrow.  Of course, China responded, announcing a set of tariffs back that would go into effect on Saturday. 


Or, should the song be “Rocket Man” by Elton John, as North Korea fires 2 long range missiles across the Korean Peninsula, in an apparent act of defiance as the US has an envoy visiting Seoul.   Global equity markets took it on the chin overnight, with US S&P futures making new lows for this move.   Clearly, “risk off” is in place at the moment.  Gold futures, as expected, have caught a bid on all of this.  Oil, was hit early, trading down about 80 cents, only to recover back to unchanged in the European trade, and fail there. 


In reality, the song “The Waiting”, by Tom Petty, may be most appropriate for today, as the Chinese delegation hits Washington to resume the trade talks today and tomorrow.  Grain traders also have one more day of wading through the trade talk infested turbulent waters, ahead of tomorrow’s WASDE report, which brings a first look at the 2019-20 soybean and corn crops balance sheets.  Ok, enough of my reminiscing through my musical playlist from the past, and back to the present. 


As mentioned, the markets, while digesting inputs directly related to their products, have been waiting for the trade talks and a solution/failure for a trade deal to be put in place.  “Tape bombs”, or to move into the 21st century, Twitter blasts, on this topic have been on the radar.  Here is a brief spin around some of the commodity markets, looking at yesterday’s trade.


Oil traded higher yesterday, as the production and inventory numbers released in the US declined against expectations, suggesting a tighter market.  It had been assumed by some in the market that the recently ramped up production and stocks were in preparation to have sufficient supply available, as the sanctions against Iranian trading partners went into place on May 2.  Saudi Arabia stepped up in supplying some of the Asian countries impacted by the waiver elimination, so perhaps the US pulled back the reigns a bit on production. 


The grain markets continue to hover just above the lows for the move, in front of the WASDE, where very healthy production numbers and large inventories, both domestically and globally serve as an anchor to prices.  Trade rhetoric certainly has caused some gyrations, but in the end, the fund community remains carrying a very large short position across all the products in the complex, and with the expected data, doesn’t feel much pressure to cover.  There has been some modest short covering, profit taking ahead of the reports, especially as the rains have continued to pound the corn belt, causing flooding and keeping the farmers from planting.  There is a good planting window opening up, beginning this weekend, extending for 8 to 10 days.  Once the fields get dried out, aggressive planting should kick into high gear.  This thought has tended to cap rallies in the corn market.  The wheat market is getting some price resistance in the form of rainy weather in Europe and the Black Sea being good for the wheat crops there.  Some analytic groups have been adjusting higher estimates for the Russian wheat harvest, in part from this.  In soybeans, China reported April imports were 7.64m tons, compared with 6.9m tons last year and 4.92m tons in March.  However, with the trade tensions, and South America moving towards  the end of its harvest  season, it’s not clear how  much this actually will help US beans.  Soybeans also are plagued  by the dilemma, possibly some clarity comes tomorrow, of the unexplained discrepancy of 11m bushels on the export line of the balance  sheet, between what the USDA projects for  exports, and what the current pace of sales is.  Today brings the updated export sales report, that has been running on the softer side of late.


WASDE estimates can be found on the attached document.


The lean hogs market was lower again yesterday, in a liquidating trade as futures open interest declined almost 5k.  Funds have been carrying a record long position  in hogs, and the trade issues  have possibly made some decide taking profits may not be a bad call.   The live cattle market was also lower yesterday.  Funds continue to liquidate long positions here as well, with open interest posting its 12th consecutive decline (honestly, I’ve lost count, but it has come off every trading day for over 2 weeks).  Funds had been long over 120k in live cattle, so there was certainly room to see a correction  to the positioning. 


In other soft commodity markets, the breakfast drinks, coffee and orange juice, which have been decimated recently on abundant supplies and diminishing demand (at least for OJ), saw a significant bounce yesterday, in what can be viewed as corrective in nature, given the very oversold conditions in these markets.  The correction in the Brazilian Real yesterday also may have slowed some producer selling out of Brazil.  The cotton market traded to a fresh 9 week low yesterday, as production is expected to reach its highest level in 14 years.  Details will come in tomorrow’s WASDE.  Also, the possibility of either losing China, or seeing a greatly reduced trade there, doesn’t help.  The sugar traded down to prices not seen since October as large global supplies also impact this market.  Even with Brazil dedicating more of its harvest to cane ethanol, India and Thailand are having very good seasons, to make up for this.  


The copper market was hit yesterday, as the ongoing trade tensions are viewed as a detriment to the global economy.  The palladium market traded lower, at one point being down 18% from its high prices in March.  Soft auto sales are pressuring this market, as there could be less demand for palladium which is the metal used to make emissions filters.


On the data release front today, the US sees April PPI, along with March trade Balance figures and the weekly Jobless Claims data.  As mentioned, Export Sales for last week also are released for the grain markets.        


Technical Moving Averages:

Product               50 day                100 day               200 day

SN9                      898.25                   917.5                     916.0

CN9                      373.125                 383.25                   388.0

WN9                    457.25                   490.5                     522.25

KWN9                  434.0                     474.75                   517.75

MWN9                542.0                     559.375                 585.625

CLM9                   61.29                     57.07                     60.75

GCM9                  1297.0                   1301.8                   1267.8

LHM9                  89.300                   84.000                   81.835

LCM9                   119.400                 118.300                 116.200

KCN9                   96.00                     101.88                   109.38

CCN9                   2295                       2315                       2278

CTN9                   76.74                     76.21                     79.34

SBN9                   12.63                     12.77                     12.65

JON9                    114.78                   119.84                   134.95

HGN9                  290.30                   282.45                   280.45


Have a good day,



Michael Clifford


141 W Jackson Boulevard                             

Ste 1201A                                                              

Chicago, IL 60604                                              

Trean Group, LLC                                              


312-896-2012  (fax)