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,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1201A
Chicago, IL 60604
Trean Group, LLC
312-604-6404
312-896-2012 (fax)