Good morning,

 

DXM9  97.74  -0.084                      GCM9  1276.3  +0.6                                                                ESM9  2838.00  -24.00                   CLN9  62.84  -0.08

 

A sharp move higher in oil and the grain markets greets the market to begin the week.  The bid in oil comes from news out of the OPEC+ meetings that the production quotas put in place last year will remain for the balance of 2019.  In addition, President Trump gave terse warning to Iran about beginning a conflict with the US.  The grain market is still dealing with the deluge of rains that continue to roll across the Midwest and Great Plains, and a continued large speculative short base, as reflected in the COT report from the CFTC on Friday afternoon.  Global equity markets were positive in the Asian trade, aided by a very good Q1 GDP number out of Japan, only to reverse course and move lower in the European trade.  I am not sure what caused the tone change, there have been a few Brexit headlines in the news this morning, or it could be in response to the apparent heightening of global tensions.  European banks appear to be leading the charge down in Europe.   

 

Oil prices surged higher in the early trade overnight, with WTI trading up to and failing just in front of $64 (basis July, high was 63.96).   Brent crude traded above $73, before failing and moving back below the level.  Even with the announced agreement to keep the production quotas in place, it was revealed that Russia was not entirely on board with the plan.  It was also observed the Saudi Arabia’s current production is well below what it has capacity to do.  These 2 facts may have helped oil move off the highs.  Clearly the market will be tuned in to any headlines on this front.

 

The heavy rains just won’t ease up across the Midwest and Great Plains.  The small window afforded the farmers last week was shut down with the strong rain storms over the weekend.  More storms are forecast for this week.  As mentioned, the COT report showed funds continued to hold large spec short positions in the grains, but the data was compiled as of last Tuesday.   Funds were reported as buyers  over the last few sessions last week, with the market approximating funds bought 30k of corn on Friday.  Interestingly, corn open interest increased over 26k on Friday.  End users hedging future coverage needs?  Looking at the technical for corn, prices (CN9) gapped higher by a penny in the overnight trade, and a trade back down to 3.84 ¾ would fill the gap.  Also, the key resistance point of 3.87, the 200 day Moving Average, was firmly traded through in the overnight trade.  Not only may this have brought in more short covering, but it also may have triggered “buy” signals from the algo community.   The market now expects a sizable loss of corn acres, which will put a dent into what was believed to be abundant US stocks.  Soybeans and wheat are also higher, as the rains impact these markets as well.  For wheat, it continues to delay the planting of spring wheat, and for the winter wheat crops, the excessive rains pose a threat to the quality of the crops.  Soybeans, while also trading higher in what is also perceived as a short cover since funds continue to carry a large short here as well, are not making new highs, unlike corn and wheat.  With a later planting cycle, it is believed that many lost corn acres could become soybeans acres, thus keeping an already large US stocks number even bigger.  This afternoon brings an updated look at crop progress, where the pace of planting is still expected to be way behind last year and the averages. 

 

Other commodity prices were lower on Friday, in part attributed to the depreciation of the Brazilian real.  The real traded to a 7 month low, which caused Brazilian producers to get more aggressive in selling crops, which are denominated in dollars.  Sugar, coffee, cotton and orange juice all were lower on Friday, resuming the downward trajectory following a couple of sessions experiencing a corrective bounce.  These markets are trading higher this morning, as the dollar is softening up.

 

The live cattle market traded higher Friday, as it was reported was reported by the USDA that US beef has gained full access to the Japan markets.  Lean hogs also finished higher, as the perception a trade deal with China will eventually be completed, reviving Chinese demand.  Especially as the swine fever epidemic persists. 

 

Gold was hit hard on Friday, as the dollar firmed and the safe haven premium eroded in gold prices.  In the overnight trade, gold was lower early, on the favorable Japanese news.  Prices came within $4 of the 200 day Moving Average ($1269.2), which is viewed as a key support area.  This level has been tested a couple of times in the past 2 months, only to bounce each time.  Gold has firmed up in the European trade, in part on the geopolitical headlines and on the downturn in equity prices.  Copper prices are lower this morning, as lower equity prices reflect pessimism on economic growth. 

 

The US weather remains a very important story in the commodity world.  The continuous storms are having a real impact to the crops.  As the short base in the grains continued to grow over the spring months, it was believed only a significant weather event could possibly reverse prices.  Even in early spring, with all of the heavy rains and flooding, it was believed there was time for conditions to improve.  Well, as May is coming to an end, and the conditions have not improved, the market is finally recognizing a very big potential problem.  This is being reflected in the grain price action.  The US forecast for the next 2 weeks keeps rain storms in the forecast, which should keep a bid to grain prices.  In addition, some early outlooks on the weather over the course of the summer has above normal rains and cooler temperatures in the forecast for June and July.  Not optimal conditions for growing, and certainly bringing into question projected yield levels from the USDA.  

 

Technical Moving Averages:

Product               50 day                100 day              200 day

SN9                      884.0                     909.375                 912.5

CN9                      371.0                     381.125                 386.875

WN9                    455.0                     483.875                 517.5

KWN9                  427.5                     465.5                     511.0

MWN9                536.75                   554.75                   581.625

CLN9                    62.06                     58.18                     60.72

GCM9                  1295.0                   1303.5                   1269.2

LHM9                  91.335                   84.560                   82.495

LCM9                   118.030                 117.915                 116.140

KCN9                   94.51                     100.72                   108.29

CCN9                   2308                       2318                       2279

CTN9                   75.72                     75.35                     78.60

SBN9                   12.50                     12.70                     12.63

JON9                    112.10                   117.25                   132.60

HGN9                  287.60                   282.60                   280.00

 

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)