Good morning,
DXM9 97.87 +0.106 GCM9 1271.5 -5.8 ESM9 2861.00 +17.00 CLN9 63.51 +0.30
It’s a risk on Tuesday, as US stocks and the dollar are trading with a solid bid this morning. Oil is working its way back up towards yesterday’s highs, around the $64 level for WTI. Grains are surging to new highs for this move as well, as yesterday afternoon’s crop progress report confirmed the seriousness of all the rain this spring, and the impact on planting and development. This late in the planting cycle, not a good thing! Other commodities are trading lower, being pushed down by the dollar strength. Gold is trading lower, and taking out yesterday’s lows in the overnight trade. Risk on mentality, along with dollar strength, provide resistance for gold. Copper is holding in, following the stock market.
Corn takes center stage for me today, as both the technical and fundamental backdrop paint a fairly bullish picture for the short term. Technically, corn futures have a 1 penny gap on the charts from Friday’s high and Sunday’s low. The rule of thumb is the market should attempt to fill the gap at some point, but that is probably not today’s story. Also, corn traded sharply through the key 200 day moving average yesterday, and managed to settle above this level. Most likely, this sent trading signals to buy, whether that be to cover shorts, or initiate longs. Nonetheless, buying is being triggered. The corn market continues to remain out of balance, with the COT report showing funds remain spec short. The report showed a position of just under 300k, but the market probably feels it is lower than that, as there has been some short covering taking place in the sessions since the data was gathered for the COT. Speaking of short covering, while the trade the past few sessions has been believed to be that of short covering, futures open interest suggests differently. OI has increased approximately 70k in Friday’s and yesterday’s trade (Friday just over 20k, yesterday just under 50k), suggesting new longs are being initiated, along with shorts being covered. The corn market probably remains more out of balance to the short side than what some may have thought. Now to discuss yesterday’s planting report. Horrible!, and worse than what the market was expecting. Overall planting figures were 49% vs 78% last year and a 5 year average of 80%. More importantly, for the Big I’s, Illinois was 24% vs 95% last year, Indiana 14% vs 86% and Iowa, while 70% planted vs 83% last year, has incurred tremendous flooding, so it’s not clear the condition there. Looking at emergence for Iowa, it is only 20%, compared to being 49% this time last year, so there are issues (complete breakdown is found on current data attachment). So for the trade, with the market still looking very short, and it sure seems like all the intended corn acres will not get planted, along with the market reducing yield expectations, one would assume a continuation higher. Buying of dips seems to be a decent plan. The 200 day MA should now serve as a solid support area (CN9 = 3.86 ¾ ). There is probably some psychological resistance at $4. Looking at the new crop, CZ9, it is trading just below $4.10. If the rally can extend, $4.25 will be a target overhead.
Wheat also had quite the show yesterday, continuing its trade over the past week of leading the complex and surging to higher prices. Yesterday’s strength came from the excessive rains continuing to cause some delays to the spring wheat being planted, while the severe storms that swept across Oklahoma and Texas, bringing tornadoes and hail, is thought to have done damage to the winter wheat crop, which has been in exceptional condition this growing season. Also aiding wheat was another good showing in the export inspections data yesterday. Funds have been carrying a sizable spec short position in wheat as well (although nothing like that in corn), and short covering has been taking place over the past few sessions. OI declined over 4k in yesterday’s trade, which really isn’t very much, given wheat was up almost 20 cents at one point yesterday. Word of caution to the wheat, as a scramble to higher prices continues. At some point, given the huge rally in just the month of May, which has seen prices bounce 65 cents from low to high, along with the firm dollar, talk that the US prices aren’t competitive in the global export arena will pop up.
Soybeans are also rallying, but on a lag, as it is now widely believed in the market that corn acres will be switched to beans. The lagging trade negotiations and the impact of the swine fever epidemic on Chinese soymeal demand are also keeping a lid on prices. Funds remain carrying a large spec short here as well, but in the grain complex, soybeans would appear to have the least amount of risk to a short at the moment. OK, enough grains and oilseeds talk……
Oil has recovered from a fairly steep reversal off the highs yesterday, and is moving back up to test those levels in today’s trade. The continuation of production cuts past June from OPEC+, along with expectations of seeing an inventory decline reported later today in the API inventory data has given prices a boost. Nigeria reported a pipeline was shut on Monday, which also adds to supply concerns. Oil facilities in Libya were targeted in acts of sabotage, reminding the market of the severity of the tensions in place. Point of notice: June WTI stops trading today.
As mentioned, other commodities are lower today, as the dollar remains firm. It has been a pretty wild whip saw in a few of these markets, notably orange juice, coffee and cotton. There have been very large price swings observed here. Sugar has been holding in, compared to the other products, as Brazil continues to shift cane supplies to ethanol production.
Gold prices continue to move lower today, as stocks and the dollar stay firm. Gold futures (GCM9) are bout to test the important 200 day Moving Average (1269.4). This area should provide some support for prices, but if the level is taken out with some momentum, it could exacerbate the selling to the downside. So far, the low is 1270.2, but keep an eye on this area. Copper is hovering around unchanged today. The stock market strength is a sign of optimism for economic growth, but the ongoing trade banter with China brings into question Chinese demand.
The US weather continues to see rain in the forecast, with another system moving across the Midwest today and tomorrow. The extended outlook keeps numerous rain events in the forecast next week. As already mentioned, this poses a huge problem for the under sown US fields. More weather analytic firms are projecting weather in June and July to have above average rainfall, with below average temperatures. Not ideal conditions for crop development.
Technical Moving Averages:
Product 50 day 100 day 200 day
SN9 882.5 908.5 911.875
CN9 371.25 381.0 386.75
WN9 455.5 483.375 517.0
KWN9 427.25 464.75 510.25
MWN9 536.75 554.5 581.125
CLN9 62.18 58.37 60.72
GCM9 1294.4 1303.4 1269.4
LHM9 91.610 84.660 82.600
LCM9 117.840 117.865 116.130
KCN9 94.28 100.53 108.14
CCN9 2311 2318 2280
CTN9 75.58 75.28 78.50
SBN9 12.48 12.69 12.63
JON9 111.75 116.95 132.25
HGN9 287.25 282.65 279.95
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)