Commodity Corner: Morning Comments

Good morning,


DXM9  97.835  -0.061                       GCM9  1276.6  +3.4                                                          ESM9  2852.50  -13.50                      CLN9  62.40  -0.81


The markets appear to be catching their breathe today, following what has been a very wild ride in the commodity space.  The grains are reversing lower today.  To be determined if this is just a correction to the rally, or game over for higher prices.  Given the market remains with a core short, and the weather picture really hasn’t cleared up, there still should be support below.  Oil is also lower today, sliding down following yesterday afternoon’s API report showing US crude stocks rose 2.4m barrels last week.  Gold is a touch higher, with equities and the dollar lower this morning.  Yesterday, gold traded down to, and held its 200 day moving average, and has bounced $4 from the level.   Other soft commodities are a touch lower today, having rallied yesterday as the Brazilian Real traded higher.  A stronger real reduces the desire of the Brazilian producers to sell their products. 


It would probably be incorrect to assume the party is over for the grain markets.  The extended forecast through the end of May has numerous rain storm events, as the end of the planting cycle approaches for corn and spring wheat.  Grain prices were exploding to new highs in the early trade yesterday, in an apparent combination of short covering and new longs being initiated.  Corn futures open interest increased again yesterday, by over 18k.  Soybean OI was up 10k, while wheat OI declined by almost 12k for Chicago and over 8k for Kansas City.  Prices then hit a brick wall, and fell, when the announcement of additional aid to farmers hurt by the trade war with China was released.  The proposed aid was $2/bushel for soybeans, $0.63/bu for wheat and $0.04/bu for corn.  These amounts upset the corn community, which felt short changed from last year’s aid package, as the 4 cents wasn’t viewed as enough compensation.  Soybeans led the move down, as these aid amounts, coupled with the increased chances of corn acres lost from planting delays, provided even more credence to the notion of more soybean acres getting planted.  Part of the discussion centered on if this season’s planting intentions were to be used in the determination of how much aid is given.  The risk, magnified by the planting delays, is that if it is based on this season’s intentions, it would skew the amount of bean acres.  That is what caused beans to charge lower.  It still remains to be seen what actually comes with this aid package, and how qualifications are determined.  This story did provide for a good opportunity for the grain markets to correct from what was a very overbought condition, technically.  Speaking of technical, on the overnight decline in corn, prices did test the 200 day moving average, and have proceeded to bounce off the level. 


As the back and forth trade in oil continues, today is a move down, on the back of an increase in crude stocks reported by API.  While the tension in the Middle East hasn’t disappeared, the lack of any new headlines also allowed for  prices  to  correct.  Oil still appears to be rangebound, and could remain so unless the is an escalation in the Middle East.  The next round of OPEC+ production talks is being slated for early July, so the back and forth price action could remain intact.  Russian President Putin appeared on the  tape, commenting that the production quotas in place are hurting the Russian economy.  Another look at US production and inventories comes from the EIA later this morning. 


Already mentioned, soft commodities were higher yesterday.  Coffee had a strong bid, as concerns about frost in Brazil impacting the crops pushed prices up.  Cocoa also traded higher on concerns about hot and dry weather in West Africa.   Prices also rose as the Brazilian Real strengthened against the dollar.  With most commodities denominated in dollars, the producers have less incentive to sell when the real rises.  Orange juice resumed its trade lower yesterday, following a few corrective sessions higher.  Cotton was lower again, as the delays in trade negotiations sparks concern about ultimate demand for cotton from China. 


Gold was lower yesterday, as the “risk on” attitude  in  the market reduced the need for the safe haven status of gold.  With gold getting back on its lower trajectory, it did trade down and touched the 200 day moving average, only to bounce off the level.  Copper traded lower yesterday, pushed down on softer existing home sales data out of the US.  The lagging trade talks also continue to weigh on copper prices.


There is no real change in the US weather story.  The rains look to continue into next week, leaving the planting dilemma out there.  The newly proposed aid package for the farmers certainly throws a new twist into this debate.  Some of the storms are very severe, which creates crop risk concerns for the winter wheat crops, which are heading.  There is a risk of potential damage to the crops, along with a potential reduction in quality and loss of yield.  Germany received so much needed rain, following an extended dry period, bringing aid to the crops.                 



Technical Moving Averages:

Product               50 day                100 day              200 day

SN9                      880.75                   907.625                 911.25  

CN9                      371.75                   381.125                 386.75

WN9                    456.375                 482.875                 516.25

KWN9                  427.5                     463.75                   509.25

MWN9                536.5                     554.25                   580.5

CLN9                    62.28                     58.52                     60.71

GCM9                  1293.9                   1303.3                   1269.6

LHM9                  91.810                   84.745                   82.690

LCM9                   117.650                 117.815                 116.115

KCN9                   94.14                     100.36                   108.01

CCN9                   2316                       2318                       2281

CTN9                   75.44                     75.19                     78.39

SBN9                   12.47                     12.68                     12.63

JON9                    111.31                   116.63                   131.90

HGN9                  286.90                   282.70                   279.90


Have a good day,