Commodity Corner: Morning Comments

Good morning,


DXM9  97.635  -0.088                       GCM9  1283.3  -2.1                                                          ESM9  2833.00  +13.50                     CLN9  58.59  +0.68


The markets appear to be feeling pretty good, heading into the holiday weekend, with equities, oil, grains and the soft commodities all trading higher this morning.  The dollar is lower (aiding the commodity bid) along with gold (safe haven removal).  There are a lot of risks out there, from geopolitical tensions to the weather, and the holiday leaves traders with an extra day of exposure without a good avenue to trade/hedge (some markets will be open for some time on the screen on Monday, but trading will be sparse and volumes thin).  In addition, today is expiration for June options contracts at the CBOT.  There are some decent sized options positions out there, that have the potential to drive some of the late price action, especially if the trade starts to  wind down mid-morning.  It has been a very volatile week in many markets, and the overall feel is that of a tired market. Perhaps the holiday is coming at the perfect time for all to catch their breathe.


Oil gets the prize for the craziest market of the week (so far), although grain traders may argue this.  After beginning the week with a good bid on supply concerns with production quota discussions amongst OPEC+, the data mid-week completely changed the tone.  Reports of large production and inventories sent oil into a tailspin, collapsing lower.  Along the way, all key technical support levels were taken out.  Not only did this trigger sell stops from the fund community carrying long positions, but it also sent sell signals to the “algo” community.  Yesterday’s trade saw the lead contract (CLN9) come within 20 cents of being limit down.  WTI oil is bouncing today, as yesterday’s sell-off probably got a bit  ahead of itself.  On this bounce, CLN9 is approaching the 100 day Moving Average, which now should act as some resistance for prices.  With the long weekend upon us, and really no reduction in the tension in the Middle East, some position squaring would seem in order.


As I said, grain traders may argue about which market can claim the “Iron Throne” for having the most volatile week.  Grain prices have been very well bid all week, primarily on the continuation of the stormy weather systems, which will most likely cost corn some acreage and could impact protein and yields for wheat.  Soybeans have been a bit of a laggard, as beans look to capture some lost acres.  Part of the acreage discussion has been the “reset” of what the appropriate price ratio should be for soybeans to corn.  In normal times, this ratio has run around 2.3 : 1, beans to corn.   The SX9 / CVZ9 price ratio is currently trading around 2.065 : 1.  I did spot it around 2.04 : 1 at one point yesterday.  There has been talk that if a substantial amount of corn acres are lost, and replaced with bean acres, the ratio could slide down to 1.85 : 1.  Something to keep an eye for the next few weeks.  Part of the strong bid in wheat yesterday, came from a comment form the Russian Ag Minister, calling for the 2019-20 Russian wheat crop to be around 75 mmt, where some in the market felt it may be around 80 mmt.  The thought was less Russian wheat creates more opportunity to for US wheat demand.  Technically for corn, there is still a gap on the charts, which gets filled in on a trade in CN9 down to 3.84 ¾ .  Until this is filled, a bullish sginal remains for corn.  President Trump announced the additional $16B aid package for farmers affected by the trade war with China.  Upon seeing the details yesterday, prices traded down, clearly disappointed in what was actually being offered.  However, with the rain and stormy conditions predominantly sitting in the weekend and next week’s forecast, and as the month of May is coming to a close, prices have firmed back up today.  Following today’s trade, the grain markets will be closed until Monday evening, so there is an extra day of weather event risk for traders to live through.


The dollar also had an interesting trade yesterday.  It was firm in the morning, as the market viewed the FOMC minutes, which showed a neutral stance on policy is warranted, was constructive for the dollar.  Especially as numerous central banks are in the process of, are looking to lower rates.  This effectively puts the US in a tightening mode, on the global landscape.  Mid-session yesterday, the dollar reversed course, and traded down hard, as oil was collapsing.  The down trade may also have been driven by the weakness in the US equity markets, the strength in gold, lack of progress on trade or just profit taking from outstanding long positions.  This reversal in the dollar was good for commodity prices, denominated in dollars, as they become more attractive on the export market.  Some of these markets were already trading better even before the dollar reversed.  Cocoa was up on dry weather concerns in West Africa, cotton was higher following decent export sales data and yesterday was an “up” day for the coffee and orange juice markets, which have been on a pretty wild roller coaster ride of late.  These markets are higher this morning, with the dollar down again.


Gold is lower today, as stocks and oil bounce eliminates some of the safe haven status of gold.  This being said, yesterday’s strong bounce came from the same safe haven need.  Technically, gold continues to find the 200 day moving average as solid support for prices.  Today, this level (GCM9) is 1270.0.  Copper is higher today, after a big down day yesterday.  The apparent theme for copper remains to be that of following stocks, in terms of positive or negative sentiment towards economic growth. 


As mentioned, the US weather forecast, for the holiday weekend, and most of next week is kind of a bummer.  Numerous rain storms are in the forecast, with moderate temperatures.  There has ben so much rain to this point that flood warnings are prevalent across the country.  At this point, almost all are aware of the impacts to the markets, and all are definitely sick of these conditions.  Here in Chicago, people are absolutely craving some decent weather.  Any time there is a brief window with sun and some warmer temps, the shorts and flip flops come out immediately!  Only to be  searching for the rain ponchos (and winter parkas in a couple of instances) the next day.       


THANK YOU!!  To all veterans who served and sacrificed, in order for all of us to enjoy the freedoms we have!


I hope everyone has an enjoyable and safe holiday weekend!   


Technical Moving Averages:

Product               50 day                100 day              200 day

SN9                      877.25                   905.75                   910.25

CN9                      372.5                     381.25                   386.5

WN9                    457.0                     481.75                   515.0

KWN9                  426.625                 462.0                     507.25

MWN9                535.75                   553.75                   579.25

CLN9                    62.32                     58.78                     60.66

GCM9                  1292.7                   1303.0                   1270.0

LHM9                  92.170                   84.900                   82.865

LCM9                   117.320                 117.690                 116.090

KCN9                   93.86                     100.07                   107.73

CCN9                   2323                       2318                       2283

CTN9                   75.07                     75.05                     78.18

SBN9                   12.43                     12.67                     12.63

JON9                    110.32                   116.05                   131.2

HGN9                  285.85                   282.65                   279.75


Have a good day.





Michael Clifford


141 W Jackson Boulevard                             

Ste 1201A                                                              

Chicago, IL 60604                                              

Trean Group, LLC                                              


312-896-2012  (fax)