Good morning,
DXM9 97.670 +0.193 GCM9 1276.8 -6.8 ESM9 2834.50 +2.75 CLN9 59.11 +0.48
The markets return from the holiday weekend, with the grain markets on fire, as severe rain systems continue to sweep across the Midwest. In addition to the overly saturated fields, including flooding in many cases, where the planting delays will continue, the storms were very violent in many areas, causing damage as well. Planting has been running at a serious lag, and it looks to become worse in this afternoon’s report. The oil market is trying to mount a corrective bounce again today, still working on recovering from the washout oil prices had in the latter part of last week. Equities are bouncing around unchanged today, as gold gets hit. Other commodity prices are chopping around today, receiving selling pressure from the stronger dollar, but also getting support from weather which could impact the development of the products.
The primary story today is the grain markets, which have exploded higher with the continued rain storms. At this point, it is very evident that there will be corn acres that don’t get planted. Friday’s COT report from the CFTC showed that over the past week (up to last Tuesday), a huge amount of the spec short position in corn had been covered in. No doubt, more covering took place over the remainder of last week. The report showed spec shorts to now total -121k (from -291k reported the week before), but the number will be less than that. Wheat and soybeans also saw declines in short positioning, but not of the same magnitude. The soybean short reported remains large (-157k) and wheat decent sized as well (-76k). With the planting delays, the farmers are facing crop insurance issues. For many, the past few to the next few days marks the deadline for when fields had to be planted for the crop insurance coverage, which protects the farmer from a drop in price or yield. Another vehicle for the farmer is prevented-plant claims, which pay-out the farmers if crops don’t get sown at all, which could be the case for a good portion of the farm community, given all the rain. Corn prices are trading at 3 year highs. Keep in mind that for corn, there is still a bullish technical signal in place on the intra day chart, with a gap from a high on Friday May 17 (3.84 ¾ ) and the low from the Sunday night session (3.85 ¾ ). Wheat prices have exploded higher as well, as the same storm systems delay getting the remainder of the spring wheat planted and pose a high risk of damage and yield deterioration for the winter wheat crops. Soybeans are also trading higher, being drug up by the corn and wheat markets. There is still a sizable spec short position in soybeans to contend with, and more aggressive covering could be taking place as corn and wheat shorts get covered in. While soybeans could be the recipient of additional acres lost by corn, the long term forecast keeps these rains and cooler temperatures in the forecast, perhaps keeping beans from being planted as well. Update crop progress and conditions reports come out this afternoon.
The oil market is trading higher today, following a late bounce on Friday afternoon. Oil prices from Tuesday afternoon on last week were hit hard, as large production and inventory numbers, along with an overall risk off sentiment in markets, sparked a major long liquidation trade, which saw prices cascade lower. The critical 200 day moving average was breached mid-week, and the selling pressure increased as longs scrambled to get out. To this point, oil is managing to stay below $60. If this bounce in prices continues, and gets above $60, keep an eye for a revisit to the same 200 day moving average for CLN9 (60.63). This level should act as price resistance for the trade.
Cotton has a good bid today, as the strong rain systems are thought to potentially cause damage to the crops. Coffee and orange juice prices are also bouncing today. These markets have observed back and forth price action of late, as the battle between expected abundant supplies and diminishing demand keeps the market chopping.
Gold has come under a bit of pressure over the past hour, as equity prices find some support as US traders return to their desks from the long weekend. Equity prices were a touch lower in the Asian and European session, only to now be firming. Gold is softening up on equities, and from the dollar strength. If gold prices keep leaking lower, keep an eye on 1270.2 in GCM9 to serve as support. This is the 200 day moving average for gold. Copper prices are trading a bit higher today, as a calm equity market, with prices trying to move up, bodes well for economic growth prospects.
The news on the US weather front remains dire. More strong rain storms, producing hail and tornadoes, remain in the forecast for the foreseeable future. Planting delays and damage to farm properties and crops, will remain a very real situation facing the farm community. This should keep a bid to grain prices, which had been viewed as too cheap for a very long time, but there was no real risk to prices rising. It was continuously being stated that the market needed a weather market to get it out of this low priced slump. Well, it’s here and creating havoc for many along the way.
Technical Moving Averages:
Product 50 day 100 day 200 day
SN9 875.625 904.875 909.5
CN9 373.0 381.25 386.5
WN9 457.5 481.5 514.375
KWN9 426.5 461.25 506.25
MWN9 535.625 553.5 578.75
CLN9 62.30 58.89 60.63
GCM9 1292.4 1302.9 1270.2
LHM9 92.230 84.950 82.940
LCM9 117.135 117.630 116.085
KCN9 93.74 99.92 107.61
CCN9 2328 2318 2285
CTN9 74.93 74.98 78.08
SBN9 12.42 12.66 12.62
JON9 109.80 115.75 130.90
HGN9 285.45 282.70 279.70
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)