Commodity Corner: Morning Comments

Good morning,


DXM9  97.900  +0.058                      GCM9  1284.1  +7.0                         ESM9  2786.00  -19.00                    CLN9  57.36  -1.78


The topsy turvy world of all the markets, including commodities stays the course this morning, with more volatile price action.  Equities and oil are down sharply, and gold has caught a bid, while the dollar remains bid.  While the “risk off” phrase will get a lot of play in all the commentaries today, it feels like this move could be more of an asset re-allocation into month end, especially as global fixed income markets continue to march higher. 


For commodities, at least for me, the number to be aware of today is 58.  58% being the amount of corn reported as being planted in yesterday afternoon’s crop progress report.  As the month of May comes to a close, and less than 60% of the expected crop planted, this is very serious.  At this time last year, 90% was planted, along with the 5 year average being 90%.  The rains are expected to continue, and it sure looks like 1/3 of the projected corn plantings will not happen this season.  Corn futures are up over 30 cents since Friday’s close (gapping higher on the open last night), where the lead contract took out the psychologically important $4 level late in the session.  Also, there are 3 “gaps” on the charts for CN9, and until they are filled in, a bullish signal is in place.  (the first gap gets filled in down at 4.21 , the second 4.04 ¾ and the third 3.84 ¾ ).  Corn futures for this season’s crop (CZ9), have traded above $4.50 in the overnight trade.  This general level was thought to be an area of decent price resistance, but the herd mentality at the moment may not pay heed to that.  In addition to the short covering of the large spec short in corn that has taken place over the past 2 weeks, (positioning went from > -300k to -121k), there have been numerous fresh long positions added as well.  From just Friday and yesterday on this rally, futures open interest increased almost 100k.  New longs entering the market, and given the 17 cent rally overnight, along with closing 16 cents higher on Friday, feeling pretty good at the moment.  The pain has become excruciating for any shorts that didn’t  manage to get out. 


Moving to soybeans, really not a pretty picture there either, and they also gapped higher.   The same crop progress report showed soybean plantings at 29% vs 74% last year and the 5 year average at 66%.  As corn (and wheat) have been rallying hard the past couple of weeks, beans have been somewhat of a laggard as its prices rise.  The ongoing trade battle with China, where soybeans are in the direct line of fire is one reason why, the other is that beans are expected to be the beneficiary of additional sown acres that were originally intended to be corn, since they have a later planting season.  However, with all of the severe storms, the bean plantings have been substantially behind pace as well, and with many rain systems projected throughout the month of June, it is being questioned how much of the soybean crop will get planted.  Soybean prices played a quick game of catch up, rallying over 70 cents from Friday’s low, taking out the key 50 day Moving Average (8.74 ¼ ) in the overnight trade.  Last Friday’s COT report from the CFTC showed funds still carrying a spec short of over 150k, and if the rally continues up to test $9 for SN9, keep an eye on 9.04 ¼ and 9.09 ¼ .  These prices are the 100 day and 200 day Moving Average levels.  If the market can take out the key 200 day level, it could trigger much buy stops, along with sending buy signals to the “algo” community.  For the new crop futures contracts (SX9), $9.23 ½ is the 200 day Moving Average for this contract.  Same rules apply, if the SX9 market can take this level out, it could exaggerate the move to the upside.


The wheat market has also been staging an impressive rally, as the persistent rains, while not hindering planting of spring wheat to the same degree, have been causing some major concerns about damage to headed winter wheat crops, and proteins levels with these crops.  Wheat futures opened up right at its 200 day MA (WN9. 5.14), and exploded through that level as well.  The size of the spec short in wheat has been getting scaled back of late, but this move also is likely to trigger buy stops and newly initiated longs.  Wheat has also been receiving support from talk that Russia’s wheat crop may not be as large as what the market had been expecting.  This improves hope for the US to gain market share in the export market.  However, wheat has rallied over a $1 in the month of May, and this coupled with the continued strength in the dollar hurts this argument.


Not to be outdone, the oil market has also had an exciting trade overnight, declining almost $2 (CLN9), taking out the old low of this move from last week ($57.33) and testing the psychological $57.13 support area (limit down level last week).  The overnight low is $57.14 (for the moment).  Escalation of the trade war, and the thought of a chokehold being put on global growth, is the catalyst for this sell-off.  There is probably more long liquidation taking place on this break as well.  The WTI market failed to trade above $60 in yesterday’s trade, and is spiraling down today.  This afternoon, API releases inventory data from last week.  This number, along with the EIA and DOE data to be released tomorrow, were the cause for the breakdown of this market last week, as the data showed increasing production and inventories in the US.  Stay tuned. 


Briefly on some other markets.  Cattle futures were up yesterday, as feed lot performance has not been good, due to the unusually wet and cold conditions.  In addition, this spike in grain prices has spooked the feeder cattle market.  Coffee traded its highest price in 6 weeks, as storms in Brazil threaten harvest progress.  Orange juice futures rise, in a short covering trade, as the excessive heat in the southeast US for this time of year is thought to have an impact on the orange groves.  Cotton is also higher, as the violent storms pose a risk to the cotton crops.  Lumber was limit down, with prices reaching a 7 month low.  Concerns about a slowing US economy impacting the housing market weighing on prices here.


Gold, not surprising, has traded higher overnight, as equities and oil melt.  Gold remains the safe haven, when the waters are turbulent.  Any change tone changes in these other markets could lead to a bit of a correction lower in gold prices.  Similar story with copper, except it appears to be moving in tandem with equities, and not opposite, like gold is. 


Well, for all the grain traders who have been clamoring for a weather market all winter and spring, as prices sunk to lowest levels in a over a decade, I guess the old saying, “be careful what you wish for” applies here.  While rains remain in the current and near term forecast, there may be a glimmer of hope looking into the second week of June.  There are some dry pockets in the extended forecast, so there could be opportunity for planting, probably more so in soybeans, but there may be some attempts at corn as well.  If the fields can dry out, and soybean sowing can get back on track, there could be a bit of a correction lower to bean prices.  Your local weatherperson will remain a popular celebrity for the time being.               


Technical Moving Averages:

Product               50 day                100 day              200 day

SN9                      874.25                   904.25                   909.25

CN9                      373.75                   381.5                     386.75

WN9                    458.25                   481.5                     514.0

KWN9                  426.75                   460.75                   505.5

MWN9                535.75                   553.5                     578.25

CLN9                    62.30                     59.00                     60.61

GCM9                  1291.7                   1302.7                   1270.4

LHM9                  92.180                   84.970                   82.990

LCM9                   116.930                 117.570                 116.085

KCN9                   93.65                     99.85                     107.50

CCN9                   2333                       2318                       2286

CTN9                   74.78                     74.94                     77.99

SBN9                   12.40                     12.66                     12.62

JON9                    109.35                   115.55                   130.60

HGN9                  285.05                   282.75                   279.60


Have a good day.





Michael Clifford


141 W Jackson Boulevard                             

Ste 1201A                                                              

Chicago, IL 60604                                              

Trean Group, LLC                                              


312-896-2012  (fax)