Commodity Corner: Morning Comments

Good morning,


DXM9  98.075  +0.040                   GCM9  1284.0  +0.3                         ESM9  2787.50  +7.50                   CLN9  58.97  +0.16


As the market moves towards month end, the markets continue to chop around, waiting for the next piece of news to hit the tapes.  Since there is no apparent news coming on the trade front in the foreseeable future, markets are vulnerable to other headlines and data that can create some volatility. 


Grains and oil both have had plenty of excitement over the past few sessions, as grains exploded to highs for the move while oil made a new low for this move.  The grain move was driven by Tuesday afternoon’s crop conditions and progress reports, showing a severe lag to crop planting, coming at a very late stage in the cycle, along with deteriorating conditions for the headed winter wheat crops.  Persistent rains and violent storms are the cause for the poor reports, as the month of May might be setting a record for wettest month.  With all of the markets gapping higher on the opening of trade on Tuesday evening, futures contracts were shot out of a cannon.  As the markets came in yesterday morning, traders attempted to extend the gains, but the buying power dried up shortly after the resumption of trade, following the breakfast break.  The markets rotated back down over the course of the session, led by the wheat markets, and some technical gaps on the price charts were filled in (some still remain in corn).  The decline in wheat was viewed as a correction to an overbought market and the realization that the rally of over $1 from the past week, coupled with dollar strength, makes US wheat less attractive on the export market.  Corn also rotated lower off the highs yesterday, as any fresh buying from the 58% planted number was exhausted, and the market realized that a good portion of the bad news was priced in.  Soybeans remained firm, in spite of the increasing odds that more soybean acres will get planted.  One reason for the strength of beans, especially to that of corn, was the relative cheapness of soybeans compared to corn.  The ratio historically runs around 2.3 : 1 (beans : corn), and yesterday morning was spotted at 2.03 : 1 (a 6 year low).  Given these rain systems, which have wreaked havoc in the corn market, remain in the forecast, making some think soybean acres could face a similar fate towards the end of June.  A fresh look at export sales data will be delayed until tomorrow, due to this week’s holiday.


The oil market had its share of action yesterday as well, with the markets moving lower in a long liquidation trade.  ON the first dip, the market stalled out at the level that would have been the limit down price on the huge break last week (57.14 for CLN9).  The second test took this level out and printed a low of 56.88.  Oil markets then proceeded to bounce.  I would love to give as reason why, but I didn’t see anything to cause it during the late morning, early afternoon trade.  All I can say is that the sell stops had been elected and filled, and there were no willing sellers towards the lows.  Makes some sense, given the tensions in the Middle East really haven’t gone away.  Late in the session, oil did stage a decent rally, driven by the API data, showing US crude inventories declined by 5.27m barrels last week.  Recalling back to last week, it was this data, coupled with the production and inventory data from the EIA and DOE that sparked that HUGE break in the oil markets, as data showed increases to production and inventories.  EIA and DOE release data for last week later this morning.  Stay tuned for that. 


I am not intentionally ignoring the other commodity markets, but the story really lies with the products mentioned above.  Again, a couple of tidbits pertaining to some of the other markets.  Lumber was down sharply again yesterday, trading at a 3 year low, as pessimism towards the housing market and the overall economy weighs on prices.  The coffee market was up decently again yesterday, as the weather disrupts the harvest in Brazil, and short positions are covering.  The continued strength of the dollar index pressured many of the commodities yesterday, as most are denominated in dollars, diminishing the appeal in the export market.  Gold had a bid yesterday, in a safe haven play as equities and oil were hit hard.  The industrial metals, including copper and silver, were down on the same economic concerns, in part created by the lack of trade agreement, and no sign of one coming soon.  An interesting note, the relationship in prices between gold and silver has widened out to the widest since 1993.  1 ounce of gold buys 89 ounces of silver.  Gold has been relatively firm as the safe haven, while silver has been under pressure as industrial metals face reduced demand in an economic downturn.  Some are using this ratio, similar to the discussion when interest rates observe yield curve inversions, as a sign of economic trouble ahead. 


The US weather continues to keep rain storms in the forecast for this weekend and throughout next week. Eyes are rapidly turning to weather projections for the latter half of June.  Soybeans are also badly lagging in planting, and the market is trying to determine if beans could find themselves in a situation similar to that of corn.  Another important aspect for all of this weather is that the clock is ticking for the farmers, on the decision of gambling on planting, with lower yields likely, but being eligible to the farm bail out package, or taking prevent plant.  For corn, the farmers only have about the first 10 days int June for this.  For beans, towards the end of the month.       


Technical Moving Averages:

Product               50 day                100 day              200 day

SN9                      873.5                     903.5                     909.0

CN9                      374.5                     381.75                   386.75

WN9                    458.75                   481.0                     513.5

KWN9                  427.0                     460.0                     504.75

MWN9                535.5                     553.25                   577.75

CLN9                    62.28                     59.09                     60.58

GCM9                  1291.2                   1302.4                   1270.7

LHM9                  92.125                   85.000                   83.045

LCM9                   116.725                 117.530                 116.085

KCN9                   93.65                     99.75                     107.40

CCN9                   2337                       2318                       2287

CTN9                   74.64                     74.90                     77.90

SBN9                   12.37                     12.66                     12.62

JON9                    108.85                   115.35                   130.30

HGN9                  284.55                   282.85                   279.55


Have a good day.





Michael Clifford


141 W Jackson Boulevard                             

Ste 1201A                                                              

Chicago, IL 60604                                              

Trean Group, LLC                                              


312-896-2012  (fax)