Commodity Corner: Morning Comments

Good morning,


DXM9  96.49  -0.16                          GCM9  1308.9  +7.0                         ESM9  2893.00  -5.25                       CLK9  64.30  -0.10


Global equities are a touch lower this  morning, as President Trump announces up to $11B in tariffs against the EU, in response to EU aircraft subsidies.  Gold continues to firm as the dollar leaks lower, and the oil markets keep ratcheting upwards.


The fighting in Libya, and the potential for supply disruptions, saw Brent crude oil and WTI take out another resistance barrier yesterday, trading above psychological resistance points of $71 for Brent and $64 for WTI.  Russia’s energy minister commented  that all options remain for the OPEC production cuts accord.  The lower dollar is also helping to propel these prices higher.  Oil is trading at a 5 month high.  The overnight trade saw spot month WTI prices come within 20 cents of $65. 


Today brings the latest installment of the WASDE report from the USDA to the grain markets.  In general, an increase to inventories, both domestically and globally are expected (estimates can be found in the attached document).  Updated projections for the South American crops will be given as well, with some minor increases to  the crop sizes for Brazil and Argentina expected.  In the overnight trade, wheat prices came under pressure, following yesterday afternoon’s reading on crop conditions for winter wheat.  The overall Good/Excellent rating came in at 60% vs 56% last week.  The primary winter wheat producing states saw an even more dramatic increase.  Crop progress was also reported, but it is so early in the planting season, there wasn’t any news there.  A breakdown of all this data can also be found in the attached document.  Wheat prices did trade higher at one point in yesterday’s session, as another large winter storm is set to hit the Great Plains and Minnesota tomorrow and Thursday, bringing up to a foot of snow.  The market will be watching for planting delays as a result of this storm.  Lastly for the grains, the CFTC reported last Friday in its COT report a record spec short in corn (-269.8k).  Open interest in corn has been declining for several days consecutively following, shedding about 55k contracts since last Thursday’s trade.  Nonetheless, it is still a large short position in the market.  Soybeans, it’s products, and wheat (both Chicago and Kansas City) are carrying spec shorts into today’s data as well.


In other news tied to the grain markets, Egypt rejected a cargo of French wheat, due to a high level of ergot.  It is being estimated that Russian wheat exports, for the 2019-20 season, could rise to 37 mmt from 35 mmt expected this season.  This increase in exports comes from an expected increase to the size of next year’s crop.  Dr. Michael Cordonnier raised his estimate for Argentina’s soy harvest by 1 mmt, to 55 mmt.  Continued concerns about Swine Flu in Asia, and a decrease in feed demand,  put pressure on Chinese soybean and rapeseed meal futures in the overnight trade.  In terms of key technical points for today’s trade, Soybeans (SK9) sees its 200 day Moving Average come in at 9.07 ½.  A trade above this level with some momentum, could trigger some short covering in beans.  The 200 day MA for corn and wheat is pretty far overhead, and shouldn’t be any factor in the trade.        


In addition to the lower dollar, the strength in the gold and metals markets is coming from a growing confidence in China’s economic outlook continuing to improve.  Copper was also supported as the biggest names in the copper industry gathered for the CESCO conference in Santiago, where it was cited that the giant copper mines currently under construction will be able to produce an additional 1 mmt of copper through 2023.  It was then commented on that this additional supply still wouldn’t be enough to meet demand, as the market is the tightest it has been in 5 years.


In the softs, cocoa snapped its largest rally in 4 years, as a top producer from the Ivory Coast announced it expected to increase  the  amount of cocoa beans it will be able to deliver.  Supply  concerns, given the hot and dry conditions, had been the primary driver of this rally.   Cotton finished yesterday at a 16 week high, as continued optimism for export demand supports prices.  Cotton is also receiving a boost from an estimate to a cut in cotton production in India, due to dry weather in some growing areas.  Orange  juice futures traded at its lowest price since October of  2015, led down by the prospects of larger supplies out of Florida.  It is being projected the 2018-19 orange harvest could be 41% larger than last year.


For the US weather,  the already mentioned blizzards and rain across the Great Plains and the Midwest that will be happening today and tomorrow will be viewed as detriments to planting of corn and spring wheat.  In addition, the outlook that runs over most of the month of April tends to have a fair amount of precipitation in the forecast.  The grain markets will be preparing to face delays in corn and spring wheat.  If the delays are lengthy, the conversation of a switch to planting soybeans will emerge.  In Europe, rain is developing which will ease the concerns of wheat farmers that have been facing dry conditions. 


All eyes on today’s WASDE from the USDA.  Then, back to the weather and trade negotiations.


Have a good day,



Mike Clifford

312 604 6404