Commodity Corner: Morning Comments

Good morning,


DXM9  96.740  -0.059                    GCQ9  1348.0  +19.3                         ESM9  2813.25  +8.25                   CLN9  52.64  -0.84


Gold steals the show in the overnight trade, exploding to new highs, even with the stock market extending yesterday’s gains.  Uncertainty about where the Fed actually is, regarding monetary policy, following Fed Chairman Powell’s speech yesterday, has the currency and fixed income markets doing some summersaults.  Ultimately, the market thinks the next Fed move is to lower rates, and the move probably is sooner rather than later, thus the dollar is softer, fixed income and equity markets have a bid.  The huge bid in gold probably is the result of money being parked until a clearer picture comes into view.    The oil market, in my opinion, is actually holding in fairly well, given a stronger than expected API inventory report yesterday afternoon, being down around 40 cents.  The grain markets are moving back down today, led by wheat.  After the storm system that is moving across the country today, the short term forecast appears to offer a dry window to plant.  It may be too little too late for corn, but should help soybeans.  It also may provide some relief to developing wheat crops.  The softer dollar should provide some support for the other commodities, assuming there are no other meaningful inputs to impact the trade.


**Just released, May ADP Employment Index was +27k, vs +275k last month and expectations of +185k**


Typically, this is viewed as a precursor to Friday’s Non-Farm Payrolls data.  The market was expecting payrolls to +180k, but odds are good economists will be revising that number down over the next 2 days.  The Unemployment Rate is expected to remain at 3.6%.  The dollar was hit further on this release, and gold, which had been rotating off the overnight highs, quickly bounced back up to make a new high.  Stocks have been hit on this news, showing concerns about economic growth.  Oil also traded down to make a new low for the session, as this number doesn’t bode well for economic growth.          


As mentioned, gold really appears to be the main story today, with the bounce in equities over the past couple of sessions not far behind.  Fed Chairman Powell’s headlines, saying the Fed was prepared to act if conditions warranted, created an instant interpretation from the markets that the Fed was prepared to pull the trigger to cut rates, possibly at the June meeting.  This, following Fed Vice Chairman Bullard’s dovish comments the other day allowed the dollar to trade down, and fixed income markets to go bid.  When Powell actually spoke yesterday, his comments, while still friendly, weren’t necessarily as bullish as the tapes made them appear.  With the dollar coming off, and interest rates low and moving lower (globally), gold seems like a fine place to let money sit.   Gold now trades about $65 higher than the lows put in during May.  With all of the uncertainty out there, gold should remain supported for some time here.  If it should break down, 1308.8 is my level for support. 


Oil prices have had a back and forth trade overnight, with pressure coming from what appears to be a potential glut of supply, based upon the data that has come out of late.  The DOE and EIA release its updates later this morning.  The market, which has observed a huge move lower over the past few weeks, is hovering just above the lows.  An assumption in the market is that OPEC+ is not pleased with the low price of oil, and production levels are likely to be discussed at the next meeting, scheduled for June 24-26.  As mentioned yesterday, if the data comes out strong, oil prices could head back down.  There are some old lows around $51.25, and the $50 level is really not that far below that.


Wheat prices are getting slammed this morning.  The rally over the past month has made priced US wheat $30 mt more expensive than Russian wheat.  While the Black Sea region has encountered some hot and dry conditions of late, Russia is still expected to have a decent sized crop, so the US may find it difficult to get business done.  Corn is getting hit, in part because of the late window that could be opening up for some very late planting.  Lower yields will be expected here, but it still would add to available stocks.  Another factor hitting corn prices today is yesterday’s announced sale of 2.5m tons of corn to Mexico from Brazil.  As President Trump sticks to his guns about tariffs on Mexico, this brings great concerns about the corn trade with Mexico going forward.  IN 2018, Brazil only sold 130k tons of corn to Mexico, but it should be pointed out that Brazil had a diminished crop size last year, due to drought conditions.  Soybeans, are lower, as it is thought the beans may actually get planted with the window opening up.    


Coffee prices, coming off this morning, traded at the highest prices since mid-February yesterday, as the fund community continues to cover shorts.  The stronger Brazilian real is also keeping producers from making sales in the market.  Sugar has had a decent bid of late, as the expected lower amount of corn available in the US has the market expecting Brazilian millers to produce more cane ethanol and less sweetener.  Cotton is higher today, as the strong storms of late pose a risk to the cotton crops.  A very large cotton crop is expected in the market, and funds are doing some short covering as these weather events keep occurring.  The back and forth trade in orange juice continues, as weather risks create short covering days, but a healthy crop is still expected, and demand is down.              


Looking at the weather, the short term 6 to 10 day forecast does appear to have some dry days looped together, which could create some planting opportunities.  The extended 11 to 15 day forecast does have rain back in the picture.  Canada has scattered rains in its forecast, and a possibility of snow in northern Canada.  The Black Sea remains hot and dry.    


Technical Moving Averages:

Product               50 day                100 day               200 day

SN9                      870.25                   901.0                     908.25

CN9                      378.0                     383.0                     387.25                  

WN9                    462.25                   480.25                   512.0

KWN9                  429.0                     458.0                     502.25

MWN9                534.75                   552.5                     576.25

CLN9                    61.80                     59.20                     60.40

GCQ9                   1296.8                   1308.8                   1278.6

LHN9                   94.215                   87.610                   84.735

LCQ9                    112.330                 113.765                 113.330

KCN9                   94.15                     99.55                     107.20

CCN9                   2354                       2315                       2291

CTN9                   73.97                     74.65                     77.62

SBN9                   12.32                     12.63                     12.63

JON9                    107.15                   114.60                   129.25

HGN9                  282.50                   282.80                   279.40


Have a good day.





Michael Clifford


141 W Jackson Boulevard                             

Ste 1065                                                              

Chicago, IL 60604                                              

Trean Group, LLC