Commodity Corner: Morning Comments

Good morning,


DXM9 96.715 +0.157                       GCM9  1299.4  -14.5                        ESM9  2896.75  +2.25                      CLK9  64.04  -0.57


The oil markets remain the most interesting to watch, as yesterday’s trade saw another leg up on this current move.  While larger than expected oil inventories were reported from last week, the market chose to look past that and focus on a large decline in gasoline stocks.  The drop in crude stocks was attributed to US exports being the lowest since January amidst the bad weather.  The decline in gas inventories is the biggest weekly drop since  September 2017.  Oil is lower today, as the market moves the focus back to the large crude overhang, and probably some profit taking from this recent run-up in prices.  There was another large options trade that took place in the oil market, again looking for backwardation into the end of this year.  I’ll spare you the exact details, but the trade is basically a calendar spread call strip, with an exposure of 6 million barrels. 


The grain markets had a relatively tame session, with the exception coming from the Minneapolis wheat contract which was up 5 to 7 cents.  Of course, spring wheat is likely to feel the most direct impact from the blizzard currently sweeping across the upper Midwest and  Great Plains.  This storm kicks the planting delay conversation back into high gear.  Then, factor in more rains forecast over the next 10 days with a pick-up in temperatures, and field work will be difficult for spring wheat and corn.  This new snow will also melt quickly, and could create more flooding situations for the rivers.  This morning, Brazil’s CONAB updated its crop projections for April.  Both the soybean and corn numbers came in  below what the market was expecting.  There wasn’t much reaction with prices.  Trade talks with China appear to be progressing, with positive comments over the past couple of days coming both from Perdue and Mnuchin.  Yesterday, a US soybean sale of 133.8k tons went to Unknown buyers, which most in the marketplace assume is China.  Today’s export sales report came in on the soft side. 


The lean hogs market apparently only needed one down day to catch its breath, and resumed the march up in yesterday’s trade.  Spec longs were seen adding, as open interest increased by over 4k contracts.  Swine Fever concerns across Asia and Africa have the market very much on edge.  The live cattle market was lower yesterday, as the market there is carrying a very large long position. 


The cocoa market saw an end come to its longest rally in 4 years, as the buying power ran out of steam, for the moment.  Short covering was believed to be the driver as dry weather conditions forced traders out of their positions.   


Gold prices traded up to a 2 week high yesterday, as a lower dollar and comments from ECB President Draghi, saying recent figures confirm slowing growth momentum.  Gold has come off today, with a rebound in the dollar and the US equity market trading firmer.  The ESM9 contract is testing a key resistance point in 2900.00.  If it can trade through, it could trigger some buying.  Copper was lower yesterday, driven down on concerns about slowing Chinese demand.  Chinese auto sales have been down for 10 consecutive months (-12% in March).


With the US weather, there are some colder temperatures that accompany the current blizzard, creating concerns about causing some damage to winter wheat crops.  Approximately 1 to 2 feet of snow will fall over various parts of the upper Midwest and Great Plains.  There will be some warmer temperatures next week, so the snow will melt quickly, possibly causing flooding.  There is also heavy rain forecast for the Delta and southern Midwest this weekend, bringing even more moisture to already saturated fields.  Drier conditions are in the forecast for later in the month, which will be viewed as an opportunity for fieldwork.  However, the soil temperature forecast calls for temperatures to be below what is needed for planting, so there could be even longer delays to planting. 


In the US economic news today, March PPI came in at +2.2% y/y vs an expected +1.9%.  The core, ex food and energy number, came in at +2.4%, as expected.  Initial Jobless Claims came in lower than expected, a positive for the employment outlook.  Yesterday’s Fed Minutes didn’t really bring any surprises to the market.  If anything the Minutes may not have carried as dovish a spin as what was released after the actual Fed meeting. 


One last point, which could carry significant impacts in the FX and commodity markets.  Argentina’s credit spreads have been widening, as there is a growing nervousness about the coming election in October.  Argentina’s CDS spreads have widened out to where the were before President Macri took office in 2015.  President Macri’s current approval rating is 25.6%, and disapproval rating is 62.6%.  The market is showing concerns about Argentina’s leadership into the future.


Have a good day,