Good morning,
DXU9 97.335 -0.083 GCQ9 1427.2 +5.6 ESU9 3000.50 -7.50 CLU9 56.92 +0.15
US Trade Representative Lighthizer, and senior US officials will travel to China on Monday for the first face to face negotiations since May. Optimism can be seen in commodity prices this morning, as a deal would suggest improved expectations for economic growth and increased demand for products. Equities are not really participating in the euphoria, in part held back by disappointing earnings from Deutsche Bank today. The dollar is a touch lower, but still firm overall. Oil prices continued the positive sentiment from trade prospects seen in yesterday’s trade, and propelled further higher overnight. The impetus for this po was a much weaker than expected API inventory report for last week. The report showed stockpiles declined by 10.96 m barrels last week, compared to an expected drop of 4.26 m barrels. More data comes from the DOE today, so the market will be watching for confirmation of yesterday afternoon’s report. Gold prices continue to creep back up, supported by the continued tension in the Middle East, renewed trade hopes, currency uncertainties with Boris Johnson taking over as PM in the UK and a positive technical structure in place on the charts. Hog prices were strong yesterday, nearly touching limit bid, as a trade deal certainly improves demand from China. This coupled with the continuing severity of the African Swine Fever epidemic certainly boosts domestic hog prices. Grain prices won’t be denied from the trade hype as well, mounting rallies overnight.
True, it is thought a trade deal helps the grain market, but improving global demand, and continued concerns about the condition of this season’s crops is probably what is really driving prices here. Monday afternoon’s crop progress reports showed the crops substantially behind where they should be, as July is coming to a quick close. Egypt bought 300k tons of wheat yesterday, coming from the Black Sea, paying the highest prices of the year to this point. Jordan also bought wheat this week for the time since May and Tunisia is looking to make a purchase. This increased demand is at a time when the expected size of the Russian harvest continues to be lowered, due to the hot and dry conditions. Demand for wheat is also picking up from the feed community, as wheat prices become cheaper relative to corn prices. As winter wheat harvest progresses, a large crop is expected, but protein levels are coming in low. This week has the spring wheat tour taking place, with day 1 of the tour showing good to above average yields, but some disease pressure was noted. Soybeans, thought to be the primary benefactor from a trade deal are higher today. Aiding bean prices is the announcement that China will allow 5 companies to buy up to 3 million bushels of soybeans, without the retaliatory tariffs being applied, as a good will gesture ahead of next week’s meetings.
Cotton prices continue to rally off of this as well, as China would be expected to be a large buyer of US cotton. Coffee is higher today, but had a big trade lower yesterday. The fund community was seen in, adding to an large existing short position. Open interest in coffee futures increased yesterday, and the selling appeared to accelerate when prices took out last week’s low. Sugar prices are the outlier today, being a touch lower at the moment. India, a major producer, is contemplating ways to improve its export business, in an attempt to reduce large stockpiles.
Metal prices jumped on the party train as well, with gold, silver, copper and many of the metals trading higher on economic prospects. Some analysts expect gold to have a retest of the old high, and 1 shop is calling for a trade up to $1500. This may happen, but probably not ahead of next week’s Fed meeting, where a cut to short term interest rate is expected. If the Fed is more aggressive than expected, and cuts 50, or hints of an aggressive easing campaign to come, the dollar will get hit hard and gold prices should benefit.
The US weather looks very good for the next week, allowing for wheat harvest to finish up and aiding corn and soybean development. Some corn and bean areas are actually concerned about conditions being too dry for the crops. Go figure. Weather will remain an important input as July comes to a close and ahead of the next WADE and resurvey reports from the USDA.
Technical Moving Averages:
Product 50 day 100 day 200 day
SX9 899.00 906.75 924.50
CZ9 435.50 412.25 406.50
WU9 509.00 486.25 512.75
KWU9 456.50 449.50 494.25
MWU9 549.00 548.25 571.00
SMZ9 318.5 316.6 319.2
BOZ9 28.33 29.01 29.60
CLU9 57.41 59.56 58.60
GCQ9 1359.3 1330.4 1306.4
LHQ9 83.665 88.705 84.955
LCQ9 106.160 110.905 112.220
KCU9 102.55 100.35 108.50
CCU9 2449 2378 2336
CTZ9 65.86 70.48 73.03
SBV9 12.36 12.63 12.98
JOU9 104.40 110.25 122.15
HGU9 268.95 279.55 278.50
Have a good day,
Mike
Michael Clifford
141 W Jackson Boulevard
Ste 1065
Chicago, IL 60604
Trean Group, LLC
312-604-6404