Commodity Corner: Morning Comments

Good morning,


DXU9  97.805  +0.009                       GCQ9  1429.9  +5.6                         ESU9  3008.50  -13.25                   CLU9  57.22  +0.35


Following a day of waiting, today begins what should be an active week for the markets.  As the trade talks between the US and China are resuming this week, President Trump decided to “throw out the first pitch” via Twitter, tweeting the problem with China is they just don’t follow through on their commitments.  He was referring to China pledging to more aggressively buy US agricultural products.  US equities, which were already on the defense, went down a little further following this.  Gold, which already had a decent bid, moved back up to the overnight highs.  Soybeans and cotton moved lower. 


Today begins the 2 day meeting from the Federal Reserve, where a cut to short term interest rates of 25 basis points is expected and priced into the market.   The dollar is holding firm, as thoughts of a 50 basis point cut continue to erode.  Overnight, the Bank of Japan left rates unchanged, but it lowered its GDP and inflation forecasts, causing the market to think more easing may come from Japan in the future. 


Oil prices are higher today, but I am struggling to find a good reason for the lift.  Prices gapped higher from settlement in the overnight trade.  A couple of reasons I have seen today for the overnight strength include the optimism from the trade talk resumption and from an economic boost coming from the Fed cutting rates.  I am not real comfortable with those being the reasons, but there isn’t any other news out there that I have seen.  This afternoon brings the first look at last week’s supply story from the API. 


Grain prices were already softer this morning, ahead of President Trump’s Twitter blast, following yesterday afternoon’s updated crop conditions and progress reports.  While the crops are still well behind where they should be heading into August, the forecast for the next week has more moderate temperatures.  There still is a moisture deficit in the forecast, but not having excessively hot temperatures may help.  The hot dry weather in Russia and Europe continue to erode the crops there.  Russian wheat yields are being reported as down about 3%, and expectations for the size of the harvest continue to be reduced.


Tomorrow is First Notice Day for August futures contracts at the CBOT.  Any long positions as of the close of business today are eligible to be stopped for exchange delivery.  To avoid any risk of receiving a delivery notice, all LONG positions should be liquidated or rolled to another contract by the close of business TODAY.


Cotton prices are lower again today, with the most recent leg coming from President Trump’s tweet.  Overall, cotton prices have been reversing course, following a strong rally on expectations of trade progress.  Coffee futures continue to swing back and forth in decent sized ranges, as the market attempts to determine the extent of the potential frost issue in Brazil.  Sugar prices continue to creep back up, following a recent push to the lows driven by funds establishing the largest spec short position since 2011.  Concerns about a possible global deficit of sugar are providing some rational to cover some shorts.  A major bank came out yesterday and was making the case where sugar prices could trade up to $14.  This probably caught some of the shorts’ attention as well.     


Metals are mixed today.  Gold, as already mentioned, is higher, benefitting from the expected reduction to US rates, along with uncertainties around the trade talks.  Gold has withstood a decent test of the $1400 level to the downside, and is now poised to possibly go back up and test the highs for the year.  Data and events later this week possibly could be the catalyst.  Copper is lower, following equities down.  The optimism observed in the markets when the resumption of the trade talks was announced has been replaced with another dose of reality about how far apart the 2 sides apparently are.


In addition to the Federal Reserve meeting today and tomorrow, with a likely rate cut forthcoming, there is a lot of economic data in the US this week for participants to consume and digest.  Employment and manufacturing data begin appearing tomorrow, and different reports on this will be released over the remainder of the week.  While the market may view this as old news, since we will have heard from the Fed, it still may carry some relevance, as it is expected tomorrow’s statement will talk about closely monitoring the economic situation moving forward.            


Technical Moving Averages:

Product               50 day                100 day               200 day

SX9                       903.00                   905.00                   924.00

CZ9                      438.75                   413.50                   407.00

WU9                    512.25                   487.50                   511.50

KWU9                  458.00                   448.50                   491.25

MWU9                548.75                   546.75                   569.00

SMZ9                   319.1                     316.3                     319.1

BOZ9                   28.42                     28.92                     29.56

CLU9                    56.93                     59.48                     58.27

GCQ9                   1368.7                  1335.1                   1310.4

LHV9                    76.945                   81.255                   74.600

LCV9                    107.235                 111.360                 113.165

KCU9                   103.15                   100.20                   108.05

CCU9                   2457                       2385                       2342

CTZ9                    65.66                     70.11                     72.80

SBV9                    12.35                     12.60                     12.96

JOU9                    104.20                   109.60                   121.25

HGU9                  268.70                   278.65                   278.25


Have a good day,




Michael Clifford


141 W Jackson Boulevard                             

Ste 1065                                                              

Chicago, IL 60604                                              

Trean Group, LLC