Commodity Corner: Morning Comments

Good morning,


DXM9  96.545  -0.011                     GCM9  1287.2  -4.1                                 ESM9  2920.00  +10.50                   CLK9  63.74  +0.34


Commodity markets are mostly lower this morning, as global equities are trading higher, the  dollar is a touch firmer and oil is around  unchanged levels.  It has been a pretty quiet trade to begin this holiday shortened week, as most markets will be closed in observance of Good Friday.    


The grain markets are lower this morning, again being led down by the wheat complex.  Thoughts of bountiful supply, as several growing regions have very good conditions, are being seen as estimates for harvest sizes in Europe and Russia are increased.  In the US, yesterday afternoon’s updated crop rating report showed a reading of 60% (good to excellent), unchanged from the prior week.  With these  good  conditions,  expectations remain for a big crop  and large carryout.  Being able  to find some demand for US wheat remains the concern, as yesterday’s export inspections were lower than last week and the US wasn’t competitive enough in last week’s  purchase tender from Egypt.  Futures open interest declined by over 11k in Chicago wheat yesterday, suggesting short covering, although prices traded lower on the day.  The corn market is down a touch today, following some strength yesterday derived from planting delays due to the recent storm that swept across the corn belt, and more rain coming later this week.  On Friday afternoon, the CFTC reported, in its COT report, that the funds are carrying a record short in corn.   Interestingly, futures open interest has actually risen almost every day since the survey date for this report, so the size of the short could be even larger.  Yesterday, corn open interest rose by over 5k.  Soybeans remained confined to the recent trading range, as optimism over the China trade deal, and the talk of more relief to the farm community in some of the tariffs being switched around, is offset by the thoughts of a possibly larger soybean crop this year, if extended planting delays in corn and spring wheat forces farmers to need to plant beans instead.  A US sale of 140k tons of soybeans to unknown destinations was announced yesterday, providing a little more hope for increased trade.  There were also rumblings in the market that a large purchase order of soybeans could be coming from China later in the week.   Yesterday’s NOPA crush report showed more beans were used for crush in March than what had been expected.  The number was lower than what was reported for last March, but a sharp jump from this February.


Some key price levels for a couple of  the grain markets:

CK9:  361.75 (10 day MA);  366.50 (20 day MA);  372.50 (50 day MA)

SK9:  899.00 (10 day MA) & 898.75 (20 day MA);  907.25 (200 day MA) & 908.25 (50 day MA)

WK9:  463.25 (10 day MA) & 464.25 (20 day MA);  473.00 (50 day MA)

KWK9:  430.75 (10 day MA);  435.75 (20 day MA);  451.00 (50 day MA)


The hogs and cattle markets finished around unchanged yesterday, as there may have been some profit taking from the record long  positioning in both.  Continued concerns about swine flu, and optimism over a big pick-up in Chinese demand supports hogs.   The cattle market continues to watch the supply side, as recent storms and flooding over the past 6 weeks have resulted in the loss of cattle. 


The other soft commodity markets were lower yesterday.  Cotton saw the biggest drop in 2 months, on signs of improving weather which will allow for planting progress.  Cocoa was down as some prospects grow for an improved crop from the Ivory Coast, and profit  taking is taking place from the recent rally.  In spite of the recent rally, traders are commenting that volatility in cocoa is at its lowest levels since December of 2016. 


The oil market is hovering around unchanged levels today, after getting hit yesterday on talk that Russia is considering bringing an end to its production cuts.  A portion of the rally last week came from  talk that Russia would stick to its production quotas.  Mid-session yesterday, the EIA announced it sees US shale oil rising by 80k barrels/day.  The oil market appears to be marking time ahead of the latest report on inventories.  It is also keeping a keen eye on the tape, looking for any production talk coming from OPEC and Russia. 


Gold continues to move lower, off the $1300 level.  A risk on mentality, with the performance in global  equities, can be part of the reason for the decline.  A positive economic outlook diminishes the safety component of gold.  Gold also came  under some pressure as it was reported Venezuela  sold $400 mm in gold, amid its current economic sanctions.  Copper was a touch lower yesterday, as the market takes a breather from last week’s rally, driven by strong economic data from China.


On the weather front, a mild winter has allowed for bigger wheat plantings in the Black Sea region, increasing expectations of another big harvest there.  There is some dryness in some areas, so harvest may not reach record levels, but a big crop is expected nonetheless.  As mentioned, the recent snow storm across the US could lead to some fieldwork delays, as the snows melts and the ground dries out.  There are more rains in the forecast which will hinder this further, but will prove beneficial for winter wheat crops, which already have had very good conditions.  There is an increase in US temperatures expected over the next 10 days, but some concerns about temperatures into early May.   The Australian Bureau of Meteorology puts the chances of El Nino developing at 70%, which is 3 times as much as the normal odds.


Have a good day,




Mike Clifford

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