Commodity Corner: Morning Comments

Good morning,


DXU9  98.040  +0.133               GCZ9  1555.5  +3.7                         ESU9  2857.00  -8.50                 CLV9  55.69  +0.76


It’s been a relatively quiet overnight trade, with fixed income markets continuing to grind higher and the yield curve continues to flatten.  Oil prices are picking up right where they left off in the late trade yesterday after the API reported a much larger decline in oil stocks last week than what the market expected (-11.1 m bbls vs an expected -2.85 m bbls).  Gold is still firm today, following the mid-session pop that took place yesterday.  Grain markets are relatively quiet overnight, while other soft commodities are higher, in spite of a firmer dollar. 


Aside from the general uncertainty surrounding the markets, gold finds itself the benefactor of the strong rally in US Treasuries.  As Treasury yields continue to decline, the negative rate of return, when compared to annualized CPI, grows.  Thus gold becomes an attractive alternative, not only with a positive return, but participating in any swings to inflation.  Gold presently is about $12 off the highs for the year and seems likely to have another look up there. 


Oil prices displayed a strong recovery yesterday, following being pulled lower on negative economic growth prospects (trade), late last week and early this week.  A mid-day bounce took place yesterday, with many looking for clues as to what was driving.  Later, API released its projection with the big decline in oil stocks last week, and oil prices shot higher in the very late trade.  Today brings more data on production and inventories from the DOE.  Oil continues to wildly bounce around within the defined, but large range.  Again, ultimately ending up in the $54 to 56 ballpark. 


Corn and soybean prices have been confined to narrow ranges overnight, as the market continues to watch the weather, guard against trade headline bombs, and manage positions ahead of first notice day.  Wheat prices are lower today, in part due to the non-competitiveness of US wheat prices compared to the rest of the world.  This point was driven home yesterday, as Egypt purchased 350k tons of wheat.  The lowest offer came from France, with Russia the next 4 awards and Ukraine the remaining one.  The US is nowhere in sight.  The EU showed a decline in export numbers for July, which may keep some pressure on European wheat prices.  This should carry over to US prices as well.  Wheat also may face some price pressure moving into first notice day as well, as there are still decent sized open interest positions in the September contracts for Chicago and Kansas City wheat.  Yesterday afternoon, Future Farmer magazine released wheat acreage estimates for next season.  It is calling for 45.1m acres of HRW (+1.3%), 23 m acres of SRW (+2.6%) and 11.6 m acres of spring wheat (which is a decline of 6.3%). 


Sugar prices grabbed the headlines in the soft commodity world yesterday, cascading down to another new low, and the lowest price in almost the past year.  The impact of the newly negotiated trade deal between the US and Mexico, limiting the amount of sugar traded between the 2 parties, meaning Mexico may become aggressive in the export market, trying to move old supply ahead of the new season harvest.  Funds carry a large spec short position in sugar, and have been helping to keep pushing prices lower.  This same large short position can cause a decent sized covering bounce, if any negative developments were to occur in the expected large new crops.  Coffee prices have been moving back and forth of late, for the most part being driven by the fluctuations in the Brazilian real.  There is also some uncertainty about what damage may have come from recent strong shifts in the weather, for both the current crop and next season’s.  Cotton prices are hovering around unchanged levels this morning, taking a bit of a breather after getting pushed down to the lowest prices in 3.5 years on all of the trade talk shenanigans.  Aside from an oversold corrective bounce observed yesterday, cotton also received support from concerns about stress to the crops in Texas, due to the recent hot and dry conditions. Tropical storm Dorian is expected to become a hurricane before it hits Florida, which could impact orange juice prices. 


The end of this week brings month end and First Notice Day for numerous September futures contracts.  For month end, it is common to see profit taking or position window dressing taking place ahead of this.  If the market quiets down at week’s end, into the holiday weekend, this position squaring could influence the late trade on Friday.  Regarding First Notice Day, any LONG September positions, as of the close of business tomorrow,  Thursday, August 29, are subject to being stopped for exchange delivery.  To avoid the risk of receiving a delivery notice, all LONG September positions should be liquidated or rolled to another contract by Thursday’s (tomorrow’s) close.              



Technical Moving Averages:

Product               50 day                100 day               200 day

SX9                       896.75                   892.25                   918.50

CZ9                      420.00                   413.00                   405.75

WZ9                     507.50                   499.75                   515.75

KWZ9                  449.75                   457.00                   493.00

MWZ9                 539.50                   548.75                   571.25

SMZ9                   310.5                     312.5                     317.4

BOZ9                   28.75                     28.65                     29.42

CLV9                    56.43                     58.32                     57.02

GCZ9                    1455.3                   1384.5                   1347.4

LHV9                    70.745                   78.060                   74.550

LCV9                    105.755                 108.265                 111.965

KCZ9                    104.80                   102.65                   108.25

CCZ9                    2401                       2401                       2353

CTZ9                    62.64                     66.88                     70.94

SBV9                    12.02                     12.31                     12.74

JOX9                    104.20                   107.05                   119.10

HGZ9                   266.00                   272.55                   276.60






Michael Clifford


141 W Jackson Boulevard                             

Ste 1065                                                              

Chicago, IL 60604                                              

Trean Group, LLC