Commodity Corner: Morning Comments

Good morning,


DXU9  98.355  +0.107                       GCZ9  1501.8  -9.3                                                                ESU9  2973.00  -5.25                        CLV9  58.46  +0.61


The equity market finds itself a touch softer this morning, as gold corrects lower and oil continues the march upwards.  Grain markets are trading up, getting positions squared ahead of Thursday’s WASDE report.  Copper prices are correcting lower a bit, following the stock markets after a nice bounce created from the recent strong rally in both equities and gold. 


Oil prices continue to trade at the upper end of the recent trading range, as the new Oil Minister in Saudi Arabia signals the intention to keep production cuts in place.  OPEC+ meets this week, with the focus of the meetings to be on the macro oil picture.  To this point, there has been no indication of any drastic changes towards the production plan.  The oil market is also waiting for the weekly production and supply data in the US.  API kicks it off this afternoon, releasing its forecast on US crude stocks from last week. A decline of 2.8m barrels is expected. 


Gold continues to correct lower, and has taken out the psychologically important $1500 support level in the overnight trade.  With the recent rally in equities, and fixed income markets adjusting to slightly higher yield expectations, there is a general sense that the economy may not be as dire as some had feared.  With that, the need for the safe haven status of gold is diminished, and some long liquidation is taking place.  A major Wall Street bank has put out a call for gold to trade to $2000 in the next 2 years.  The reasons given include, monetary policies continuing to push rates towards 0, the ongoing trade dispute between the US and China and continued geopolitical tensions.


The grain markets were led by the wheat complex yesterday, as Australia’s ABARES gave a big downtick to expected wheat production, calling for 19.2 mmt vs an earlier estimate of 21.0 mmt.  With US harvest near complete, and wheat still recovering from very oversold conditions over the past month, prices rallied.  The afternoon brought some added support to the trade, as crop progress continues to show the US corn and soybean crops well behind last year and the averages.  As we move through September, with the late development, fears of cold weather causing damage to the crops now creeps into the picture.  In spite of what the USDA reported in the August WASDE, the market still expects to see lower production and ending stocks numbers for this year’s crops.  Funds that have been carrying short positions have been doing some covering ahead of the data, in case expectations are met.  CONAB just released estimates for this season’s crop in Brazil.  There was little change to the soybean production forecast, but an increase for corn production.  The markets appeared to take these numbers in stride, and didn’t alter the higher course they are on.  Details for the CONAB data, along with estimates for WASDE, can be found on the current data attachment.    


Cotton futures were also higher yesterday, aided by a softer dollar, hopes for improving trade prospects and concerns about weather related damage.  An updated projection for cotton is also released on Thursday with the WASDE.  Sugar prices were lower yesterday, as increased exports out of India weighs on prices.  Funds continue to carry a very large spec short position in sugar, and as the market appears to be finding some support below the $11 level, some profit taking may be taking place.  Coffee futures continue to move back and forth, following the fate of the Brazilian real.  Cocoa prices traded higher yesterday, supported by the report from the Ice exchange showing stockpiles fell by over 13k bags last week.  In addition, cocoa output in Brazil’s production region of Bahia may fall short of the targeted 1.1m bags.  Funds remain short in cocoa, as abundant supplies are expected.  News of shortfalls can lead to short covering.         


Technical Moving Averages:

Product               50 day                100 day               200 day

SX9                       886.75                   887.25                   915.75

CZ9                      405.00                   410.75                   404.25

WZ9                     494.25                   498.00                   512.25

KWZ9                  433.25                   451.00                   433.25

MWZ9                 528.50                   543.75                   566.75

SMZ9                   305.8                     310.6                     316.4

BOZ9                   28.73                     28.54                     29.40

CLV9                    56.26                     57.72                     56.93

GCZ9                    1476.0                   1402.1                   1358.9

LHV9                    69.450                   75.880                   74.425

LCV9                    104.525                 106.600                 111.340

KCZ9                    103.25                   102.30                   107.05

CCZ9                    2361                       2388                       2352

CTZ9                    61.44                     65.43                     70.19

SBV9                    11.78                     12.15                     12.65

JOX9                    103.70                   105.65                   117.45

HGZ9                   264.05                   269.70                   275.90





Michael Clifford


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