• Crude oil falls to over negative $40 per barrel on the expiring May contract
  • Precious metals move lower
  • Wild volatility in energy-Natural gas recovers as crude oil continues to tank because storage is full
  • Agricultural commodities do not move much
  • Copper and most industrial commodities fall


Summary and highlights:


On Thursday, April 15, applications for new unemployment benefits rose by over 5 million, bringing the recent total to over 22 million. Stocks posted small gains on Thursday. The S&P 500 and DJIA were 0.58% and 0.14% higher, respectively. The NASDAQ gained 1.66%, but the small-cap Russell 2000 was 0.50% lower on the session. The June 30-Year Treasury Bond futures moved 0-27 higher to 181-13, while the June dollar index futures contract rose 0.614 to 100.100 on the session. Corn was one-half cents per bushel higher, and soybeans fell by the same on the May futures contract. CBOT wheat futures moved 10.5 cents lower. May MYMEX crude oil was unchanged at $19.87 per barrel, June Brent crude oil futures were 13 cents higher to $27.82 per barrel as the contango in crude oil remains near the recent high with the price of the energy commodity at the lows. Gasoline fell while heating oil futures posted a gain on the session. Natural gas rose 8.8 cents per MMBtu after the EIA said that stockpiles rose by 73 bcf for the week ending on April 10. Ethanol futures edged 0.50 cents per gallon higher. Gold slipped by $8.50 per ounce, while silver gained 11.7 cents. Platinum fell $11.30, and palladium declined $32.90 per ounce. Live cattle gained 1.65 cents with feeder cattle 2.90 cents per pound higher. Lean hogs in June were 1.45 cents lower on the session. Coffee was 1.6 cents lower, the price of sugar was unchanged, but cotton, FCOJ, cocoa, and lumber prices all posted gains. Bitcoin was $365 higher to $7105 per token.

On Friday, stocks moved higher. The potential for some light at the end of the tunnel for the economy together with stimulus lifted the DJIA by 2.99%, while the S&P 500 gained 2.68%. The NASDAQ moved 1.38% higher, and the Russell 2000 rebounded by 4.33%. The US 30-Year Treasury Bond moved 1-02 higher to 180-11. The June dollar index fell 0.264 to 99.836. Corn edged 2.5 cents higher, soybeans fell 4.25 cents, and CBOT wheat moved 3.75 cents per bushel to the upside. Crude oil tanked as May futures rolled to June. The expiring May futures contract fell to a new low of $17.31 per barrel before settling at $18.27. The June contract settled at $25.03 per barrel with the widest contango in memory. Oil products outperformed crude oil with small gains in the gasoline and heating oil futures contracts. Natural gas was higher and settled the week at $1.753 per MMBtu. Ethanol moved two cents higher to 97.2 cents per gallon. Gold and silver prices corrected to the downside. Gold settled at $1698.80 with silver at $15.295 on the nearby futures contracts. Platinum and palladium posted small losses on the session, but copper moved higher to settle at over the $2.35 per pound level on the May futures contract on COMEX. June live cattle moved marginally lower. May feeder cattle were 0.800 higher, and June lean hog futures rose 0.55 cents to 43.725 cents per pound. Sugar, cocoa, and lumber futures posted gains, with May cocoa recovering by $144 per ton. Cotton, FCOJ, and coffee prices moved to the downside on Friday. Bitcoin was $25 lower to $7080 per token.

On Monday, the DJIA fell 2.44%, the S&P 500 lost 1.79%, and NASDAQ dropped 1.03%. The Russell 2000 was 1.28% lower on the session. The big news on the day came from the oil patch as the expiring May contract not only fell into negative territory; it dropped to an incredible -$40.32 per barrel. The US 30-Year Treasury Bond futures contract moved 1-03 higher to 180-30, and the June dollar index moved back over the 100 level to settle at 100.058. May corn and soybean futures posted losses of 8 cents and 6 cents, respectively. Wheat moved 15.25 cents per bushel higher on the back of dry conditions in Europe. May crude oil did the unthinkable on Monday, as the lack of storage sent the price into negative territory for the first time since futures trading began in the 1980s. The low was at over -$40.00 per barrel, and we are likely to hear about the carnage the price action caused over the coming days and weeks. June futures settled at $20.43 per barrel, $4.60 lower on the session. The precious low in the crude oil futures market was in 1986 at $9.75 per barrel. The price fell almost $50 lower than that level on the nearby May contract in a move that could have dire consequences for derivative markets on and off the exchanges. Unleveraged and leveraged ETF and ETN products could experience lots of problems in the current environment. We could also hear more than a few horror stories from hedge funds and pools of capital because of the unprecedented move in the energy commodity. Gasoline and distillate prices dropped but far outperformed the price of the raw energy commodity. Brent crude oil in June fell around $2 per barrel to the $26 level. The US crude is landlocked, while the Brent crude travels by ocean vessel to consumers around the globe. The nearby price of US crude oil fell into negative territory as there is nowhere to store the energy commodity. Natural gas went the other way as the price of May futures rose above technical resistance at $1.918 and settled at $1.924 after trading to a high of $1.97 on the session. Ethanol futures were 4.2 cents per gallon lower at 93 cents. Gold, silver, and platinum posted small gains on the session, but palladium and copper fell. The red metal was trading at the $2.30 level on May futures. June live cattle fell 1.2 cents, feeder cattle in August were down 0.75 cents, but lean hogs in June posted a 2.525 cents gain. Coffee, sugar, cocoa, and lumber futures all moved to the downside, but cotton and FCOJ were higher on the first session of the week. Bitcoin fell $285 to $6795 per token.

On Tuesday, the wild volatility in the crude oil market continued to put pressure on the stock market. The stock market action is telling us that the impact of the carnage in the energy commodity will be significant for many companies over the coming days and weeks. The DJIA fell 2.67%, with the S&P 500 down 3.07% on the session. The tech-heavy NASDAQ was the worst-performer posted a 3.48% loss. The Russell 2000 fell 2.33%. The US 30-Year bond futures moved 1-24 higher to 182-16, while the June dollar index was at 100.374, also higher on Tuesday. Corn fell to a new low, and the price traded down it the critical technical support level at $3.01 per bushel on the May futures contracts before settling at $.30925. May soybeans were 4.25 cents higher, but May CBOT wheat fell two cents per bushel on the session. Crude oil fell like a stone on the June contract, reaching a low of $6.50 and settling at $11.57 per barrel. On expiration day, the May futures contract came all the way back into positive territory to expire at $10.01 per barrel. Oil products moved significantly lower on the session with losses in both gasoline and heating oil. The June crack spreads moved higher as products in June outperformed the raw energy commodity. May natural gas traded to a high of $1.974 per MMBtu, reversed, and settled at $1.821. Ethanol futures fell below the 90 cents per gallon level on May future on weakness in gasoline and corn prices. Precious metals and copper posted across the board losses. Palladium tanked with the price down over $200 per ounce on the session. Gold and silver posted losses of $23.40 and 73.8 cents per ounce, respectively. Platinum was $37.60 lower on the session. Copper in May settled at $2.2295, down over 9 cents per pound. Cattle prices fell, but lean hogs recovered by 1.85 cents on the June contract. Live cattle declined by 1.025 cents, and August feeder cattle were 0.75 cents lower. FCOJ posted a marginal gain, but cotton, coffee, sugar, cocoa, and lumber prices all fell. Sugar traded to a new low of 9.55 cents per pound, the lowest levels since 2008. Bitcoin was $95 higher to $6890 per token.

On Wednesday, the stock market posted gains ending a streak of losses over the previous three sessions. The DJIA was 1.99% higher; the S&P 500 gained 2.29% with NASDAQ up 2.81%. The Russell 2000 moved by 1.39% to the upside. The June 30-Year bond futures were 1-06 lower to 181-02, and the dollar index edged higher to 100.528. Corn and soybeans edged higher, while wheat futures posted a modest loss. Crude oil recovered with the nearby June futures contract settling at $13.78 up over $2 per barrel from Tuesday’s close. Oil product prices were higher. Gasoline crack spreads moved higher as the fuel outperformed the raw crude oil, but heating oil refining spreads fell as the distillate lagged the oil price. Brent futures were around $1.50 per barrel higher to over the $20 per barrel level. Natural gas moved over 10 cents higher to settle at $1.939 per MMBtu on the May contract. Ethanol posted a gain on the back of the gains in oil and gasoline. Palladium continued to move lower, but platinum bounced a bit on Wednesday. Gold and silver posted significant gains with move settling over $50 per ounce higher on the session, and silver gaining 45.9 cents. Copper recovered and closed at $2.29 per pound on the May futures contract. June live cattle and August feeder cattle contracts were on either side of unchanged, and lean hogs in June were down only 0.200 cents per pound. Cotton, FCOJ, coffee, cocoa, and lumber prices all moved higher on the now active month July contracts, while July sugar was unchanged at just over 10 cents per pound. Bitcoin gained $225 per token to $7115.

Weekly Spreadsheet:

Copy of Spreadsheets for the The Hecht Commodity Report April 22, 2020

Stocks and Bonds

Optimism that there is light at the end of the tunnel when it comes to the global pandemic kept the prices of stocks steady over the past week. Plans to slowly reopen the US economy caused two of three of the leading indices to move higher since April 15. Record levels of stimulus are propping up the stock market, which could be creating a mirage. Any setbacks over the coming days and weeks or the reemergence of new hotspots in the US and around the globe could quickly cause stocks to return to the lows. Companies across many sectors of the economy are earning no revenues while absorbing costs. Government aid programs are providing some support in the short-term, but the longer that business activity remains in a self-induced coma, the weaker the stock market could become. At the same time, it could take a long time for business to return anywhere near the levels seen earlier this year. The financial legacy of Coronavirus will remain for the coming months and perhaps years.


The S&P 500 rose 0.57% since last week. The NASDAQ was 1.22% higher, but the DJIA posted a 0.12% loss.

Unemployment will continue to rise in the US, and GDP growth of the previous years will turn into a massive period of contraction, but the market is expecting the worst economic data in many decades. Corporate earnings will shift to corporate losses. As I wrote over the past weeks, “Science will find an answer to Coronavirus, but the economic results will last for years. Stopping the US and global economies on a dime and a deflationary spiral leaves a wake of financial fallout in the aftermath. Government and central bank actions come with a price tag. Explosive government debt and deficit level and debased currencies will take years to repair.” Time will tell if the recent recovery in the stock market will lead to stability or a return for a test of the March low. The answer is in the hands of the success of mitigation factors and a return of some business activity over the coming weeks.

Chinese stocks were marginally higher with the leading US indices over the past week.

Source: Barchart

As the chart illustrates, the China Large-Cap ETF product (FXI) was trading at the $37.97 level on Wednesday, as it rose by 0.96% since the previous report. China could be propping up the value of their companies in the stock market. China is likely under-reporting its number of cases and fatalities based on the numbers from Europe and the United States. Moreover, the blame for the global pandemic appears to be squarely with the Chinese government. We could see the US and Europe isolate the Chinese in the aftermath of the pandemic, which would weigh on China’s economy over the coming months and perhaps years.

US 30-Year bonds edged higher over the past week. On Wednesday, April 22, the June long bond futures contract was at the 181-02 level, up 0.26% since April 15. Bonds have traded in a wide range throughout the crisis. The volatility in the bond market is unprecedented. June bonds traded to a new high at 191-22 on March 9. Given the situation in the world and government and central bank responses, do not expect calm to return to debt markets anytime soon. Interest rates are likely to remain at very low levels over the coming years.

Open interest in the E-Mini S&P 500 futures contracts fell by 1.32% since April 14. Open interest in the long bond futures fell 1.14% over the past week. The VIX moved a touch higher to the 41.98 level on April 22, 2.04% higher as the volatility index reflects the nervous conditions in the stock market. The VIX traded to a high of 85.47 on March 18, the highest level since 2008. During the height of the 2008 crisis, the VIX reached 89.53. Another period of selling would send the VIX back to the levels seen over the past weeks.

At the 41.98 level, the VIX could be offering value on dips in the current environment. The VIX related products like VIXX and VIXY have become more attractive for short-term long positions with tight stops since the retreat from the March high.

It is no time to become complacent with the stock and bond markets despite the recent stability. The price tag for the global pandemic will transcend the 2008 global financial crisis, and the stocks and interest rates will reflect the impact over the coming weeks and months, and perhaps longer.


The dollar and digital currencies

Currency markets have been eerily calm over the past week after a period of heightened volatility as the dollar index moved back over the 100 level. Governments often manage currency levels to achieve stability. The dollar index edged higher, with most currencies falling over the past week. Cryptocurrencies moved higher since April 15.

The dollar index was above the 100 level at 100.528 on April 22, up 1.05% from the level on April 15. The dollar index has been trading on either side of the 100 level, which could reflect a heightened level of government intervention in the foreign exchange market. Open interest in the dollar index futures contract moved 5.82% higher over the past week.

The euro currency was 0.97% lower against the dollar. The pound was 1.86% lower against the dollar. The euro accounts for almost 58% of the dollar index, so the European currency is the most significant factor when it comes to the path of least resistance of the index. Europe and the US remain the regions of the world most impacted by Coronavirus. However, the advanced medical systems and reporting could mean that lesser developed areas like Africa, South American, and other regions have been hit by the pandemic but are not reporting the impact of Coronavirus.


Bitcoin and the digital currency asset class moved higher over the past week. Bitcoin was trading at the $7,123.23 level as of April 22, as it moved 5.83% higher. Ethereum posted a 17.06% gain since April 15. Ethereum was at $183.39 per token on Wednesday. The market cap of the entire asset class moved 6.76% higher over the past week. Bitcoin underperformed the entire asset class since the previous report. The number of tokens increased by 49 to 5392 tokens since April 15. In late 2017 the overall market cap was at over $800 billion with a fraction of the number of tokens available today. On Wednesday, the market cap stood at around $205.939 billion, up 6.76% since the prior report. Open interest in the CME Bitcoin futures rose 1.95% since last week. I continue to believe that Bitcoin will attract buying during periods of price weakness but would only dip a toe into the market on the long side with a very tight stop. I would rather trade from long than short in the digital currencies. In a germophobic world, the attraction of digital currencies is likely to rise. Other factors that could support digital currencies are a rise of germaphobia the stops people from holding cash, and the falling value of all foreign exchange instruments on the back of massive stimulus measures from central banks.

The Canadian dollar moved 0.75% lower since April 15. Open interest in C$ futures rose by 1.18% over the period. The C$ is highly sensitive to commodity prices as Canada is a mineral-rich nation that also produces significant quantities of energy and agricultural products. Keep an eye on the oil futures market for clues about the Canadian dollar as it often acts as a proxy for the price of the energy commodity. Over the past week, the C$ rallied even though crude oil fell to a lower low.

The Australian dollar is also a commodity-based currency with a high degree of sensitivity to China’s economy. The A$ moved only 0.11% lower since last week. The geographical proximity to China makes the Australian dollar sensitive to the Coronavirus and accounts for its decline. Australia has experienced an outbreak of the virus, but the government has sealed the nation and instituted some of the most severe social distancing regulations in the world. Australia has told its citizens to expect the current conditions over the coming six months or longer. The A$ is a proxy for both China and raw material prices. I would be cautious with any positions on the long or short side of the A$ given the potential for volatility and selloffs in the current conditions.

The British pound fell 1.86% after a wild ride to the downside in mid-March. The recovery of Prime Minister Boris Johnson lifted the value of the pound against other world currencies in the previous report. The global pandemic hit emerging markets hard. Brazil has been the poster child for weakness in South America and all of the EMs. Over the past week, the Brazilian real continued to fall, and was 3.02% lower. The June Brazilian currency was trading at the $0.18465 level after falling to a new low at $0.18290 on April 22. The real is a critical factor when it comes to the commodities that the South American nation produces and exports to the world. Coffee, sugar, oranges, and a host of other markets are likely to move higher or lower with any significant changes in the direction of the Brazilian real over the coming weeks. The falling real had been a factor that weighed on sugar and coffee prices. Expect volatility to continue in the foreign exchange arena. As I wrote last week, “We may see the dollar index continue to trade around the 100 level as central banks and governments go to extra lengths to stabilize markets.” The 100 level has emerged as a pivot point, and unless there are any significant surprises in markets over the coming weeks, I expect that the dollar index will remain on either side of the new pivot point.


Precious metals fell over the past week. All four of the precious metals that trade on the COMEX and NYMEX futures markets posted losses compared to their levels on April 15. However, gold continued to lead the pack with the smallest loss.


Precious Metals

Gold, silver, platinum, and palladium prices all corrected lower over the past week. Gold was sitting just under the $1740 level with silver at under $15.35. Platinum fell below $800 to $765, and palladium corrected to below $1900 per ounce. The illiquid rhodium market also posted a loss since last week in volatile trading.

Gold fell only 0.11% over the past week. Silver was 1.10% lower since April 15. June gold futures were at $1738.30 per ounce level on Wednesday. May silver was $15.335 per ounce on Wednesday. Both metals should continue to experience elevated levels of volatility, but the tidal wave of liquidity is bullish for the prices of the metals that have long histories as a means of exchange. In the last report, I pointed out that gold rose to a new high in Swiss francs, which leaves only the US dollar as the currency that has not made a new low against the yellow metal. Markets rarely move in a straight line during bull markets. Pullbacks and corrections are the norm rather than the exception. Gold has offered market participants buying opportunities on every dip since 2018, and I expect that trend to continue.

June gold futures reached a new peak of $1788.80 on April 14. The yellow metal came storming back from a low of $1453 on March 16. May silver rose to $19.005 on February 24 before the price suffered a substantial correction sending it to a low of $11.64 per ounce on March 18 before recovering to the $16.30 level on April 14. Both precious metals corrected from the highs as some stability and a bit of optimism returned to markets. However, stimulative monetary and fiscal programs continue to be highly supportive of the prices of the two metals that have long histories as currencies.

Gold outperformed silver over the past week. The silver-gold ratio reached a new modern-day high as risk-off selling hit the silver market, taking the price below the $12 per ounce level. I will continue to add to long physical positions in gold, silver, and platinum, during periods of price weakness. I will only trade leveraged derivatives and mining stocks on a short-term basis with tight stops in the current environment.

July platinum posted a loss of 4.88% since the previous report.  Platinum continues to be a laggard in the precious metals sector in 2020. July futures moved back to the $765.30 per ounce level on April 22. The level of technical resistance is at $838.20 on the July futures contract. Support in platinum is currently at $701.20 per ounce, the most recent low in the nearby futures contract Rhodium is a byproduct of platinum, and the price of the metal had been in a bull market since early 2016. The price of rhodium was at a midpoint price of $6,000 per ounce on April 22, down $500, or 7.69% over the past two weeks. Rhodium’s price has been extremely volatile over the past weeks. Palladium fell 12.14% since last week. The price traded to a new peak at $2815.50 on February 27 on the nearby futures contract. June palladium settled at the $1892.20 per ounce level on Wednesday after a significant move to the downside on April 21.

Open interest in the gold futures market moved 0.65% higher over the past week. The metric moved 7.23% lower in platinum after significant declines in recent weeks as longs exited positions. The total number of open long and short positions fell 1.43% in the palladium futures market after substantial declines over the past two weeks. Silver open interest decreased by 2.7% over the period after significant decreases over the past weeks.

The silver-gold ratio moved higher over the past week.

Source: CQG

The daily chart of the price of June gold divided by May silver futures shows that the ratio was at 113.49 on Wednesday, up 2.08 from the level on April 15. The ratio traded to over the 124:1 level on the high on March 18. The long-term average for the price relationship is around the 55:1 level. The ratio rose to the highest level since futures began trading in 1974 as the price of silver tanked recently.

Platinum and palladium prices fell over the past week. June Palladium was trading at a premium over July platinum with the differential at the $1126.90 per ounce level on Wednesday, which was narrowed since the last report. July platinum was trading at a $973.00 discount to June gold at the settlement prices on April 15, which widened since the previous report. The spread is $207.70 above the nominal price of platinum, which is incredible considering platinum traded at over an $1100 premium to gold in 2008.

The price of rhodium, which does not trade on the futures market, was at the $6,000 per ounce level on Wednesday, down $500 per ounce or 7.69% on the week. Rhodium is a byproduct of platinum production. The low price of platinum caused a decline in output in South African mines, creating a shortage in the rhodium market that lifted the price to the $13,000 level before risk-off conditions caused the price to evaporate to $2,000. Rhodium has been highly volatile over the past weeks after reaching its peak. The price moved higher from a low at $575 per ounce in 2016. The bid-offer spread in Rhodium was at $3000 per ounce, unchanged from the last report. Illiquid markets can become untradeable. The price action in rhodium is somewhat like what has been going on with some illiquid issues in the bond market these days. The Fed is providing a backstop to eliminate the lack of liquidity, but in rhodium, there is no backstop. Rhodium is an untradeable commodity, but it can provide clues about the price path of the other PGMs.

I continue to favor buying physical platinum as well as gold and silver during periods of extreme weakness. Dealers are experiencing physical shortages as miners and refiners shut down. We had seen substantial dislocations in the price of gold in London versus the COMEX futures prices over the past weeks. In gold and silver, the GLD, IAU, BAR, and SLV ETF products hold physical bullion and are acceptable proxies for the coins and bars. In platinum, PPLT and PLTM are the proxies. Since a NYMEX platinum futures contract contains 50 ounces of metal, purchasing a nearby futures contract on NYMEX and standing for delivery is a way to avoid significant premiums for the metal. At $765.30 per ounce, a contract on NYMEX has a value of $38,265, after falling to the lowest level just under two decades in March.

My advice has not changed when it comes to precious metals Falling rates are bullish fuel for the gold and silver markets. Risk-off threatens to send the price of the precious metals significantly lower, as we witnessed in 2008. I will be using wide scales on bullion and coin purchases as well as unleveraged ETFs that hold bullion. I remain bullish on gold, silver, and platinum, but protecting capital during an unprecedented risk-off period is now the prudent approach. I would only buy the metals on price weakness and leave scales wide until the situation calms. Only trade leveraged products and mining shares on a short-term basis using tight stops. A choppy road continues to be on the horizon. Hold the physical and trade the derivatives in the current environment. Make sure each purchase has a clear plan for risk versus reward when it comes to precious metal derivatives and mining shares. There is no change from the previous report, but the lower prices could begin to present some buying opportunities if prices slip further over the coming sessions.

Energy Commodities

Crude oil was the lead story for all financial and commodities markets over the past week as the price of expired May futures not only traded to a new all-time low below the 1986 bottom at $9.75 per barrel but into negative territory. May future fell to a low of negative $40.32 per barrel as holders of the contracts had nowhere to store the energy commodity.

Source: CQG

The weekly chart shows the extent of the damage over the last week.

Source: CQG

The quarterly chart shows the historical significance of the move. The lesson from crude oil is two-fold for commodity futures traders. First, when storage becomes scarce and there is nowhere to store oil, or any other raw material, the price can fall into negative territory. Second, when selling put options, the risk is not limited to a zero price. The market participants that purchased May crude oil futures contracts at zero or close to that level learned a very costly lesson.

The pries of both NYMEX and Brent crude oil futures posted dramatic losses over the past week. Gasoline and heating oil prices plunged, but both gasoline and distillate processing spreads moved significantly higher as products could not keep up with the carnage in the raw crude oil market. Natural gas rose and broke out of its bearish trading pattern, ethanol fell, and coal prices moved to the downside since April 15.

The agreement between OPEC, Russia, and other world producers to reduce global crude oil output by 9.7 million barrels per day did not stop the price of the expiring May NYMEX futures contract from experiencing the worst carnage in history. A cut of twenty or thirty million barrels per day or more is necessary to balance the oil market in the current environment where demand evaporated. June futures in Brent and WTI also evaporated since last week.

June NYMEX crude oil futures fell 47.8% since April 15 and settled at below $14 on April 22 after trading to a low of $6.50 on April 21. The widening contango, or premium for crude oil for deferred delivery, is a raging sign of the glut conditions in the energy commodity.

June Brent futures continued to outperform NYMEX WTI futures but were still 25.71% lower since April 15. June gasoline fell 10.42%, but the processing spread in June posted a 162% gain after significant declines in the gasoline futures price, and the crack spread over the past weeks since late February. The demand for gasoline evaporated, leading the price to the lowest level in years as many people sheltered in place in the US and around the world. After the gain over the past week, the June gasoline crack spread was at $15.72 per barrel, which is some welcome news for refining companies that process crude oil into gasoline. The price path of gasoline depends on reopening the US economy so that people begin commuting to work and venture out in automobiles again.

June heating oil futures moved 18.41% lower from the last report. The heating oil crack spread was 40.0% higher since April 15. Heating oil is a proxy for other distillate fuels. While the demand for jet fuel fell off the side of a cliff, diesel fuel demand remained robust as the supply chain has worked overtime to bring essentials to market for consumers.

Technical resistance in the June NYMEX crude oil futures contract is at $33.15 per barrel level with support at the $6.50 level, the low from this week. The continuous contract and June futures fell below the 1986 bottom at $9.75, which was the only the critical technical level on the downside. Crude oil fell after the most significant production cut in history. Demand is the only factor that could revive the price of the energy commodity. So long as the pandemic continues to cause a halt in global economic activity, the wide contango will dominate the forward curve.

Crude oil open interest decreased by 3.29% over the period. The bears have been in control since January 8. Iran continues to stand as a potential problem in the Middle East when it comes to supplies, but Coronavirus has trumped any impact on the oil market. Iran is dealing with a tragic outbreak of the virus as are nations across the globe. On Wednesday, President Trump warned Iran against any hostile acts, which could have contributed to the slight recovery in the oil market.

As risk-off conditions continue to grip markets across all asset classes, energy had been hit the hardest. The potential for bankruptcies of debt-laden companies in the oil and oil-related sector continues to weigh on share prices. Time will tell if the government bailouts of the sector do anything for equity holders in the current environment. The oil and gas businesses could be a matter of national security for the US, but equity holders may not receive asset protection. As I wrote over recent weeks, those companies that have the most substantial balance sheets and are closest to state oil companies like Exxon Mobile (XOM), British Petroleum (BP), and Royal Dutch Shell (RDS-B) have the best chances of surviving the meltdown in the energy sector. They may also wind up in a position to purchase assets of failed companies at bargain-basement prices. These companies could offer value during significant price dips. They are the only energy companies I would consider buying in the current environment.

Over half the world’s crude oil reserves are in the Middle East. Political instability in the region always has the potential to impact the price of the energy commodity. Since early January, there have been no events that have caused any supply concerns as the entire world fights a common enemy, the Coronavirus.

The spread between Brent and WTI crude oil futures in June rose to the $6.74 per barrel level for Brent, which was $5.16 above the level on April 15 because of wild trading conditions. The June spread moved to a high of $11.52 on April 21, the highest level since May 2019. On April 1, the spread moved briefly to a 78 cents per barrel premium for Brent. The Brent premium tends to move higher during bullish periods in the oil market and vice versa. However, this time, it was the carnage in the price of WTI futures that drove the spread to higher levels. Brent crude can travel by ocean vessel to consumers around the globe, while WTI is a landlocked crude oil. The lack of storage capacity was responsible for the recent price action in the spread and outright prices for the energy commodity.

While Brent has traded at a premium to WTI since the Arab Spring in 2010, the low price that could lead to US production declines as the Saudis and Russians increase output could lead to a premium for WTI. Before 2010, WTI had traded at an average of a $2 to $4 premium to the Brent benchmark. The move in the Brent-WTI spread could be a sign that some stability may return to the oil market. A rising Brent premium tends to be a bullish sign for the price of crude oil, but not this time. Meanwhile, time will tell if the rise in the spread was a sign of a significant bottom in the oil price, which would be consistent with historical trends.

Term structure in the oil market experienced a significant shift as the price of crude oil tanked. The flip from backwardation to contango in the spread reflects the flood of supplies in the crude oil market. Oil traders have filled tanks and storage all over the world to take advantage of the wide contango with financing rates at historic lows. Cash and carry trades in the oil market became one of the only profitable areas of the market as demand evaporated. The cash and carry trade put upward pressure on freight and storage rates. The forward curve in crude oil highlights the current state of the widest contango in years. The US is filling its strategic petroleum reserve to the brim at the current low price levels. And, the contango cause the price of May futures to plunge to an incredible low of negative $40.32 per barrel.

Over the past week, the June 2021, minus June 2020, moved from a contango of $9.54 to $18.23, a rise of $8.69 per barrel. In early January, the spread traded to a backwardation of $6.03, $24.26 per barrel tighter than the level on April 15. Last week I wrote, “If Coronavirus continues to weigh on demand, contango can continue to move higher, as we witnessed in early 2016, so be cautious with synthetic trades to take advantage of the cash and carry trade.” Rising contango is a sign of a glut in the oil market. However, it is also a sign that the market expects production to fall significantly. The well-capitalized market participants that build cash and carry positions will receive a massive bonus if the market shifts back to backwardation during the life of their trades. A return of any tightness would allow them to sell their nearby oil in storage at a higher price than it costs to cover deferred short positions. With Iran lurking in the background as a hostile agitator in the Middle East, that scenario is possible. The number of rigs operating in the US is declining significantly, and production should follow in response to the lowest price levels in years over the coming weeks and months. Those without the ability to store crude oil that were in synthetic spreads were toasted by the market price action over the past week.

US daily production fell to 12.2 million barrels per day of output as of April 17, according to the Energy Information Administration. The level of production fell 100,000 barrels from the previous week. Meanwhile, inventory levels moved significantly higher, which reflects the demand destruction as many people continue to shelter in place. As of April 10, the API reported an increase of 13.143 million barrels of crude oil stockpiles, while the EIA said they rose by 19.20 million barrels for the same week. The API reported a rise of 2.226 million barrels of gasoline stocks and said distillate inventories rose by 5.64 million barrels as of April 10. The EIA reported an increase in gasoline stocks of 4.90 million barrels and an increase in distillates of 6.30 million barrels. Rig counts, as published by Baker Hughes, fell by 66 for the week ending on April 17, which is 387 below the level operating last year at this time. Expect the rig count to continue to drop. The number of rigs operating stood at 438 as of April 17. The inventory data from both the API and EIA has been very bearish for the price of crude oil and products. The demand for energy will decline for as long as the economy continues to falter.

OIH and VLO shares moved higher since April 15, OIH rose by 0.21%, while VLO moved 8.29% to the upside over the past week. OIH was trading at $89.61 per share level on Wednesday. I am holding a small position in OIH. I will hold the ETF as a long-term position and will look to double it or more if the conditions warrant.

We are short the May $80 put option on VLO at $3.65 per share.



If the shares are below the $80 level, we will assume a long position in VLO shares at $76.35.

We are short the May $70 put option for the same expiration at $6.28. A link to the option is below:



If the price of VLO shares is below $70 on May 15, we will be long the stock at $63.72 per share on this position, and an average of $70.04 per share on the two positions. VLO was trading at $50.57 per share on Wednesday. As I wrote, “If you are not comfortable assuming this level of risk, please do not follow this recommendation.”


April natural gas futures fell to the lowest level since 1995 on March 23 when the price reached $1.519 per MMBtu. Nearby May futures recovered to $1.918 on April 8 before turning lower and reaching $1.555 before putting in a bullish reversal on April 16. May futures recovered again, put in a higher high at $1.974, and settled at $1.939 on April 22, which was 21.34% higher than on April 15. The May futures contract traded to a high of $2.411 on November 5 and 6 and has made lower highs and lower lows throughout the winter months. Over the past week, the price action ended the bearish pattern. Support stands at $1.521 per MMBtu. While technical and fundamental factors continue to favor lower prices, wild market conditions could cause significant price swings. A move above $2.044 and $2.06 on May futures is necessary to validate the end of the pattern of lower highs. Be cautious in natural gas as it suffers from the same demand problems as crude oil.

Last week, the EIA reported the second inventory injection of the 2020 season.

Source: EIA

The EIA reported an injection of 73 bcf, bringing the total inventories to 2.097 tcf as of April 10. Stocks were 71.7% above last year’s level and 21.4% above the five-year average for this time of the year. Natural gas stocks fell to a low of 1.107 tcf in March 2019, this year the low was at 1.986, 879 bcf higher. This week the consensus expectations are that the EIA will report a 52 bcf injection into storage for the week ending on April 17. The EIA will release its next report on Thursday, April 23, 2020.  Fundamentals say lower in natural gas, but we are at a time of the year when the energy commodity tends to make seasonal lows, which we may have seen at $1.519 on March 23, time will tell. Demand for all energy will continue to decline as the economy has ground to what is an unprecedented halt. Natural gas loves to confuse market participants, and the break above the first level of technical resistance is another example of how the energy commodity is always full of surprises.

Open interest rose by 0.21% in natural gas over the past two weeks. Short-term technical resistance is at $1.974 per MMBtu level on the May futures contract with support at $1.521 per MMBtu, the low from April 2, which stands as technical support on the May futures contract. The next level on the downside is at $1.335 when it comes to the continuous futures contract on a long-term basis. On the upside, $2.025 is resistance on the weekly chart. Price momentum and relative strength on the daily chart were rising and over neutral conditions as of Wednesday. The price put in a bullish reversal on April 16 and has followed through on the upside. Each rally in natural gas had failed at a lower high since November 2019, until this past week. The price needs to move over $2.025 to keep the upward trajectory in the market going.

June ethanol prices moved 2.27% lower over the past week. Open interest in the thinly traded ethanol futures market moved 8.55% lower over the past week. With only 492 contracts of long and short positions, the biofuel market is untradeable. The KOL ETF product fell by 3.34% compared to its price on April 15. The price of July coal futures in Rotterdam moved 5.27% lower over the past week.

On Tuesday, April 21, the API reported a 13.226-million-barrel rise in crude oil inventories for the week ending on April 17. Gasoline stocks rose by 3.435 million barrels, while distillate stockpiles increased 7.639 million barrels over the period. On April 22, the EIA said crude oil stocks rose 15.0 million barrels for the previous week. Gasoline inventories were 1.0 million barrels higher, while distillate stocks rose 7.90 million barrels. The API and EIA inventory reports were very bearish for the price of the energy commodities. The slowdown in the US and global economy should cause inventories to continue to rise, but lower US output in the face of falling prices will slow the flow of the energy commodity into storage. Demand is the critical issue facing the oil market. At the current price levels, all the bad news is already in the market. However, we learned that zero is not a line in the sand on the downside.

In natural gas, the forward curve narrowed a bit after the recent rally.


As the forward curve over the coming months shows, at $1.939 in May on the settlement price on April 22, it was 34.10 cents per MMBtu higher than on April 15.

The price is in contango where deferred prices are higher than levels for nearby delivery, reflecting the condition of oversupply and high level of inventories compared to past years as we are in the 2020 injection season. Natural gas stockpiles started the 2020 injection season at a level where a build to over four trillion billion cubic feet and a new record high is possible in November, which could keep the price from running away on the upside in the leadup to the winter of 2020/2021. However, production could grind to a halt given the lack of workers during the shutdown period in many states and because of the low level of prices that make output uneconomic. The debt-laden oil and gas businesses in the US could receive support from the government to keep energy output flowing, but demand destruction will continue. The US government is likely to support the energy sector as a matter of national security.  Meanwhile, the differential between nearby May futures and natural gas for delivery in January was $1.154 per MMBtu or 59.5% higher than the nearby price, reflecting both seasonality and substantial inventory levels. The spread narrowed over the past week, by just under 13 cents per MMBtu as May futures rallied.

I have been taking profits quickly and stopping losses looking for a 1:2 risk-reward ratio on forays into the crude oil futures market. UCO and SCO products can be helpful for those who do not trade futures. In natural gas, UGAZ and DGAZ attract lots of volume and are excellent short-term proxies for natural gas futures. I will not take positions in leveraged products overnight and will only day trade, given the volatility in the markets.

We are holding a long position in PBR, Petroleo Brasileiro SA. PBR shares tanked with oil and the Brazilian real. At $6.34 per share, PBR was 0.32% higher than on April 15. The shares of the company are too low to sell at the current price. I have a small position that I will hold as a long-term investment and look to double up or more when the market conditions warrant.

Expect lots of two-way price action in the energy sector over the coming weeks and months. Demand is the critical factor when it comes to the path of least resistance of prices. The markets need to see signs of increasing demand to stabilize the price of crude oil in the current environment. Volatility is not likely to disappear from the oil and gas markets any time soon.



Soybean and wheat futures edged higher over the past week, while corn fell. Farmers are now planting crops for the 2020 crop year. The April WASDE report did not provide support for any of the three leading grain futures markets that are currently in the process of rolling from May to July futures.

July soybean futures rose by only 0.18% over the past week and was at $8.4250 per bushel on April 22. Open interest in the soybean futures market rose by 0.82% since last week. Price momentum and relative strength indicators were at oversold readings on Wednesday on the daily chart but were turning higher.

The July synthetic soybean crush spread moved lower over the past week and was at the 87.75 cents per bushel level on April 22, down 9.25 cents since April 15. The crush spread fell to a low of 81.5 cents on April 14 before recovering. The crush spread traded to a high of $1.2375 on March 24 and is a real-time indicator of demand for soybean meal and oil. The crush moved higher on the back of demand for soybean meal. Bean futures peaked around that time. Price trends in the crush spreads can cause buying or selling in the raw oilseeds at times. Any significant moves in the crush spread are likely to translate into price movement in the soybean futures. The move in the crush was not supportive of beans over the past week.

I continue to believe soybean futures are in the buy-zone at prices below $9 per bushel, but risk-off has pushed the price lower. Coronavirus will not lower the demand for food as over 7.6 billion people all over the planet require daily nutrition.

July corn was trading at $3.2475 per bushel on April 22, which was 0.61% lower on the week. Open interest in the corn futures market rose by 2.14% since April 14. Technical metrics remained in oversold readings in the corn futures market on the daily chart as of Wednesday but were crossing higher after trading to a low of $3.09 on April 21. The continuous contract hit a low of $3.01 on the week.

Source: CQG

As the monthly chart illustrates, the low over the past week at $3.01 created a double bottom as corn futures traded to the same price in August 2016. A double bottom formation could signal a bottom in the corn market. However, corn is the ingredient in ethanol. Continued weakness in gasoline and crude oil would not be supportive of the price of the coarse grain.

The price of June ethanol futures fell by 2.27% since the previous report on the back of demand destruction in the energy sector. June ethanol futures were at 94.70 cents per gallon on April 22. The spread between July gasoline and July ethanol futures fell to 25.79 cents per gallon on April 22 with ethanol at a premium to gasoline. The spread was 9.49 cents wider since last week as gasoline underperformed the biofuel.

July CBOT wheat futures were 0.65% higher since last week. The July futures were trading $5.4375 level on April 22. Open interest fell by 2.80% over the past week in CBOT wheat futures. The support and resistance levels in July CBOT wheat futures were at $5.25 and $5.7150 per bushel.

As of Wednesday, the KCBT-CBOT spread in July was trading at a 46 cents per bushel discount with KCBT lower than CBOT wheat futures in the May contracts. The spread narrowed by 7.25 cents since April 15. The long-term norm for the spread is a 20-30 cents premium for the Kansas City hard red winter wheat over the CBOT soft red winter wheat. The CBOT price reflects the world wheat price, and it is the most liquid wheat futures contract. The KCBT price is often a benchmark for bread manufacturers in the US who purchase the grain from suppliers. As I have been writing, “at a discount to CBOT, consumers are not hedging their requirements for KCBT, which is a sign that they continue to buy on a hand-to-mouth basis.”  The spread continues to be at a level that is bearish for the wheat market. Any sudden problem in the wheat market that causes consumer hedging to increase could result in a dramatic change in the spread between the hard and soft winter wheat futures contracts. The spread moved towards the long-term average over the past week, which could mean wheat futures likely made a higher low. Dry European weather  could be bullish for the price of the grain.

I will continue to build long core positions in futures and the CORN, WEAT, and SOYB ETF products over the coming weeks on price weakness. The trade deal resulting in a de-escalation of the trade war is supportive of the prices of grains. The outbreak of the Coronavirus had been a bearish factor for the grain markets, but less so than in other markets. Grain prices fell in Q1, but it was the best-performing sector in the commodities asset class.

The uncertainty of the 2020 crop year could add volatility to the market as the spring planting season gets underway. I had been a scale-down buyer of beans, corn, and wheat on price weakness, leaving plenty of room to average down by using wide scales in the current environment. I believe grains have the best upside potential over the coming weeks and months as the growing world demand for food limits the downside. I will take profits on rallies in the current environment and raise stop levels on long core positions to protect capital. Nothing changed over the past week to alter my view. Mother Nature and the weather will be the critical factor for the path of least resistance of all grain prices over the coming weeks and months.

The long-term average for the corn-soybean spread is around the 2.4 bushels of corn value in each bushel of soybean value level. When the spread is higher, farmers tend to plant more beans than corn, and when it is lower than the 2.4:1 average, they tend to plant more corn than soybeans on their acreage.  Farmers are planting crops for the 2020 planting season.

Source: CQG

The chart of the November 2020 soybean futures divided by December 2020 corn futures shows that the ratio moved lower over the past week and was at the 2.5089:1 level on April 22, up 0.0027 since last week. The ratio remained above the long-term norm. On April 22, the spread was at a level where farmers will plant more soybeans than corn crops when it comes to the current planting season at over the 2.4:1 level. The seeds are now going into the ground across the fertile plains of the US and other growing areas in the northern hemisphere. Meanwhile, Coronavirus could slow production given social distancing guidelines and the growing number of infections. Time will tell if the virus impacts the 2020 crops. Meanwhile, the decline in gasoline and crude oil prices has weighed on corn, making soybeans the optimal crop when it comes to the relative value between the coarse grain and oilseed.

People need to eat, and the weather conditions over the coming weeks and months will determine the path of grain prices. At the current price levels, I continue to favor the upside in the grain sector as the price action over the past weeks has sent prices to levels that limit the downside, while the upside could become explosive if shortages develop.

Copper, Metals, and Minerals

Industrial commodity prices were volatile over the past week, with gains in nickel, uranium, and the Baltic Dry Index. Copper, aluminum, lead, zinc, tin, iron ore, and lumber posted losses since April 15.

Copper fell 0.26% on COMEX over the past week. The red metal posted a 2.34% loss as of April 21 on the LME since the last report. Open interest in the COMEX futures market moved 6.34% lower since April 14. May copper was trading at $2.2900 per pound level on Wednesday as the price failed at just under $2.36 over the past week. Copper is a leading barometer for the overall health and wellbeing of the Chinese and global economies. Over the past week, LME and COMEX stockpiles continued to move higher. Some mine closures in the US and South America could be providing some support to copper and other base metals prices.

Support for the copper markets below the most recent low is at the early 2016 low of $1.9355 per pound. Chinese demand will continue to be the most significant factor when it comes to the path of the price of copper and other base metals and industrial commodities over the coming weeks and months. Keep in mind that during the 2008 financial crisis, copper fell to a bottom of $1.2475 per pound. The decline came from over $4 per pound in early 2008. However, the price of the red metal only briefly probed below the $2 level and has been steadily moving away from the level on the downside.

The LME lead price moved lower by 2.96% since April 14. The rise in demand for electric automobiles around the world had been supportive of lead in the long term as the metal is a requirement for batteries, but Coronavirus weighed on the price of lead because of falling fuel prices. The price of nickel moved 2.99% higher over the past week. The export ban in Indonesia began on January 1, 2020 but has had little impact on the price of the nonferrous metal so far this year. Tin fell by 3.67% since the previous report, after an almost 4% gain last week. Aluminum was 0.80% lower since the last report. The price of zinc fell by 1.74% since April 14. Zinc was at just below the $1890 level on April 21. The impact of Coronavirus on the global economy is the most significant of our lifetime, which is a concern for the prices of the nonferrous metals.

July lumber futures were at the $323.00 level, down 2.97% since the previous report. Interest rates in the US will eventually influence the price of lumber. The current environment does not support new home and infrastructure building as the US and world deal with the crisis. However, lumber has been signaling some optimism over the past few weeks. The price of uranium for June delivery moved 2.99% higher and was at $32.70 per pound. The volatile Baltic Dry Index rose 7.22% since April 15 to the 728 level after significant losses throughout the winter months. The rise in the BDI is a function of both seasonality and Chinese demand for some bulk commodities. June iron ore futures were 1.08% lower compared to the price on April 15. Open interest in the thinly traded lumber futures market fell by 3.23% since the previous report.

LME copper inventories moved 1.91% higher to 264,725 since the last report. COMEX copper stocks rose by 5.36% from April 14 to 41,792 tons. Lead stockpiles on the LME were up 1.74%, while aluminum stocks were 4.02% higher. Aluminum stocks rose to the 1,298,225-ton level. Zinc stocks increased by 0.57% since April 14 after exploding higher by 29.05% last week. Tin inventories fell 9.73% since April 14 to 6,405 tons. Nickel inventories were 0.43% higher compared to the level on April 14.

Stocks rose and most prices moved a bit lower over the past week.

We own the January 2021 $15 call on X shares at $3.30 per share, and it was trading at 14 cents on March 25, up one penny since the previous report. The details for the call option are here:



US Steel shares were at $6.51 per share and moved 0.61% lower since last week.

FXC was trading at $7.64 on Wednesday, $0.03 lower since the previous report. I continue to maintain a small long position in FCX shares. I will not sell the stock at this level, but I am on the sidelines when it comes to adding to the position.

The base metals remain at levels where there is a danger of selling if the global economy contracts. I would continue to be cautious in the current environment, and only trade on a short-term basis with very tight stop levels. The sector is indicating that optimism has increased. However, industrial commodity prices will need to see progress, and China remains ground zero for the demand side of the equation. Any positions on the long side in the base metals or industrial commodities are a wager that the Chinese economy experiences growth. and the global pandemic’s impact on the world declines over the coming weeks. Moreover, and selling in the stock market in the US could lead to lower prices. Low interest rates and stimulus have provided support for industrial commodity prices, and mine closures could lead to shortages. The first sign of any market deficits will be if stockpiles of the nonferrous metals on the LME begin to decline.

I remain cautious on the sector and have limited any activity to very short-term risk positions.


Animal Proteins

Lean hog prices recovered even though ranchers have found no home for supplies as processing plants across areas of the US have ceased operations because of outbreaks of Coronavirus. Live and feeder cattle prices were on either side of unchanged over the past week after recent losses.

June live cattle futures were at 84.075 cents per pound level down 0.88% from April 15. Technical resistance is at 99.775 cents per pound. Technical support stands at around 76.60 cents per pound level. Price momentum and relative strength indicators were just below neutral readings on Wednesday. Open interest in the live cattle futures market moved 0.08% higher since the last report.

May feeder cattle futures rolled to August and outperformed live cattle as they rose by 0.38% since last week. August feeder cattle futures were trading at the $1.27200 per pound level with support at $1.10025 and resistance at $1.31225 per pound level. Open interest in feeder cattle futures rose 1.86% since last week. While live cattle futures have a delivery mechanism, feeder cattle are a cash-settled futures contract. Sometimes live cattle prices lead feeder cattle prices, while at others, the opposite occurs.

Lean hog futures bounced higher since the previous report. The active month June lean hogs were at 47.900 cents on April 22, which was 7.66% higher since April 15 after weeks of losses. Price momentum and the relative strength index were turning higher from oversold readings on Wednesday. Support is at 41.500 cents with technical resistance on the June futures contract at 57.150 cents per pound level.

The forward curve in live cattle is in backwardation from April 2020 until June 2020, and the market shifts to mostly contango from June 2020 through April 2021. Backwardation returns until August 2021. After a small backwardation from April 2020 through May 2020, the Feeder cattle forward curve is in contango from May through November 2020 before it tightens slightly until January 2021 and then shifts back to contango out to March 2021. The forward curves did not experience any significant changes over the past week in the cattle futures market.

In the lean hog futures arena, there is contango from May 2020 until August 2020. From August 2020 through December 2020, the curve is in backwardation, but contango returns from December 2020 through June 2021 when the curve flattens until August 2021. The price carnage in lean hog futures shifted the forward curve to reflect a glut condition when it comes to supplies over the past weeks. The unique position of ranchers and weighed on futures prices, but it is creating shortages for consumers. Futures prices may be at the lowest prices in years, but that does not mean consumers are getting any bargains or can even source pork at supermarket butcher counters.

The long-term average for the spread between live cattle and lean hogs is around 1.4 pounds of pork for each pound of beef. Over the past week, the spread between the two in the June futures contracts moved higher as the price of live cattle outperformed lean hogs on a percentage basis.

Source: CQG

Based on settlement prices, the spread was at 1.75520:1 compared to 1.90080:1 in the previous report. The spread fell by 14.56 cents as live cattle fell and lean hog futures rallied over the past week. Last week the spread increased by over 21.5 cents. The spread moved towards the historical norm on the June futures contracts. Beef is far more expensive than pork from a historical perspective as of April 15. The spread was at its highest level since 2015 but turned lower over the past week as hogs recovered from multiyear lows. The divergence in the pork market has caused conditions that could lead to high levels of price volatility in the futures market over the coming days and weeks.

We are now five weeks away from the beginning of the 2020 grilling season, the peak season of demand for cattle and hogs. I would only approach the meats from the long side in the current environment, but I would employ very tight stops on any risk positions. Prices remained at the lowest levels in years as of April 22 despite the recovery in the lean hog futures contracts.


Soft Commodities

Over the past week, sugar, coffee and FCOJ futures posted declines, but cocoa and cotton prices moved to the upside. Both cotton and cocoa futures were over 6% higher since last week. The primary ingredient in chocolate confectionery products reached a low of $2190 per ton, just $7 above its technical support level at $2183. Soft commodity futures are rolled from May to July futures.

July sugar futures fell 2.72% since April 15. The price of the sweet commodity fell to a new multiyear low at 9.55 cents per pound on the May contract. Technical resistance on July futures is now at 10.64 cents with support at the most recent low of 9.77 cents. Sugar made a new high at 15.90 cents on February 12 on the continuous contract, but the price collapsed on the back of risk-off conditions. The decline in the price of crude oil and ethanol weighed on sugar as the primary ingredient in ethanol in Brazil is sugarcane. The value of the January Brazilian real against the US dollar continued to decline over the past week and was at the $0.184650 level against the US dollar on the June contract, 3.02% lower over the period. The Brazilian currency has been making lower lows as Coronavirus weighed heavily on all emerging markets. Anyone with a risk position in sugar should keep an eye on the price action in the Brazilian real. Price momentum and relative strength on the daily sugar chart remained in oversold territory as of April 22. The metrics on the monthly chart crossed lower, but the quarterly chart was still at an oversold condition. Sugar made a new high above its 2019 peak in February before correcting to the downside. Risk-off conditions stopped the rally. Open interest in sugar futures was 7.18% lower since last week and dropped below the one-million-contract level. Sugar had rallied to new highs as drought conditions in Thailand created the supply concerns that lifted the price of sugar futures. The correction in sympathy with the risk-off conditions in markets across all asset classes chased any speculative longs from the market. The long-term support level for the sweet commodity is now at 9.44 cents per pound.  Energy prices are weighing on sugar as Brazil processes sugar into ethanol. A rebound in gasoline prices could spark a recovery in the sugar futures market. Sugar is at the bottom end of its pricing cycle, but that does not mean the price will not continue to work its way lower. The drop in open interest is not a bearish sign from a technical perspective.

July coffee futures moved 6.55% lower since April 15. July futures were trading at the $1.12050 per pound level. The first technical level on the downside is $1.1120. Below there, support is at around 97.40 cents on the continuous futures contract. Resistance is at $1.2260 on the July contract. I continue to favor coffee on the long side, but coffee can be a highly volatile commodity in the futures market, as we have witnessed over the past weeks and months. Our stop on the long position in JO is at $27.99, but in the current conditions, I would increase the stop and exercise extreme caution. JO was trading at $35.20 on Wednesday. Open interest in the coffee futures market was 3.22% lower since last week. I continue to hold a small core long position in coffee after taking profits during the rally in March.

Supply concerns over Brazilian production in the off-year for crops had been supportive of the price of the soft commodity from mid-October through December. The ICO has warned that a deficit between supply and demand could be in the cards for the market because of the 2019/2020 crop year. However, those fears subsided, causing the price of the soft commodity to decline to a level where buying returned to the market. Coffee had made higher lows since reaching 86.35 cents in mid-April. The price of coffee has remained firm despite the risk-off conditions. The ultimate upside target is the November 2016, high at $1.76 per pound. Price momentum and relative strength were below neutral levels on Wednesday. On the monthly and quarterly charts, the price action was neutral. As I wrote in previous reports, “The risk rises with the price in the volatile coffee futures market. We should expect wide intraday trading ranges in the coffee futures market.”  Coffee can be a wild bucking bronco when it comes to the price volatility of the soft commodity. Bottlenecks on South American ports could prove highly supportive of coffee prices as they could create a shortage of the beans. At the same time, recent hoarding could lead to declining demand over the coming weeks and months. I expect volatility in coffee to continue, and I will look to trade on a short-term basis with a bias to the upside. Nothing changed in the coffee market since last week.

The price of cocoa futures found what appears to be a bottom over the past week. On Wednesday, July cocoa futures were at the $2375 per ton level, 6.22% higher than on April 15. Open interest rose by 0.17%. Relative strength and price momentum were above neutral readings after rising from oversold territory on April 22. The price of cocoa futures rose to a new peak and the highest price since September 2016 at $2998 per ton on the March contract on February 13. Risk-off conditions pushed the price of cocoa beans lower, but they bounced after reaching a low that was $7 above the technical support level. We are long the NIB ETN product. NIB closed at $27.60 on Wednesday, April 22. I will increase stops on this position as the price rises. As the Ivory Coast and Ghana attempt to institute a minimum $400 per ton premium for their exports of cocoa beans, it should provide support to the cocoa market. The level to watch on the upside is now at $2402 per ton. On the downside, short-term technical support now stands at $2201 per ton, the same as in the previous report. The potential for Coronavirus to disrupt production in West Africa is high, which could lead to shortages of beans over the coming months. The health systems in producing countries like the Ivory Coast, Ghana, Nigeria, and others are not sufficient to treat patients or prevent the spread of the virus. Africa could suffer tragic consequences over the coming weeks and months. The flow of cocoa beans to the world could suffer as bottlenecks at ports could reduce exports. I was a buyer of cocoa on the recent dip.

July cotton futures rose by 6.39% over the past week after recent declines on the back of continued concerns about the Chinese and global economies. July cotton was trading at 56.14 cents on April 22, after falling to the lowest price since 2009 over the past weeks. On the downside, support is at the recent low of 48.15 cents per pound. Resistance stands at 60.00 cents per pound. Open interest in the cotton futures market fell by 3.17% since April 14. Price momentum and relative strength metrics were above neutral territory on Wednesday.

I remain slightly bullish on the prospects for the price of cotton at above the 50 cents per pound level but would use tight stops on any long positions.

July FCOJ futures moved lower since the last report. On Wednesday, the price of July futures was trading around $1.0725 per pound, 2.23% lower than on April 15. Support is at the $1.0460 level. Technical resistance is at $1.1190 per pound, the most recent high. Open interest fell 4.32% since April 14. The Brazilian currency is weighing on the FCOJ futures, but bottlenecks at the ports could work in the opposite direction. $1 per pound is the first level of minor support for the soft commodity below the $1.0460 level.

Soft commodities can be highly volatile. Cocoa and cotton displayed signs of bullish life over the past week, but the other members of the sector posted marginal losses. Sugar and cotton remain near the bottom ends of their pricing cycles. FCOJ needs to remain above the $1 per pound level, and coffee is likely to continue to experience two-way price volatility over the coming weeks. Keeps stops tight in this sector.


A final note

The stability in the stock market is either a sign that there is light at the end of a dark tunnel created by Coronavirus or a mirage. Stimulus has done the trick in the equity asset class in the short-term, but the price tag will be staggering. When it comes to commodities, the recent developments in the pork market could stand as an example of the types of divergences we should continue to expect. Massive supplies in the hands of producers and problems with the supply chain can cause lots of price volatility and distortions in the fundamental supply and demand equation. An unprecedented time often leads to unique price action in markets. When it comes to crude oil and natural gas, the current levels of massive supplies and debt-laden producers in an environment of government bailouts, together with tightening credit, could also influence prices. Today’s level of enormous inventories could lead to falling production and lower inventories in the future. Crude oil taught us that the downside is not limited to zero, which has significant ramifications for futures, ETF/ETN products and put option positions.

When markets become overly bearish, bottoms are usually on the horizon. It is virtually impossible to pick tops or bottoms in any market but be particularly sensitive to long-side opportunities on a short-term basis in the current environment. From a production standpoint, the current price of crude oil is unsustainable. While the price could continue to spike lower at times, as production declines, inventories will eventually follow. Any whiff of demand in the oil sector could lead to significant percentage gains.

Gold corrected last week, but the stimulus levels are highly supportive for the yellow metal. Gold is more than a fear barometer these days as central banks continue to devalue fiat currencies. I view any price weakness in gold as a buying opportunity, but I would leave buying scales at wide levels to allow for adding to long positions on further declines. Be careful out there; markets are not out of the woods by any means. We are in an unprecedented time in the world where we need to continue to expect the unexpected.


As I wrote over the past weeks, I plan to increase the price of The Hecht Commodity Report soon. However, all of my current loyal subscribers will never experience an increase in their monthly or annual subscription rates. I will grandfather all subscribers at their current rates for as long as they maintain their subscriptions. Thank you for your support.


Please keep safe and healthy in this environment.




Until next week,


Andy Hecht


Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal.  This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.