• The dollar index hovers around the 100 level
  • Precious metals were stable over the past week
  • Crude oil, gasoline, and ethanol recover, heating oil, natural gas, and coal move lower
  • Agricultural commodities reflect issues with supply chains and deflationary pressures
  • Industrial commodities mostly higher led by gains in copper


Summary and highlights:

On Thursday, April 23, the stock market experienced one of its quietest sessions in many weeks. The three leading indices were on either side of unchanged, but the Russell 2000 was 1.04% higher. The June long bond futures moved 0-09 higher to 181-22 while the dollar index in June moved 0.007 high to 100.535. Corn and bean prices edged higher, but wheat was unchanged. June crude oil had a quiet day compared to the rest of the week, but it moved higher and closed at $16.50 per barrel. Product prices edged lower, causing crack spreads to decline. The EIA reported an injection of 43 bcf into storage for the week ending on April 17, and natural gas fell to $1.815 per MMBtu on the May contract as the futures market is rolling to June. Ethanol was up a bit to the 95.3 cents level. Gold and silver posted gains, platinum was higher, and palladium gained over $100 per ounce and was back at the $2000 level. Copper moved 2.2 cents higher to $2.3120 per pound on May futures. Live and feeder cattle prices fell, but lean hogs rallied to over 51 cents per pound on June futures. Cocoa and lumber moved to the downside, but cotton, FCOJ, and coffee were a touch higher while sugar was unchanged on the July contract. Bitcoin was at $7540, up $405 per token. The latest jobs report showed that another 4.4 million people filed for first-time unemployment benefits bring the total to over 26 million.

On Friday, stocks moved higher with a 1.11% gain in the DJIA, a 1.39% rise in the S&P 500, while the tech-heavy NASDAQ moved 1.65% higher. The Russell 2000 was up 1.56% for the final session of the week. The US 30-Year Treasury bond futures contract gained 0-18 to 181-31, and the dollar index in June edged 0.101 lower to the 100.434 level. Grain prices posted across the board losses led by CBOT wheat futures. May contracts were rolling to July in the grain sector. Crude oil edged higher after a wild week with the June NYMEX futures contract up 44 cents to $16.94 per barrel, while June Brent futures gained 11 cents to $21.44 per barrel. Distillate futures fell, but gasoline posted a marginal gain, and gasoline refining spreads outperformed the distillate cracks. June natural gas fell to settle the week at $1.895 after trading to a high of $2.10 during the week as May futures rolled to July. June ethanol posted a marginal gain on the session on the back of the rise in gasoline. All of the precious metals edged lower on Friday, with gold settling at just over the $1735 level. July silver was 8.1 cents lower to $15.445, and platinum fell $14.2 to below $774 per ounce. Palladium was below the $2000 level as the volatile metal settled at $1985.30. July copper gained just under two cents to settle at $2.3365 per pound. Live and feeder cattle were on either side of unchanged, and lean hogs in June were only 0.100 cents lower. FCOJ edged slightly higher, while cotton, coffee, sugar, cocoa, and lumber prices moved to the downside. The most significant loss in the soft commodities sector was in the coffee market. Bitcoin fell $30 to $7595 per token.

On Monday, stocks moved higher on the first trading day of the week as the mirage of stimulus continued to support the market. The DJIA was 1.51% higher, the S&P 500 gained 1.47%, and NASDAQ was up 1.11%. The small-cap Russell 2000 was the big winner with a 3.96% move to the upside. The June 30-Year Treasury bond futures were 1-18 lower to 180-14, and the June dollar index contract fell to 100.097. Grains fell with corn leading the way on the downside with a 10 cents per bushel loss as the price was closing in on $3 per bushel. Soybeans in July fell 3 cents, and July wheat fell by 5.75 cents per bushel. Crude oil weighed on corn as the price of the nearby June futures contract on NYMEX was back in bearish mode with a loss of $4.16 per barrel to settle at $12.78. Oil products fell, but outperformed the price of crude oil, leading to gains in the gasoline and distillate crack spreads. Brent crude oil fell below $20 per barrel but outperformed WTI as the price only declined by around $1.50 per barrel. Natural gas in June was 2.1 cents higher to $1.916 per MMBtu. Ethanol in June fell 1.7 cents top 93.9 cents per gallon. Gold and silver edged lower, but platinum posted a small gain. Palladium fell by $90.50 per ounce. July copper was marginally higher to $2.3450 per pound. June live cattle recovered by just under 1.5 cents per pound, August feeder cattle were up under a penny, and June lean hogs gained 3.75 cents as the recovery from last week continued. FCOJ and cocoa moved higher, but cotton, sugar, coffee, and lumber all moved lower. Sugar fell to a new low on the back of pressure from the crude oil market. Brazil processes sugarcane into ethanol, which weighed on the price of the sweet commodity. Bitcoin gained $185 to $7780 per token.

On Tuesday, the three leading indices slipped lower. The DJIA was down only 0.13%, while the S&P 500 fell 0.52%. The tech-heavy NASDAQ declined 1.40%, but the Russell 2000 bucked the trend with a 3.83% gain on the session. The June 30-Year US government bond futures were 1-08 higher to 181.26, while the June dollar index settled a hair under the 100 pivot point at 99.934. July Corn and bean prices slipped by 2.75 1.25 and 4.50 cents, respectively, while July CBOT wheat was 1.25 cents per bushel higher. The May corn futures contract traded down to a low of $3.0125, just one-quarter of one cent above its critical support level. Crude oil futures on NYMEX settled at $12.34 per barrel but moved higher in the aftermarket. June Brent crude oil, which expires on Thursday, edged higher and remained above $20 per barrel. Product prices were higher, with gasoline leading the way on the upside. Cracks spreads posted gains on the session. June natural gas futures edged higher to settle at $1.948 per MMBtu. Ethanol was only 0.8 cents lower on the back of weakness in the corn futures market. Gold and silver were both around unchanged, but platinum and palladium posted gains. Copper was close to unchanged on the July futures contract, which was just below the $2.35 per pound level. Live and feeder cattle edged higher, and lean hogs were up almost a penny, adding to recent gains. Soft commodities experienced a rare day of across the board gains with July cotton, FCOJ, coffee, sugar, cocoa, and lumber all edging higher, but none of the softs ran away on the upside on the session. Bitcoin was unchanged at $7780 per token.

On Wednesday, the US economy contracted by 4.8% in the first quarter, and the data for the second quarter will be worse. The April Fed meeting led to a statement that the central bank is committed to providing liquidity as needed as the US and world continue to face the global pandemic. Chairman Powell said that now is the time to use the great fiscal power of the US as he encouraged Congress to do more to help people that have lost jobs and could fall between the economic cracks the longer the virus causes the self-induced financial coma and in its aftermath. The Fed provided no forward-looking statement as the future is in the hands of the scientists looking for treatments and a vaccine for Coronavirus. Stocks moved higher across the board with the S&P 500 up 2.66%, the NASDAQ 3.57% higher, and the Russell 2000 moving 4.83% to the upside. The DJIA was 2.21% higher on the session. The June US 30-Year Bond moved 0-15 higher to 181-12, and the June dollar index was down 0.290 to 99.644. July soybeans rose 5.5 cents, and July corn was up 2.5 cents per bushel. Meanwhile, July wheat fell 9.5 cents on the session. Crude oil posted gains with the June NYMEX contract $2.72 higher, and Brent crude oil also up over $2 on Wednesday. Oil products moved higher with heating oil futures outperforming gasoline. Heating oil cracks gained, but gasoline refining spreads moved a touch lower. June natural gas futures were down 7.9 cents to $1.869 per MMBtu. Ethanol posted gains with the June contract above the $1 per gallon level for the first time since March. Gold and silver settled a touch lower on the session, but both metals rallied after the Fed meeting and Q&A session with Chairman Powell. Platinum, palladium, and copper futures posted gains on the session. Live cattle fell by just under one-half cents per pound on the June contract. August feeder cattle were just over one-half cents per pound higher, and lean hogs in June were down 0.675 cents after recent gains. July coffee fell 2.30 cents, but cotton, sugar, and cocoa posted gains. Lumber was down, and FCOJ slipped marginally on the session. Bitcoin had an explosive day with a $1045 gain to the $8825 per token level.

Weekly Spreadsheet:

Copy of Spreadsheets for the The Hecht Commodity Report April 29, 2020

Stocks and Bonds

The incredible power of stimulus from both the US Fed and government programs continued to provide stability to the stock market over the past week lifting all three of the leading indices. Even though 4.4 million Americans filed for first-time unemployment benefits pushing the total to over 26 million over the past weeks, stocks posted gains. A report that US GDP contracted by 4.8% in Q1 did not stop the ascent of share prices.

The stock market remains vulnerable to downdrafts as the US economy remains in a self-induced coma, but optimism that businesses will slowly begin operating has caused the stock market to hold recent gains after the March lows. At the same time, progress on treatments for Coronavirus provided support for the stock market. Market action over the past years has trained investors and market participants to buy stocks during corrections. Still, the global pandemic presents unprecedented challenges for corporate earnings over the rest of 2020 and into 2021. The US Presidential election could usher in policy changes that may impact the stock market starting in 2021.

The S&P 500 rose 5.01% since last week. The NASDAQ was 4.94% higher, and the DJIA posted a 4.93% gain.

Corporate earnings will suffer over the coming months, but the market action reflects the potential for a recovery. Scientists continue to hold the key to a return to some semblance of normalcy in the economy. Effective treatments for Coronavirus that limit mortality would be the most bullish news for the stock market in the short-term. Last week, Apple’s CEO, Tim Cook, said he believed a V-shaped recovery is on the horizon, echoing President Trump’s opinion. The US economy was growing at a moderate pace with the lowest unemployment level since the 1960s when the Coronavirus created the most significant black swan event in our lifetime. The potential for a substantial recovery from the current level depends on positive news from the scientific front.

Chinese stocks kept pace with the US markets, but they slightly underperformed the US indices over the past week.

Source: Barchart

As the chart illustrates, the China Large-Cap ETF product (FXI) was trading at the $39.63 level on Wednesday, as it rose by 4.37% since the previous report. Coronavirus began in China and spread around the globe like wildfire. The US and Europe could blame the Chinese because of misinformation when the virus started in Wuhan, which could cause problems for China’s economy over the coming months and years. The US and Europe are massive consumer markets for Chinese exports. However, China is the second-wealthiest nation in the world, and the government could be propping up the stock market, which supports the prices of shares held in the FXI product.

US 30-Year bonds were higher over the past week. On Wednesday, April 29, the June long bond futures contract was at the 181-12 level, up 0.17% since April 22. The US Fed’s stimulus is an implied put option on the bond market. Support for the long bond stands at 177-14 with resistance at 183-02, the low and high levels in the June futures contract in April.

Open interest in the E-Mini S&P 500 futures contracts fell by 1.86% since April 21. Open interest in the long bond futures fell 1.32% over the past week. The stability in the stock market caused the VIX to move lower to the 31.55 level on April 29, 24.85% lower since last week. 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. The longer significant parts of the economy remain closed, the higher the chances of another downdraft in stocks and updraft in the VIX.

At the 31.55 level, the VIX is in the buy zone where the risk-reward profile offers value. 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. I would look for 2:1 reward over risk on any long positions in the VIX or VIX-related products over the coming weeks.

Expect optimism and pessimism to change places often in the stock market. Many companies and states are extending social distancing guidelines, which prolongs the coma for the US economy and increases the need for even more stimulative measures. Each week could have an exponential impact on the US and global economies when it comes to debt levels and the lack of corporate earnings. However, Gilead’s promising trials for its drug to treat the virus was a bullish factor for the markets, which is a sign that a breakthrough would be explosive for the stock market. We may be closer to the end of the worldwide pandemic, but science moves a lot slower than markets or the spread of the virus. We could see more periods of pessimism that result in periods of deflationary price action in the stock market and markets across all asset classes. Expect a continuation of two-way volatility.


The dollar and digital currencies

The foreign exchange market was quiet over the past week as the dollar index continued to trade around the 100 level. As I wrote last week, “Governments often manage currency levels to achieve stability.” In the current environment, the level of intervention is likely far higher than in the past, given the halt of business activity. The dollar index edged a touch lower since April 22. Cryptocurrencies posted significant gains since last week.

The dollar index was below the 100 level at 99.644 on April 29, down 0.88% from the level on April 22. The dollar index has been trading on either side of the 100 level over the past weeks, which is a sign of heightened government intervention in the currency market. Open interest in the dollar index futures contract moved 3.93% higher over the past week. The dollar index has been trending higher since 2018, and rising open interest is a sign of support for the technical trend. Moreover, since the US economy moved into the pandemic with the most robust conditions, the dollar index could be far higher than its current level if it was not for government management of the foreign exchange arena.

The euro currency was 0.44% higher against the dollar. Europe’s economy limped into the crisis, and Coronavirus has been more than a challenge for the EU and ECB. Moreover, the US tech sector has continued to operate, providing some degree of support for the economy. Europe does not have the same benefits, which could mean that intervention is propping up the value of the
European currency. The pound moved 1.07% higher against the dollar since last week. 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. US multinational companies benefit from a weaker dollar, which could also be a reason for the US Treasury to prevent the dollar from running away on the upside.

Meanwhile, the advanced medical systems and reporting in the US, Europe, and parts of Asia 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. The price action over the past week in the Brazilian real versus the US dollar is a sign that South America’s leading economy is suffering because of the spread of the virus. If Brazil is experiencing problems, it is a sign that the rest of South America, Africa, and other areas of the world are having the same issues. The mortality rate in these areas of the world will likely be significantly higher than in the US and Europe because of the availability of medical technology.


Bitcoin and the digital currency asset class moved higher over the past week. Bitcoin was trading at the $8,651.54 level as of April 29, as it climbed 21.46% higher. Ethereum posted a 17.79% gain since April 22. Ethereum was at $216.02 per token on Wednesday. The market cap of the entire asset class moved 19.10% higher over the past week. Bitcoin outperformed the whole asset class since the previous report. The number of tokens increased by 13 to 5405 tokens since April 22. 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 $245.280 billion, up 19.10% since the prior report. Open interest in the CME Bitcoin futures rose 7.58% since last week.. As I wrote 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.” While I would be long the leading cryptocurrencies, I would employ tight and trailing stops because of the volatility in these assets.

The Canadian dollar moved 2.05% higher since April 22. Open interest in C$ futures fell by 2.93% 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 despite the wild volatility in June crude oil. A prolonged period of price pressure in the oil market could eat away at the value of the C$. Weakness in grain prices is another factor that could weigh on the value of the Canadian currency.

The Australian dollar is also a commodity-based currency with a high degree of sensitivity to China’s economy. The A$ moved 3.48% higher since last week. The geographical proximity to China makes the Australian dollar sensitive to events in China. 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 in the current conditions. However, the draconian measures in Australia have supported its currency over the past week.

The British pound rose 1.07% 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 UK faces challenges after its divorce from the EU, but the move may have insulated the nation from the massive price tag for Coronavirus in Europe. The UK has also experienced more than its fair share of cases, but members of the EU will be sharing the costs of the toll the virus has taken on Spain, Italy, and France while the UK is one its own after Brexit.

Brazil has been the poster child for weakness in South America and all of the EMs. Over the past week, the Brazilian real was 0.73% higher. The June Brazilian currency was trading at the $0.18600level after falling to a new low at $0.17350 on April 24. 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. The recent price action in the real is also a sign of weakness in other emerging market currencies.

Expect volatility to continue in the foreign exchange arena. The 100 level has emerged as a pivot point for the dollar index. 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. In the current environment, the dollar should be higher, but that is not in the best interest of the United States, which is the reason why the US Treasury could be managing the greenback and preventing it from moving higher against other currencies around the world. The Trump administration has not been shy about its desire for a weaker US currency because of the trade advantages. While the Treasury may not be pushing the dollar lower, it appears to be putting a cap on the greenback in the foreign exchange arena.


Gold and silver posted losses over the past week, while the platinum group metals moved mostly to the upside. However, precious metals moved higher than the April 29 settlement prices after the April Fed meeting on Tuesday.

Precious Metals

Gold and silver posted modest losses over the past week. Platinum and palladium recovered with platinum leading the way on a percentage basis. Gold was sitting just over the $1710 level with silver at under $15.32 on the now active month July contract. Both metals rallied from those levels after the April Fed meeting. Platinum was just below $800, and palladium rose to almost the $1920 per ounce level. The illiquid rhodium market fell sharply since April 22.

Gold fell 1.43% over the past week. Silver was 0.94% lower since April 22. June gold futures were at $1713.40 per ounce level on Wednesday. May silver rolled to July and was at $15.315 per ounce on Wednesday. The tidal wave of liquidity is bullish for the prices of the metals that have long histories as a means of exchange. Markets rarely move in a straight-line during bull markets. Pullbacks and corrections are the norms rather than the exception. Gold has offered market participants buying opportunities on every dip since 2018, and I expect that trend to continue. Silver has underperformed gold, but the volatile metal has a history of shocking markets when it decides to move higher or lower. The risk-off action in March pushed the price of silver below the $12 level before recovering.

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. July silver rose to $19.075 on February 24 before the price suffered a substantial correction sending it to a low of $11.68 per ounce on March 18 before recovering to the $16.505 level on April 14. The stimulative monetary and fiscal programs continue to be highly supportive of the prices of the two metals that have long histories as currencies. Significant price dips have been buying opportunities in gold since 2018. In silver, the wild volatility that took the price from over $19 to below $12 is an example of the kind of action we could expect to witness in the metal that moves on the market’s sentiment. I remain bullish on both gold and silver. I believe that gold is heading to $2000 to $3000 per ounce over the coming months and that silver will eventually follow the yellow metal. Gold mining shares moved higher over the past week with the GDX and GDXJ, both posting 4.68% and 7.09%, respective gains on a week where gold was marginally below unchanged. I view the action in the gold mining stocks as a bullish sign for the yellow metal.

Gold marginally underperformed 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. The price action in the crude oil market on April 20 reminds us that anything is possible in all markets and that the price of leverage could be high when extreme periods of volatility occur in markets. While gold mining stocks and derivatives follow the price of gold, they are not the metal and could experience significant periods of price deviation.

July platinum posted a gain of 4.48% since the previous report.  Platinum had been a laggard in the precious metals sector in 2020. July futures moved to the $799.60 per ounce level on April 29. 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 $5,300 per ounce on April 29, down $700 over the past week. Rhodium’s price has been extremely volatile over the past weeks. Palladium rose 1.33% 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 $1917.40 per ounce level on Wednesday. The palladium futures market has been volatile over the past weeks.

Open interest in the gold futures market moved 1.55% higher over the past week. The metric moved 3.41% higher in platinum after significant declines in recent weeks as longs exited positions. The total number of open long and short positions increased by 2.84% in the palladium futures market after substantial declines. Silver open interest decreased by 0.90% over the period after significant decreases over the past weeks. The rise in the open interest metric in three of the four metals is a sign of buying and investment demand in the sector.

The silver-gold ratio edged marginally lower over the past week.

Source: CQG

The daily chart of the price of June gold divided by July silver futures shows that the ratio was at 111.35 on Wednesday, down 0.97 from the level on April 15. The ratio traded to over the 124:4 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 rose over the past week. June Palladium was trading at a premium over July platinum with the differential at the $1117.80 per ounce level on Wednesday, which narrowed slightly since the last report. July platinum was trading at a $913.80 discount to June gold at the settlement prices on April 22, which narrowed since the previous report. The spread is $114.20 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 $5,300 per ounce level on Wednesday, down $700 or 11.67% 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 $799.60 per ounce, a contract on NYMEX has a value of $39,980, 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. When it comes to gold, it continues to be the monarch of money. The oil market taught us to expect the unexpected in markets in the current environment. Gold could provide shock and awe on the upside as global central bank policy remains highly supportive of the price of the yellow metal.

Energy Commodities

Crude oil recovered over the past week, but the price action remained highly volatile.  After falling to a price that most market participants never believed possible at negative $40.32 per barrel on the expired May NYMEX futures contract, June futures fell to $6.50 per barrel the next day. Since then, the price recovered to over $15.

Source: CQG

The daily chart of the June WTI futures contract illustrates that the measure of daily price variance was below 37% until early March. On April 29, it was above 282%.

The prices of both NYMEX and Brent crude oil futures posted gains over the past week, but the WTI rose a bit less than Brent over the past week. Gasoline was higher and heating oil prices moved lower, despite the recovery in crude oil. Gasoline and distillate processing spreads moved in opposite directions since April 22. Natural gas declined since last week after breaking its bearish trading pattern. Ethanol rose, and coal prices continued to move to the downside since April 22.

The almost ten million barrel per day production cut could not prevent the worst price carnage in history in the crude oil market. Evaporating demand required OPEC, Russia, and other producing nations to cut by 30 million barrels or more to balance the supply and demand equation in the energy commodity. While demand continues to be the leading issue facing petroleum prices, increased rhetoric between the US and Iran over the past week could lead to supply concerns if hostilities break out even in the current environment. The potential for wide price swings on the up and the downside remains high in the oil futures markets for both Brent and WTI.

June NYMEX crude oil futures rose 9.29% since April 22 and settled at just over $15 on April 29 after trading to a low of $6.50 on April 21. The wide contango, or premium for crude oil for deferred delivery, is a raging sign of the glut conditions in the energy commodity.

June Brent futures outperformed NYMEX WTI futures as they moved 10.53% higher since April 22. June gasoline rose 9.75%, and the processing spread in June posted a 5.41% gain since last week. The June gasoline crack spread was at $16.57 per barrel. The price path of gasoline depends on reopening the US economy so that people begin commuting to work and venture out in automobiles again. Wild swings in energy prices have caused wide price ranges in the crack spreads the reflect refining margins.

June heating oil futures moved 0.80% lower from the last report. The heating oil crack spread was 10.77% lower since April 22. Heating oil is a proxy for other distillates such as jet and diesel fuels. Wide price volatility in gasoline and distillate refining margins creates challenges for refineries.

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 last week. The continuous contract and June futures fell below the 1986 bottom at $9.75, which was the only critical technical level on the downside. Crude oil fell after the most significant production cut in history. Demand is a critical 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. However, a flare-up of problems in the Middle East could create a bottleneck for Brent supplies, which could send the price of oil significantly higher in the nearby delivery months. At the current low price, the potential for a shock on the upside is not out of the question. On January 8, the price of WTI futures rose to $65.65 per barrel and Brent to $71.99 as hostilities between the US and Iran in Iraq reached a boiling point. Iran and the US continue to trade threats, which could lead to provocative actions that would cause upside volatility in the oil futures markets.

Crude oil open interest decreased by 0.68% 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 drained demand. Iran is dealing with a tragic outbreak of the virus as are nations across the globe. Last week, President Trump warned Iran against any hostile acts, which could have contributed to the slight recovery in the oil market.

When it comes to oil-related stocks, I repeat what I wrote last week, “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.”  Late Wednesday, President Trump said he was working on a package to protect the oil industry that reflects national security interests. Equity holders may not emerge from any bailouts with any value.

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. However, there are some signs that the US and Iranians could be on a path to more hostilities in the region as of the end of April.

The spread between Brent and WTI crude oil futures in June rose to the $7.62 per barrel level for Brent, which was $0.88 above the level on April 22 in volatile 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 caused the price of May futures to plunge to an incredible low of negative $40.32 per barrel.

Over the past week, June 2021, minus June 2020, moved from a contango of $18.23 to $15.99, a decline of $2.24 per barrel. In early January, the spread traded to a backwardation of $6.03, $22.02 per barrel tighter than the level on April 29. 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. The market price action toasted those without the ability to store crude oil that were in synthetic spreads on April 20.

US daily production fell to 12.1 million barrels per day of output as of April 24, 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 17, the API reported an increase of 13.226 million barrels of crude oil stockpiles, while the EIA said they rose by 15.0 million barrels for the same week. The API reported a rise of 3.435 million barrels of gasoline stocks and said distillate inventories rose by 7.639 million barrels as of April 17. The EIA reported an increase in gasoline stocks of 1.00 million barrels and an increase in distillates of 7.90 million barrels. Rig counts, as published by Baker Hughes, fell by 60 for the week ending on April 24, which is 427 below the level operating last year at this time. Expect the rig count to continue to drop. The number of rigs operating stood at 378 as of April 24. 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 significantly higher since April 22, OIH rose by 27.13%, while VLO moved 31.07% to the upside over the past week. VLO delivered a bullish earnings report on April 29. OIH was trading at $113.92 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 $66.28 per share on Wednesday. As I wrote, “If you are not comfortable assuming this level of risk, please do not follow this recommendation.” The refining stock has come storming back.


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 rolled to June and broke a pattern of lower highs that had been in place since November 2019.

Source: CQG

The daily chart shows that the price of June futures rose to a peak of $2.10 per MMBtu on April 21, surpassing the April 8 peak of $2.007. Time will tell if the slightly higher high leads to another higher low and some sustained price activity above the $2 per MMBtu level. Natural gas faces the same demand problems as crude oil with the US economy in a coma, but the low price could lead to falling production, which could stabilize prices and send them drifting higher over the coming weeks and months.

The June natural gas contract settled at $1.869 on April 29, which was 8.25% lower than on April 22. The June futures contract traded to a high of $2.10 on April 21, where it failed. Support in June stands at $1.765 per MMBtu. While technical and fundamental factors continue to favor lower prices, recent market conditions in the energy complex could cause significant price swings. A move above $2.10 and $2.208 on June futures is necessary to validate the end of a pattern of lower highs. Be cautious in natural gas as it suffers from the same demand problems as crude oil.

Last Thursday, the EIA reported an injection into storage.

Source: EIA

The EIA reported an injection of 43 bcf, bringing the total inventories to 2.140 tcf as of April 17. Stocks were 63.0% above last year’s level and 20.5% 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 64 bcf injection into storage for the week ending on April 24. The EIA will release its next report on Thursday, April 30, 2020.  Fundamentals say lower in natural gas but falling output could wind up stemming price declines. 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 in the May contract on the day crude oil fell to a negative price was another example of how the energy commodity is always full of surprises.

Open interest fell by 1.47% in natural gas over the past week. Short-term technical resistance is at $2.10 per MMBtu level on the June futures contract with support at $1.765 per MMBtu, the low from April 27. The level to watch on the downside is at $1.519 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 on either side of neutral conditions as of Wednesday. The price put in a bullish reversal on April 16 and followed through on the upside.

June ethanol prices moved 8.87% higher over the past week. Open interest in the thinly traded ethanol futures market moved 21.14% higher over the past week. With only 596 contracts of long and short positions, the biofuel market is untradeable. The KOL ETF product rose by 5.14% compared to its price on April 22. The price of July coal futures in Rotterdam moved 4.65% lower over the past week.

On Tuesday, April 28, the API reported a 9.978-million-barrel rise in crude oil inventories for the week ending on April 24. Gasoline stocks fell by 1.108 million barrels, while distillate stockpiles increased 5.462 million barrels over the period. On April 29, the EIA said crude oil stocks rose 9.0 million barrels for the previous week. Gasoline inventories were 3.70 million barrels lower, while distillate stocks rose 5.100 million barrels. The API and EIA inventory reports were 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 widened since last week.


As the forward curve over the coming months shows, at $1.8690 in June on the settlement price on April 29, it was 16.80 cents per MMBtu lower than on April 22.

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 June futures and natural gas for delivery in January was $1.195 per MMBtu or 63.9% higher than the nearby price, reflecting both seasonality and substantial inventory levels.

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, which made a new low over the past week and then reversed higher. At $7.14 per share, PBR was 12.62% higher than on April 22. The shares of the company remain 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.

Volatility is the name of the game in all of the energy commodities. While demand is at a standstill, supplies and flows into storage should begin to slow in both oil and gas. Tensions between the US and Iran have the potential to provide surprises in the crude oil market. Continue to expect the unexpected in the energy markets over the coming weeks.



Grain prices all moved lower since April 22. The USDA will release its next monthly WASDE report on May 12, which will begin to shed light on planting across the US. The demand data is likely to reflect the global shutdown, which continues to weigh on exports and prices. However, bottlenecks at ports could create supply problems even as prices decline. The price action in crude oil is a warning sign for agricultural commodities. If supplies cannot move to market and storage facilities run out of capacity, we could see deflationary price action in the grain markets. Meanwhile, the weather over the coming weeks and months is the primary determinate if the 2020 crop will yield products that satisfy the global demand. A hot and dry summer that evolves into a drought could cause surprises on the upside.

Another year of bumper crops in the current environment could push some prices to multiyear lows. Corn is particularly susceptible to selling because of the price action in the energy sector. With gasoline demand a victim of Coronavirus, the need for corn for the ethanol blend is a problem for the price of the coarse grain. However, the recent price action in energy commodities could provide some support for corn near the $3 per bushel level.



July soybean futures fell by only 0.59% over the past week and was at $8.3750 per bushel on April 29. Open interest in the soybean futures market fell by 3.53% since last week. Price momentum and relative strength indicators turned higher from oversold readings on Wednesday.

The July synthetic soybean crush spread moved lower over the past week and was at the 85.25 cents per bushel level on April 29, down 2.50 cents since April 22. The crush spread fell to a low of 81.5 cents on April 14, fell to the same low on April 27, which could mark a double bottom and low at that level. 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 in March. 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. I would use tight stops on any long positions. If the price falls, I will look to reestablish at lower levels on the long side of the market.

July corn was trading at $3.1450 per bushel on April 29, which was 3.16% lower on the week. Open interest in the corn futures market fell by 3.53% since April 21. Technical metrics remained below neutral readings in the corn futures market on the daily chart as of Wednesday. The double bottom on the continuous contract at $3.01 is now the critical technical support level in the corn futures market. Long positions should have stops below the $3 per bushel level. Corn will continue to be highly sensitive to the price path of gasoline. Ethanol production in the US accounts for approximately 30% of the annual corn crop.

The price of June ethanol futures rose by 8.87% since the previous report on the back of the bounce in the energy sector. June ethanol futures were at $1.031 per gallon on April 29. The spread between July gasoline and July ethanol futures fell to 26.77 cents per gallon on April 29 with ethanol at a premium to gasoline. The spread was 2.08 cents wider since last week as gasoline underperformed the biofuel in July.

July CBOT wheat futures were 5.01% lower since last week. The July futures were trading $5.1650 level on April 29. Open interest fell by 6.86% over the past week in CBOT wheat futures. The support and resistance levels in July CBOT wheat futures were at $4.9425 and $5.6150 per bushel. Price momentum and relative strength were below neutral readings on Wednesday and heading towards oversold territory on the daily chart.

As of Wednesday, the KCBT-CBOT spread in July was trading at a 39.50 cents per bushel discount with KCBT lower than CBOT wheat futures in the May contracts. The spread narrowed by 5.75 cents since April 22. 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 will find support.

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 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. 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. I continue to believe we will see at least one significant rally during the coming weeks and months that will present an opportunity to take profits and lower the size of risk positions.

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 2.5319:1 level on April 29, up 0.0230 since last week. The ratio is above the long-term norm. On April 29, 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. I will not cover this spread after this week as many farmers have already made planting decisions. More beans and less corn during the 2020 crop year could be another supportive factor for the corn market, given the impact of gasoline and energy prices on the coarse grain.

Coronavirus and its impact on the world may continue to cause deflationary pressures. When it comes to grains, over 7.6 billion people will continue to require daily nutrition. Corn, soybeans, and wheat are staples. We are at a time of the year where the weather conditions in growing areas of the world are the most significant factor for prices.

Copper, Metals, and Minerals

Industrial commodity prices continued to be a mixed bag over the past week, with a balance of gains and losses since April 22. Over the past week, gains COMEX and LME copper, aluminum, nickel, zinc, tin, and uranium were offset by declines in lead, iron ore, the Baltic Dry Index, and lumber.

Copper rose 2.87% on COMEX over the past week. The red metal posted a 3.34% gain as of April 28 on the LME since the last report. Open interest in the COMEX futures market moved 8.06% lower since April 21. July copper was trading at $2.3705 per pound level on Wednesday. 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 moved in opposite directions after weeks of steady gains. 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 0.51% since April 21. 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 1.41% 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 rose by 4.26% since the previous report. Aluminum was 1.35% higher since the last report. The price of zinc posted a 2.01% gain since April 21. Zinc was at the $1925 level on April 28. 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. The metals have been holding up well over the past weeks.

July lumber futures were at the $312.50 level, down 3.25% 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 had signaled some optimism over the past few weeks. The price of uranium for June delivery moved 2.14% higher and was at $33.40 per pound. Uranium has been moving steadily higher over the past weeks. The volatile Baltic Dry Index fell 10.03% since April 15 to the 655 level. June iron ore futures were 2.10% lower compared to the price on April 22. Open interest in the thinly traded lumber futures market rose by 3.87% since the previous report.

LME copper inventories moved 3.24% lower to 256,150 since the last report. COMEX copper stocks rose by 0.62% from April 21 to 42,050 tons. Lead stockpiles on the LME were up 0.41%, while aluminum stocks were 3.76% higher. Aluminum stocks rose to the 1,347,000-ton level. Zinc stocks decreased by 1.02% since April 21 after recent explosive gains. Tin inventories fell 8.98% since April 21 to 5,830 tons. Nickel inventories were 0.49% higher compared to the level on April 21.

We own the January 2021 $15 call on X shares at $3.30 per share, and it was trading at 19 cents on March 25, up five cents since the previous report. The details for the call option are here:



US Steel shares were at $8.00 per share and moved 22.89% higher since last week.

FXC was trading at $9.26 on Wednesday, $1.62 higher 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 continues to contract. I would 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. I have made no moves in this sector over the past week. I expect industrial commodity prices to trade with the stock market over the coming weeks.


Animal Proteins

Live and cattle futures rose a bit over the past week, but lean hog futures continued to recover with an almost 16% gain since April 22. Animal protein prices face mounting supplies at origination points and closures at processing plants as the peak grilling season in the US begins at the end of May. This past week, Tyson Foods closed a processing plant adding to closures at Smithfield, JBS, and Cargill. Outbreaks of Coronavirus on lines at the plants are causing supply concerns for consumers while meat supplies continue to rise, and ranchers are stuck with animals and nowhere to send them for processing into food products. President Trump has been working with the meat companies to keep the processing plants open as a matter of national security for the supply chain.

June live cattle futures were at 84.275 cents per pound level up 0.24% from April 22. Technical resistance is at 89.25 cents per pound. Technical support stands at around 76.60 cents per pound level. Price momentum and relative strength indicators were on either side of neutral readings on Wednesday. Open interest in the live cattle futures market moved 0.56% higher since the last report.

August feeder cattle futures outperformed live cattle as they rose by 0.98% since last week. August feeder cattle futures were trading at the $1.28450 per pound level with support at $1.10025 and resistance at $1.31225 per pound level. Open interest in feeder cattle futures rose 2.77% 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 continued higher since the previous report. The active month June lean hogs were at 55.525 cents on April 29, which was 15.92% higher since last week after a 7.66% gain in the previous report after weeks of losses. Price momentum and the relative strength index turned higher and were above neutral readings on Wednesday. Support is at 41.500 cents with technical resistance on the June futures contract at 60.775 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 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 moves back into contango until 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 backwardation from May 2020 until June 2020 and contango from June 2020 through August 2020. From August 2020 through December 2020, the curve is in backwardation, but contango returns from December 2020 through June 2021. The curve moves into backwardation from June through July 2021 and then contango into 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. Nothing changed over the past week except that another plant closed down because of the virus.

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 1.51780:1 compared to 1.75520:1 in the previous report. The spread fell by 23.74 cents as live cattle rose, but lean hog futures rallied a lot more over the past week in a continuation of last week’s price activity. The spread fell by over 38 cents per pound over the past two weeks. The spread moved towards the historical norm on the June futures contracts. Beef remains more expensive than pork from a historical perspective as of April 29, but the differential has narrowed dramatically over the past weeks. The spread was at its highest level since 2015 in mid-April, but it turned lower as hogs recovered from multiyear lows pushing the differential towards the long-term average.

We are now four 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. Pork prices bounced by around 15 cents per pound from the lows for ranchers, which relieves at least some of the recent pressure.


Soft Commodities

Three of the four members of the soft commodities sector posted gains since April 22. Coffee futures posted the most significant loss, followed by sugar which edged lower. FCOJ was over 6% higher, with cotton and cocoa prices moving higher. The low level of the Brazilian real against the US dollar did not stop FCOJ from posting a gain, but it likely weighed on sugar and coffee. Energy prices took the sweetness out of sugar over the past weeks and sent it to a new multiyear low. Coffee drifted back towards the $1 level, and cocoa continues to run into selling on rallies. Cotton recovered since the early April low at under 50 cents per pound.

July sugar futures fell 0.90% since April 22. The price of the sweet commodity fell to a new multiyear low at 9.05 cents per pound on the May contract on April 28. Technical resistance on July futures is at 10.64 cents with support at the most recent low of 9.21 cents on July futures. 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 over recent weeks weighed on sugar as the primary ingredient in ethanol in Brazil is sugarcane. The value of the January Brazilian real against the US dollar fell to a new low and bounced over the past week and was at the $0.18600 level against the US dollar on the June contract, 0.73% higher over the period after trading to a new low of $0.1735 on April 24. 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 were below neutral territory as of April 29. The metrics on the monthly chart crossed lower, and 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 1.53% lower since last week. 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 9.05 and 8.36 cents per pound.  Energy prices are weighing on sugar as Brazil processes sugar into ethanol. A sustained 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.

July coffee futures moved 6.02% lower since April 22. July futures were trading at the $1.05300 per pound level. The technical level on the downside is $1.0305. 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 $33.13 on Wednesday. Open interest in the coffee futures market was 3.08% higher since last week. I continue to hold a small core long position in coffee after taking profits during the rally in March. I did not buy any over the past week.

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 at oversold 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. I may dip a toe in on the long side below the $1.05 level with a tight stop over the coming week.

The price of cocoa futures edged a touch higher over the past week. On Wednesday, July cocoa futures were at the $2377 per ton level, 0.08% higher than on April 22. Open interest rose by 2.34%. Relative strength and price momentum were above neutral readings on April 29. 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 $27.90 on Wednesday, April 29. 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 continue to favor the long side in cocoa but will be cautious in the deflationary environment in markets. I will likely remain on the sidelines over the coming week with a small core long position.

July cotton futures rose 1.75% over the past week after a rise of almost 7% last week. The recent declines have been on the back of continued concerns about the Chinese and global economies. July cotton was trading at 57.12 cents on April 29, after falling to the lowest price since 2009 in early April. On the downside, support is at the recent low of 48.15 cents per pound. Resistance stands at 57.65 cents per pound. Open interest in the cotton futures market fell by 3.21% since April 21. 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 higher since the last report. On Wednesday, the price of July futures was trading around $1.1400 per pound, 6.29% higher than on April 22. Support is at the $1.0460 level. Technical resistance is at $1.2100 per pound, the most recent high. Open interest fell 1.60% since April 21. 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.

We could see some price action in the soft commodities now that the May-July roll period has ended. I will only trade with tight stops in the current environment and will keep all risk positions small and manageable.


A final note

Markets are waiting for answers from scientists and political leaders. Science moves slowly, while the virus does not. Markets reflect the overall economic and political environment, but central bank and government stimulus have masked the impact of Coronavirus on businesses when it comes to the stock market. In the world of commodities, the deflationary spiral has not ended. It appears that the economy will emerge from stay at home guidelines slowly in select areas of the world. The global financial centers in Europe and the US were some of the hardest hit by Coronavirus because of their dense populations. While hopes are that the curve peaked or is peaking for the virus, cleaning up the financial mess will take months and years.

I continue to believe many markets have not felt the full impact of the damage done by then pandemic. The price action in crude oil on April 20 could be a warning sign for many other markets. Continue to expect the unexpected, trade with discipline, and stick to stops in this environment. We could experience lots of volatility, which creates opportunities. When price swings are wide, take profits and losses quickly as there is always another trade just around the corner, or staring you in the face.

The news from Gilead on an effective treatment for the virus on Wednesday was a sign of the explosive potential for markets when science provides a therapy. However, rising unemployment and economic contraction of almost 5% in Q1 will not reverse overnight. We are likely to see lots of price variance in markets across all asset classes over the coming weeks and months. Moreover, the Fed’s commitment to provide liquidity could eventually spark inflation.

From a political perspective, if the stock market continues to rise at a time when the economy remains weak and unemployment rises, it could cause political tensions between Wall Street and Main Street to rise. With the Presidential election approaching, expect the opposition party to challenge the Trump administration with providing stimulus that protected the wealthy at the expense of working people and the middle and lower classes in the US. There is light at the end of the tunnel when it comes to the virus, but that will lead to a highly contentious election in November 2020.


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.