• The stock market continued to rise despite civil unrest in the US over the past week
  • Precious metals prices continue to correct to the downside
  • Energy commodities continued to power higher in the rally that began in late April
  • Industrial commodities moved mostly higher with gains in all of the nonferrous metals
  • Grains and soft commodities were mostly higher on the week, but meat prices declined


Summary and highlights:


On Thursday, May 28, the stock market edged lower on Thursday. The Russell 2000 small-cap index led the way on the downside with a loss of 2.48%. The DJIA was 0.58% lower, with the S&P 500 falling only 0.21%. The tech-heavy NASDAQ was 0.46% lower. The now active month September US 30-Year Treasury bond was 0-19 lower to 177-10. The June dollar index fell 0.686 to 98.372, as it fell to its lowest level since mid-March at 98.335 during the session and closed near the low. Corn rallied by 7 cents per bushel, and CBOT July wheat was 10 cents higher, but soybeans fell 1.50 per bushel. WTI and Brent crude oil posted marginal gains. The EIA said that crude oil inventories rose by 7.90 million barrels, and daily production declined to 11.4 mbpd, down 100,000 barrels for the week ending on May 22. Heating oil was lower, but gasoline was marginally higher on the session. The EIA reported a 700,000-barrel decline in gasoline stockpiles, but a 5.50-million-barrel increase in distillate stocks as of the end of last week. July natural gas was 5.9 cents lower after the EIA said inventories rose by 109 bcf as of May 22. July ethanol rose by only 0.2 cents to $1.116 per gallon. Gold edged marginally higher, silver was up just over 20 cents, but platinum and palladium prices declined. Copper was back above the $2.40 per pound level on the July futures contract. Live and feeder cattle price edged higher, but lean hogs fell by 2.575 cents on the August futures contract. Sugar was unchanged, cocoa and lumber moved higher, while cotton, FCOJ, and coffee prices fell. Coffee fell below the $1 per pound level on the July futures contract for the first time as it approached the next level of support on the continuous contract at 97.40 cents, the 2020 low for the soft commodity. Bitcoin futures were $310 higher to $9560 per token.

On Friday, President Trump terminated the US relationship with the World Health Organization. He offered a strong condemnation of China for violating promises to the US. At the same time, he took the Chinese leadership to task for violating treaty obligations and breaking their word on autonomy in Hong Kong. The market was still digesting the move that will likely cause retaliation from the Chinese government over the coming days. The thaw in relations between Washington and Beijing has ended. The rhetoric is likely to intensify over the coming days and weeks. The US and other countries around the world are angry with China over the lack of information and policies that allowed the spread of the global pandemic. Markets did not react immediately to the President’s remarks as the DJIA settled down only 0.07%, and the Russell 2000 lost 0.47%. The S&P 500 was 0.48% higher, and the NASDAQ gained 1.29%. The ETF that tracks the price of Chinese Large-Cap shares, the FXI, gained 2.09% on the session. The September long bond futures contract moved 1-05 higher to 178-07. The dollar index continued to decline, falling 0.031 to 98.341, after probing below the 98 level to a new low at 97.935, the lowest since mid-March. CBOT wheat was 6.25 cents higher, but soybeans and corn prices declined. Crude oil rallied to a new short-term high at $35.77 per barrel on the July NYMEX futures contract and settled at $35.49. Brent futures rolled to the August contract and were just below $38 per barrel. Crude oil had the best month in history in May, after the nearby NYMEX futures contract fell to the lowest level in history in April. Gasoline and heating oil futures posted gains on Friday. Crack spread posted marginal gains. Gold and silver moved higher, with silver settling at the $18.50 level, the highest since late February. Platinum and palladium posted gains on the session. Copper settled at $2.4255 at the end of May. Live and feeder cattle and lean hogs all edged lower. Cotton, sugar, and cocoa were higher, while FCOJ, coffee, and lumber prices fell. Bitcoin closed the month at $9470, down $90 per token on Friday.

Over the weekend, civil unrest across the United States resulted in demonstrations, protests, and violent eruptions in many cities. Some towns and states had to impose curfews and call in the National Guard to preserve peace and stability. The situation caused by police brutality in Minnesota could not come at a worse time for the US as it begins to emerge from the self-induced coma that caused business activity to grind to a halt.

On Monday, the stock market continued to have blinders on when it comes to economic data, and it added civil unrest in the US to the list of issues it is choosing to ignore. The DJIA rose by 0.36%, while the S&P 500 was 0.38% higher. The NASDAQ posted a 0.66% gain, and the small-cap Russell 2000 was 0.81% higher. September US long bond futures fell 0-23 to 177-21, and the June US dollar index fell below the 98 level to settle at 97.82. Corn, soybean, and wheat futures all edged lower on the session., Crude oil and oil product prices did not move all that much with the July NYMEX crude oil futures contract down only 5 cents per barrel. Natural gas fell 6.8 cents per MMBtu, which July ethanol was one penny higher. Gold was up less than one dollar, but silver continued to roar as it closed above the $18.80 level and traded to a high of $18.95 per ounce, a new high for 2020 on the continuous futures contract. Silver has come all the way back from below $12 in March. Platinum moved back the $900 level with a $26.50 gain on the session, and palladium was $15.50 higher on the September contract to just below $1990 per ounce. July copper rallied to settle at $2,4705 per pound. Feeder cattle posted a marginal gain, but live cattle and lean hog futures in August declined. The price of lumber declined marginally, but cotton, FCOJ, coffee, sugar, and cocoa all moved to the upside. Cotton traded at over 60 cents per pound for the first time since March. Bitcoin continued to edge higher toward the $10,000 level as it moved to around $9,665 per token, up $195 since May 29.

On Tuesday, in a case of almost benign neglect, as violence continued to grip many US cities on Monday night, the stock market moved higher. The DJIA was 1.05% higher, with the S&P 500 gaining 0.82%. The NASDAQ moved 0.59% to the upside, and the Russell 2000 was up 0.91%. The September long bond futures were down 0-15 to 177-09. The June dollar index continued to slip and settled at 97.659. Soybeans rallied by 10 cents per bushel, but corn was only one penny higher on the July futures contract. CBOT wheat fell 7.25 cents to $5.08. Crude oil marched higher as the price of July NYMEX futures settled at $36.81 after trading to a new short-term peak at $ 36.98. Oil products outperformed the crude oil, sending crack spreads higher on the session. Natural gas settled at $1.777 per MMBtu, virtually unchanged on Tuesday. Gold and silver prices corrected lower, along with platinum and palladium. Copper continued to climb towards the $2.50 level on July futures as the red metal settled at $2.4910. Cattle and hog futures moved lower on the session. Cotton, FCOJ, and sugar prices moved to the upside. Coffee, cocoa, and lumber fell. Bitcoin was around $105 lower to the $9545 per token level.

On Wednesday, the stock market continued to rally after a lull in the violence on Tuesday night. The DJIA rose 2.05%, and the S&P 500 was 1.36% higher. NASDAQ moved 0.78% higher, and the Russell 2000 gained 2.39&. The September long bond futures fell 1-21 to 75-22, and the dollar index continued to decline, settling at 97.259 down 0.400. July corn futures fell only 0.25 cents, while soybeans gained 7.0 cents, and wheat futures moved 4.0 cents higher. Crude oil posted a gain on the July contract after rising to a new short-term peak at $37.37 on the July futures contract on NYMEX. Product prices continued to lag the raw crude oil after significant increases in gasoline and distillate inventory data from the API and EIA for the week ending on May 29. Natural gas posted a small gain, while ethanol edged lower. Losses in precious metals continued as gold, silver, platinum, and palladium prices all moved to the downside on Wednesday. Copper probed above the $2.50 level. The July COMEX futures contract settled at $2.4875 per pound. Live and feeder cattle futures posted gains, but lean hogs in August moved to the downside. Cocoa and lumber prices fell, while cotton, FCOJ, coffee, and sugar moved higher. Sugar moved back above the 11.5 cents per pound level. Bitcoin gained $70 to the $9650 level as the digital currency continues to drift towards the $10,000 level.

Weekly Spreadsheet:

Copy of Spreadsheets for the The Hecht Commodity Report June 3, 2020


Stocks and Bonds

Stocks continued to power higher over the past week, in a continuation of the price action since the March low. The stock market is ignoring staggering unemployment numbers, economic contraction, increasing tensions between the US and China, and civil strife in cities in the US. Massive injections of liquidity into the financial system are having an inflationary impact on equity prices. Market participants are optimistic as the economy has reopened in many sectors. Time will tell if share prices are moving higher because of a resurgence of strength in business conditions or the value and purchasing power of the dollar and other fiat currencies is falling.


The S&P 500 rose by 5.09% since last week. The NASDAQ was 3.28% higher, and the DJIA posted a 6.89% gain.

The US is emerging from three months of a coma in the economy, where over forty million people lost jobs. Many are returning to work, but a significant percentage will suffer permanent job losses. New guidelines will make it difficult for many businesses, large and small, to return to the same level of profitability from before the pandemic. At the same time, the optimism over a new era of trade cooperation between the US and China has gone up in smoke. We could see the relations between the world’s two leading countries deteriorate over the coming weeks and months as Washington has decided to take a hard line against Beijing.

Chinese stocks outperformed US stocks over the past week. However, rules for Chinese companies listed on US exchanges are likely to tighten, which could lead to delistings. There has been a degree of bipartisan support for a tougher approach to trade and other issues surrounding China. The move to strip Hong Kong of its autonomy for “national security” reasons, could prove a tipping point for China’s relations with the US and Europe.

Source: Barchart

As the chart illustrates, the China Large-Cap ETF product (FXI) was trading at the $41.17 level on Wednesday, as it rose by 7.97% since the previous report. Chinese stocks broke above the $40 per share level. The targets on the upside are at $42.95 and $45.29 from earlier this year before the pandemic spread around the world.

June US 30-Year bonds rolled to the September futures contract and edged marginally lower over the past week. Interest rates in the US are not moving appreciably higher any time soon. The Fed’s balance sheet has swelled to over $7 trillion. On Wednesday, June 3, the September long bond futures contract was at the 175-18 level, 1.21% lower than on May 27. Short-term support for the long bond moved lower to 171-19 with resistance at 178-26. The bonds moved to the bottom of the trading range, given the strength in stock prices.

Open interest in the E-Mini S&P 500 futures contracts rose by 0.39% since May 26. Open interest in the long bond futures fell 17.32% over the past week because of the roll from June to September and strength in stocks. The VIX moved lower to the 25.66 level on June 3, 8.13% lower from last week’s level. The VIX traded to a high of 85.47 on March 18, the highest level since 2008. I continue to believe that risk-reward favors buying the VIX and VIX-related products with tight stops and reestablishing positions after the market triggers stops is the optimal approach in the current environment. Nothing has altered my approach to the VIX over the past week. I have stopped out of long positions for small losses.

At below 26, the VIX is highly attractive and could experience periods of sudden dramatic increases. The VIX related products like VIXX and VIXY are short-term, trading tools. I continue to look for at least a 2:1 reward over risk on any long positions in the VIX or VIX-related products. I continue to believe that it is not a question of if volatility will rise, but when it will move to higher levels. I have been trading the VIX and related products from the long side, taking marginal losses with tight stops.

The trend is always your friend in markets, and the direction in stocks has been decidedly higher. However, the stock market continues to march higher against the backdrop of economic data, the potential for a new chapter in deteriorating US-Chinese relations, fears over future outbreaks of the virus, and social discord in the US. The party conventions this summer, if held at physical locations, could become ground zero for protests and potential violence not seen since 1968. I believe that while the trend is higher in stocks, risk-reward continues to favor periodic downdrafts that could be severe.


The dollar and digital currencies

The dollar index fell below technical support this week at the 98.765 level, which had contained corrections since late March. Increased tensions between the US and China and social unrest in the US could be the reason for the decline in the greenback. The Trump administration prefers a weaker dollar as it makes US exports more competitive in global markets and bolsters earnings for US multinational corporations. A weaker dollar is also a tool when it comes to any trade negotiations. Bitcoin and digital currencies posted gains since May 27.


The June dollar index future contract was at 97.259 on June 3, down 1.82% from the level on May 27. The dollar index had been trading on either side of the 100 level since late March, but it moved away from that pivot point. Open interest in the dollar index futures contract moved 8.10% lower since May 26. The decline in the metric could reflect the roll from June futures and the liquidation of long positions in the index. The dollar index remains in a long-term uptrend that has been in place since 2018. Daily historical volatility in the dollar index rose to over 21.5% in late March but was at around the 5.94% level on Wednesday. Volatility did not increase as the dollar index fell. Meanwhile, the decline, together with the drop in open interest, is not typically a technical validation of an emerging bearish trend in the index.

The euro currency was 2.24% higher against the dollar. The European economy is slowly reopening after the virus took a significant toll over the past three months. The interest rate differential between the dollar and euro has narrowed, which supported the euro. The pound moved 2.72% higher against the dollar since last week. We could see a bounce in the dollar against European currencies if coordinated intervention was selling the dollar at higher levels over the recent months. Moreover, the narrowing of the rate differential and civil unrest in the US is weighing on the value of the dollar index.

It seems that the virus’s epicenter has moved to Mexico and South America over the past week. However, the data from countries south of the US border could be suspect as the healthcare systems are not as robust as in the US and Europe.


Bitcoin and the digital currency asset moved higher over the past week. Bitcoin was trading at the $9,603.68 level as of June 3, after probing above the $10,000 level this week.  Bitcoin was moving towards the top end of the short-term trading range as it rose by 4.63% since last week. Ethereum posted a 16.76% gain since May 27. Ethereum was at $242.04 per token on Wednesday. The market cap of the entire asset class moved 6.56% higher over the past week. Bitcoin underperformed the whole asset class since the previous report. The number of tokens increased by 21 to 5537 tokens since May 27. 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 was around $272.811 billion. Open interest in the CME Bitcoin futures rose 1.16% since last week, after increasing over recent weeks.

Bitcoin reached my first target at the $10,000 level and now looks set to move to the upside again. The next level on the upside stands at the recent high of $10,565. The trend is your friend in Bitcoin, and it remains higher.

The Canadian dollar moved 2.18% higher since May 27. Open interest in C$ futures fell by 1.06% over the period. The C$ is highly sensitive to commodity prices as Canada is a mineral-rich nation that 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. Weakness in grain prices has not been helping the value of the Canadian currency, but oil has been a different story.

The Australian dollar is also a commodity-based currency with a high degree of sensitivity to China’s economy. The A$ moved 4.93% higher since last week. The geographical proximity to China makes the Australian dollar sensitive to events in China. 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. Economic strength or weakness in China will determine the path of the Australian economy. Any retribution over the spread of coronavirus could cause retaliatory measures by both sides, which would weigh on Australia’s economy. In the long-term, the stimulus is bullish for commodities prices and both the Australian and Canadian currencies. The brewing tensions with China are a reason to be cautious with the Australian currency. Over the coming months and years, we could see significant gains in the C$ and A$ is commodity prices rise because of inflationary pressures caused by the increase in the global money supply. I believe the price action in 2020 in all markets is similar to 2008. In the years that followed, commodity prices soared because of the stimulus, taking the Australian and Canadian currencies appreciably higher against the US dollar because of their sensitivity to raw material prices.

The British pound rose 2.72% since May 27 as the dollar corrected to the downside. The pound remains at a depressed level against the US dollar, and there is room for a recovery if the pandemic continues to ease over the coming weeks.

Over the past week, the Brazilian real moved 2.59% higher against the US dollar after a more than 7.5% gain last week. The default by neighboring Argentina had little impact on the Brazilian real. The real moved above the $0.1900 level against the US dollar. The June Brazilian currency was trading at the $0.194150 level after falling to a new and lower low at $0.16730 on May 14. 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 sensitive to changes in the direction of the Brazilian real. The falling real had been a factor that weighed on sugar and coffee prices as Brazil is the world’s leading producer and exporter of the soft commodities and output costs are in local currency terms over the past weeks along with crude oil. However, as we have seen in other markets, low prices may not stop shortages of supplies as the virus impacts parts of the supply chain when it comes to processing or transporting the commodities. The weather conditions in critical growing regions and the spread of the virus could also cause price volatility in the agricultural products. Brazil has seen a significant increase in the number of infections and fatalities because of coronavirus, which could harm the value of its currency. However, in the long run, I am bullish for the real because of Brazil’s commodity production. The nation is a supermarket to the world for many products.


Silver led precious metals higher since May 27, all of the other members of the sector corrected lower.


Precious Metals

Silver has been a bullish beast over the past weeks. After falling below $12 in March, the price was near the $18 level on June 3. Gold was lower along with platinum and palladium prices. Rhodium was down $200 per ounce from last week’s level, but the spread between the bid and offer remains extremely wide.

Gold fell by 1.06% over the past week. Silver was 1.13% higher since May 27. June gold futures rolled to August and were at $1704.80 per ounce level on Wednesday. July silver was at $17.958 per ounce on June 3. I maintain a bullish opinion on the gold and silver markets as the odds favor that the price action that followed the 2008 global financial crisis is a blueprint for the coming months and years.  Stimulus is bullish fuel for gold and silver as increases in the money supply weigh on the value of fiat currencies. Price corrections continue to be buying opportunities in the silver and gold markets. However, we could see wide price variance given the price levels.

Gold dealers have experienced significant volatility when it comes to their arbitrage positions between gold for delivery in London compared to in New York on the COMEX futures market. The leading banks are shifting more trading to the London market, which is increasing costs for investors. Some dealers are reducing holdings of significant positions on COMEX after recent losses because of short positions in the futures market.

Technical resistance for August gold stands at $1789.00 per ounce, the high from mid-April. Support is at $1668.40. In silver, support is at $17, with resistance now at $18.95 on the July contract. If the price action from 2008 through 2011 is a guide, gold will head for the $2000 to $3000 per ounce level over the coming months, and silver will follow the yellow metal to the upside. Silver’s recent move is a bullish sign for the two metals. Silver tends to move on sentiment, which remains bullish. However, markets rarely move in a straight line, which could lead to corrective periods and price consolidation. Silver’s rise is a bullish sign for the two metals.

Gold mining shares edged lower over the past week with the GDX and GDXJ, both posting 2.61% and 0.89%, respective losses. The mining shares tend to outperform the yellow metal on the upside and underperform on the downside. The SIL and SILJ silver mining ETF products that hold portfolios of producing companies moved 0.69% lower and 2.06% higher since May 27.

Gold continued to underperform 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. The ratio has been moving steadily lower over the past weeks. I will continue to add to long physical positions in gold, silver, and platinum, during periods of price weakness. I will continue to trade leveraged derivatives and mining stocks on a short-term basis with tight stops. While gold mining stocks and derivatives follow the price of gold, they are not the metal and could experience significant periods of price deviation if risk-off conditions return to the stock market. I hold long core positions but will employ tight stops on any new positions that increase exposure to the two leading precious metals.

July platinum fell 2.00% since the previous report.  Platinum had been a laggard in the precious metals sector in 2020. July futures fell to the $860.50 per ounce level on June 3. The level of technical resistance is at $943 on the July futures contract, the recent high. Support in platinum remains at $767.50 per ounce on 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 $6,800 per ounce on May 27, down $200 or 2.86% over the past week. June Palladium rolled to September and declined by 1.11% since last week. Support is at $1736.90 on the September contract with resistance at $2159. September palladium settled at the $1958.20 per ounce level on Wednesday.

Open interest in the gold futures market moved 8.40% lower over the past week. the decline in open interest as because of the roll from June to August and problems with dealers when it comes to the EFP, or arbitrage positions between gold for delivery on COMEX and London. The metric moved 2.38% higher in platinum. The total number of open long and short positions decreased by 3.44% in the palladium futures market as June rolled to September. Silver open interest increased by 6.77% over the period. The rising open interest in silver is a sign of new buying coming into the market. However, there is plenty of room for more as the metric remains significantly lower than in late February when it reached an all-time high at 244,705 contracts.

The silver-gold ratio continued to fall over the past week.

Source: CQG

The daily chart of the price of August gold divided by July silver futures shows that the ratio was at 94.85 on Wednesday, down 1.97 from the level on May 27. The ratio traded to over the 124:5 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. The move lower since mid-March has been a supportive factor for the two metals. In 2008, the ratio peaked during the risk-off selling and then fell steadily until 2011.

Platinum and palladium prices posted 1% to 2% losses over the past week. September Palladium was trading at a premium over July platinum with the differential at the $1097.70 per ounce level on Wednesday, which marginally narrowed since the last report. July platinum was trading at an $844.30 discount to August gold at the settlement prices on June 3, which marginally narrowed since the previous report.

The price of rhodium, which does not trade on the futures market, fell $200 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 remains at the $3000 per ounce level, unchanged from previous weeks. The spread is at a level that makes any investment in the metal irrational. 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 corrective periods. 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 $860.50 per ounce, a contract on NYMEX has a value of $43,025, after falling to the lowest level just under two decades in March.

The GLTR ETF product holds a portfolio of physical gold, silver, platinum, and palladium, for those looking for diversified precious metals exposure. I continue to believe that gold is heading a lot higher, but the route will not be in a straight line. Silver’s performance since mid-March has been a sign of demand for precious metals in the current environment. Silver can exhibit wild price volatility, as we witnessed between February and March when the price fell from over $19 to below $12 per ounce. If 2020 is going to give way to a period like 2008 through 2011, we could see explosive moves in gold and silver, with silver leading the way on the upside on a percentage basis.


Energy Commodities

Crude oil had the best May in history. The price of the energy commodity more than doubled from the late April lows in the now active month WTI and Brent futures contract as of the end of last month. Since last week, both benchmark crude oil futures contracts continued to post impressive gains. Product prices moved higher, but underperformed the raw energy commodity, pushing crack spreads lower. Natural gas edged lower as June rolled to July in the futures market. Ethanol was higher, while coal for delivery in Rotterdam was significantly higher from its closing price on May 27.

July NYMEX crude oil futures rose 13.65% since May 27 as the recovery continued. The July contract settled at $37.29 per barrel on June 3 after trading to a low of $17.27 on April 28. Crude oil made a new short-term high at $38.18 on the July futures contract over the past week. Production cuts by OPEC, Russia, and additional reductions by Saudi Arabia that began on June 1 have moved the energy commodity towards a more balanced supply and demand equation. OPEC is meeting tomorrow, on June 4, to discuss an extension of production cuts, which could cause volatility in the oil futures arena. The fall in US output has contributed to the recovery from the lowest prices in history for WTI crude oil futures in late April. However, inventories rose as of May 22, according to the API and EIA. They fell during the final week of May, but product stocks moved significantly higher.

Chinese demand for crude oil has been robust over the past weeks. With parts of the economy reopening in Europe and the US, the demand side of the equation has improved. When it comes to gasoline demand over the summer months in the US, we could see some surprises as stay-at-home guidelines ease, and people return to the workplace and venture out in their cars during the summer vacation period after being cooped up at home for months. These factors continue to underpin the price of the energy commodity and have pushed oil towards the $40 per barrel level.

August Brent futures slightly underperformed June NYMEX WTI futures, as they rose 12.24% higher since May 27. July gasoline was 9.98% higher, and the processing spread in July was 3.00% lower since last week. The July gasoline crack spread was at $9.71 per barrel. Wild swings in energy prices caused wide price ranges in the crack spreads the reflect refining margins. Gasoline crack spreads tend to exhibit strength during the summer driving season in the US, but 2020 is no ordinary year.

July heating oil futures moved 5.42% higher from the last report. The heating oil crack spread was 22.33% lower since May 27. Heating oil is a proxy for other distillates such as jet and diesel fuels. The July distillate crack spread traded to a low of $7.20, the lowest since 2010, and closed on Wednesday at $7.34 per barrel. The price action in the processing spreads has been highly volatile, given the timing differences between moves in crude oil and products over the past weeks. The crack spreads are a real-time indicator of demand for crude oil as well as barometers for the earnings of refining companies that process raw crude oil into oil products. The crack spreads could be a significant indicator for demand over the coming days and weeks as the wheels of the US economy begin moving again.

Technical resistance in the July NYMEX crude oil futures contract is at $41.88 per barrel level with support at the $30.00 level on the July contract. The measure of daily historical volatility was at 52.20% on June 3, lower than the 69.80% level on May 27. The measure of price variance was at over 180% in early May. Demand remains the overwhelming critical factor when it comes to the price direction of the energy commodity. As I wrote over the past weeks, “falling production should eventually balance the market and could create a deficit at some point in the future. The course of the pandemic is crucial for the oil market over the coming weeks and months. If we have seen the peak, we could see prices rise. However, further outbreaks that prompt a return to closing parts of the economy again would be a highly bearish factor for energy demand.”

The Middle East remains a potential flashpoint for the crude oil market. Relations between the US and Iran and Saudi Arabia and Iran have not improved over the past months. While the leadership in Teheran has had their hands full with coronavirus, we could see them lash out at US interests in the region over the coming weeks or months. Any hostilities that cause supply concerns could send the price of crude oil for nearby delivery appreciably higher in the blink of an eye. At below $40 per barrel, any actions that impact production, refining, or logistical routes could cause a far greater percentage move in the price of oil than we witnessed at the beginning of 2020.

Crude oil open interest decreased by 0.38% over the period. Crude oil rose while the energy shares underperformed the energy commodity since May 27. The XLE rose 4.17% for the week as of June 3.

I continue to be cautious when it comes to any investments in debt-laden oil companies. I would only consider those with the most robust balance sheets like XOM and CVX in the US. Exxon and Chevron could stand to pick up lots of production assets at bargain-basement prices over the coming months as the number of bankruptcies rises in the oil and gas sectors. I would only purchase these companies during corrective periods. Nothing has changed since last week when it comes to opportunities for oil-related equities.

The spread between Brent and WTI crude oil futures in August edged lower to the $2.20 per barrel level for Brent, which was $0.15 below the level on May 27. The August spread moved to a high of $4.41 on April 30. The continuous contract peak was at $11.52 on April 20 as all hell broke loose in the crude oil futures market. 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 price action in the spread and outright prices in late April. The decline in the Brent-WTI could reflect the decline in US output and the anticipation of rising demand for gasoline.

A decline in US production over the coming months could cause significant volatility in the Brent-WTI spread. Before 2010, WTI often traded at a $2 to $4 premium to Brent. The WTI grade has a lower sulfur content making it the preferable crude oil for processing into gasoline, the world’s most ubiquitous fuel. If US output continues to decline significantly and demand returns to the market, we could see it impact the Brent-WTI differential and cause periods where WTI returns to a premium to the Brent, which is better suited for refining into distillate products. The USO and BNO ETF products replicate the short-term price action in WTI and Brent futures, respectively. While both do an adequate job tracking the futures in the short-term, neither are particularly effective for medium or long-term positions because of the volatility of the forward curves in both crude oil benchmarks.

Term structure in the oil market experienced a significant shift as the price of crude oil tanked in March and April. 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. The contango caused the price of May futures to plunge to an incredible low of negative $40.32 per barrel. As prices moved higher over the recent weeks, contango declined.

Over the past week, July 2021, minus July 2020, moved from a contango of $4.46 to $2.79, a decrease of $1.67 per barrel. In early January, the spread traded to a backwardation of $5.65, $8.44 per barrel tighter than the level on June 3. The spread hit a high of $13.46 per barrel on April 27, the day that July futures reached a low of $17.27 per barrel. Rising contango was a sign of a glut in the oil market while falling contango signifies tighter supplies. The capacity for crude oil storage around the globe fell dramatically as well-capitalized traders purchased nearby crude oil, put it in storage, and sold it for futures delivery. The decline in the spread could have triggered some profit-taking, which opened up more capacity on the storage front.  Falling production also caused the spread to tighten. We could see an unwind of the spreads continue if they gravitate back towards flat as production declines and inventories begin to fall over the coming months, which would result in significant profits for well-capitalized crude oil traders. The recent decline in contango was a supportive sign for the price of oil. The number of rigs operating in the US continued to decline significantly over the past week, and production has been moving lower in response to the lowest price levels in years and demand problems over the past months.

US daily production fell to 11.20 million barrels per day of output as of May 29, according to the Energy Information Administration. The level of production fell 200,000 barrels from the previous week. As of May 22, the API reported a decrease of 8.731 million barrels of crude oil stockpiles, and the EIA said they rose by 7.90 million barrels for the same week. The API reported an increase of 1.12 million barrels of gasoline stocks and said distillate inventories rose by 6.907 million barrels as of May 22. The EIA reported a small decline in gasoline stocks of 700,000 barrels and an increase in distillates of 5.50 million barrels. Rig counts, as published by Baker Hughes, fell by 15 for the week ending on May 29, which is 578 below the level operating last year at this time. The decline in the rig count has been significant and should lead to falling output in the US. The number of rigs operating stood at 222 as of May 29. The inventory data from both the API and EIA was not bullish, but the price continued to recover on optimism over the economy, and that falling output would lead to lower inventory levels in the future.

OIH and VLO shares moved higher since May 27 with other energy stocks. OIH rose by 6.30%, while VLO moved 0.51% to the upside over the past week. As I wrote last week, “the level of crack spreads is a reason for short-term caution for VLO.” OIH was trading at $129.44 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 long two units of VLO at an average of $70.04 per share. VLO was trading at $70.54 per share on Wednesday.

The June natural gas contract rolled to July and settled at $1.821 on June 3, which was 2.98% lower than on May 27. The July futures contract traded to a high of $2.364 on May 5, where it failed miserably. Support in July stands at $1.742, this week’s low on the July contract, and at $1.519 per MMBtu the low from late March and early April on the continuous contract. Short-term resistance is at the $2.027 level, the high from May 19.

Last Thursday, the EIA reported a triple-digit increase in natural gas stockpiles.

Source: EIA

The EIA reported an injection of 109 bcf, bringing the total inventories to 2.612 tcf as of May 22. Stocks were 42.4% above last year’s level and 19.3% 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 107 bcf injection into storage for the week ending on May 29. The EIA will release its next report on Thursday, June 4, 2020.  Over the past nine weeks, the percentage above last year’s level has been declining when it comes to natural gas stockpiles. The steady decline from 79.5% above the one-year level as of March 20 to 42.4% last week could provide some fundamental support to the natural gas market. The trend could reflect higher demand or lower production. Given the events since March, it is likely that output is causing a slower rate of injections into storage. However, the price action over the past few weeks continued to be a sign of fragile demand.

I suggest tight stops on any risk positions but prefer the long side over the coming week. The July contract was trading at a significant premium to June futures when they expired because of the rise in demand for electricity during the hot summer months.

Open interest rose by 5.59% in natural gas over the past week. Short-term technical resistance is at $2.027 per MMBtu level on the June futures contract with support now at $1.742 per MMBtu, the recent low. Price momentum and relative strength on the daily chart were below neutral conditions as of Wednesday. The rise in open interest could be a sign of short selling, given the price action in natural gas since November 2019. If shorts become aggressive and the prices hold, we could see a rally as they become frustrated and exit risk positions.

July ethanol prices moved 2.15% higher over the past week. Open interest in the thinly traded ethanol futures market moved 8.10% lower over the past week. With only 295 contracts of long and short positions, the biofuel market is untradeable. The KOL ETF product rose 9.34% compared to its price on May 27. The price of July coal futures in Rotterdam rallied 10.25% over the past week.

On Tuesday, June 2, the API reported a 483,000-barrel decrease in crude oil inventories for the week ending on May 29. Gasoline stocks rose by 1.706 million barrels, while distillate stockpiles increased 5.917 million barrels over the period. On Wednesday, the EIA said that crude oil stocks moved 2.10 million barrels lower, and gasoline inventories rose by 2.80 million barrels. Distillate stockpiles increased by 9.90 million barrels, according to the EIA. The API and EIA reports were bearish for the price of the energy commodities, given the rise in product stocks, but the futures market continued to ignore the supply data. Demand remains the significant factor for the price direction of crude oil, but optimism over reopening parts of the economy continues to lift prices. Meanwhile, output is declining fast with the number of operating rigs plunging and the daily production data from the EIA trending lower. I expect volatility in the crude oil market as it will move higher or lower on optimism or pessimism on the back of the progress of the virus and progress on treatments and a vaccine. Production is falling, but demand remains the most significant factor when it comes to the price direction. Nothing has changed since last week, and the price continues to work its way towards the $40 per barrel level. When crude oil was trading near its lows, Russian President Vladimir Putin said that his target for the price of Brent crude oil is around the $42 per barrel level. After falling to $16 in April, August Brent futures were only a little over $3 below his desired prices as of June 3.

In natural gas, the forward curve continues to be wide, with January 2021 futures trading at a significant premium over natural gas for July 2020 delivery.


As the forward curve over the coming months shows, the settlement prices on June 3, at $1.821 in July was 5.60 cents per MMBtu lower than on May 27.

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 lead-up to the winter of 2020/2021. However, production is likely grinding lower because of the low level of prices that make output uneconomic. The trend in stocks since March 20 compared to last year is a sign of declining output. The debt-laden oil and gas businesses in the US could receive support from the government to keep energy output flowing, but demand destruction is a critical factor. Meanwhile, the differential between nearby July futures and natural gas for delivery in January was $1.16 per MMBtu or 63.7% 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. At $8.77 per share, PBR was 11.86% higher than on May 27. 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. PBR has been weak on the back of the falling value of the Brazilian currency.

Like the stock market, the trend in the crude oil market remains higher and looks headed for a test of the $40 per barrel level on both Brent and WTI futures.

Source: CQG

The weekly chart shows a gap in NYMEX futures from $36.35 to $41.05. Price action tends to fill voids on charts over time, and the $41.05 level is now a target for the July futures contract. The high at $38.18 on June 3 worked its way into the void.

Source: Barchart

The gap on Brent futures is from $39.62 to $45.16 per barrel. The price action was working towards filling the gap on the Brent chart on June 3.

In natural gas, I favor the upside over the coming week but would only approach the market with tight stops on long positions.



The price of wheat moved higher since last week, while corn and soybean futures also posted gains. As the tensions between the US and China grow, it could threaten soybean exports to the Chinese over the coming months. The US Department of Agriculture will release its June World Agricultural Supply and Demand Estimates report on Thursday, June 11, at noon EST.

July soybean futures edged 1.06% higher over the past week and was at $8.5750 per bushel on June 3. The rising tensions with the Chinese could weigh on soybean prices, but the weather is the leading factor for the price of the oilseed over the coming weeks. Open interest in the soybean futures market moved 0.39% higher since last week. Price momentum and relative strength indicators were rising above neutral territory on Wednesday. Soybean futures were moving towards the top end of the short-term trading range. Soybean futures have been extremely quiet, with the market trading in a narrow price range, but a move above the $8.62 level would be a technical break to the upside.

The July synthetic soybean crush spread moved higher over the past week and was at the 78.75 cents per bushel level on June 3, up 3.25 cents since May 27. The crush spread is a real-time indicator of demand for soybean meal and oil. Price trends in the crush spreads can signal changes in the path of the price of the raw oilseed futures at times. The crush spread bounced off the recent lows at 74.5 cents, a sign of some buying in the soybean meal and oil markets.

I believe that a relief rally is possible in the soybean futures and would only position from the long side of the market at under $8.50 per bushel. However, the US relations with China could throw cold water on the chances of higher price levels as we are now in June. I suggest tight stops on long risk positions and would be looking to take profits on rallies. I will tighten risk parameters the further we move into the growing season, which risks tailing off to minimal levels during the peak summer months when crops become established in August. The best chances for a supply-based rally will come early in the growing season when the plants are most vulnerable. My guidance is unchanged from last week. The soybean futures market has been so quiet that something is bound to wake it from its slumber. While the prospects for trade between the US and China are bearish, a period of dry weather conditions could cause a short-covering rally. The weather is the most significant factor over the coming eight weeks.

July corn was trading at $3.2400 per bushel on June 3, which was 1.09% higher on the week. Open interest in the corn futures market rose by 3.63% since May 26. Technical metrics were just above neutral readings in the corn futures market on the daily chart as of Wednesday. Support on nearby corn futures is at then $3.09 level, on the continuous contract, $3 per bushel is a line in the sand on the downside. Long positions should have stops below $3 per bushel. Technical resistance is at $3.3075, the May 28 high. 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 July ethanol futures rose by 2.15% since the previous report. July ethanol futures were at $1.1400 per gallon on June 3. The spread between July gasoline and July ethanol futures was at 2.07 cents per gallon on May 27 with ethanol at a premium to gasoline. The spread was 7.76 cents narrower since last week as gasoline outperformed the biofuel in July futures.  The prospects for corn prices are a function of both the weather and the price of gasoline and crude oil. Corn found support from the energy sector over the past week, which lifted the price to its higher level since April 23. The price rose to only one tick or 0.25 cents below the April 23 peak at $3.31 per bushel over the past week.

July CBOT wheat futures rose 1.49% since last week. The July futures were trading $5.1200 level on June 3 after rejected prices below $5 in mid-May. Open interest increased by 3.35% over the past week in CBOT wheat futures. The support and resistance levels in July CBOT wheat futures stand at $4.9375 and $5.2800 per bushel. Price momentum and relative strength were on either sides of a neutral condition on Wednesday on the daily chart.

As of Wednesday, the KCBT-CBOT spread in July was trading at a 54.25 cents per bushel discount with KCBT lower than CBOT wheat futures in the May contracts. The spread widened by 1.50 cents since May 27. 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.” 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 was a sign of stability for the price of wheat.

I will continue to hold long core positions in futures and the CORN, WEAT, and SOYB ETF products over the coming weeks. The further we move into the growing season without any significant price appreciation, I will work to cut position sizes. The time of the year when crops are most vulnerable to the weather is between now and July. As crops mature, they can withstand periods of adverse conditions. I continue to favor the long side but will be looking at the calendar as a time stop on positions is likely to be the optimal approach to controlling risk. Grains have been disappointing, but we are only at the beginning of the growing season, and uncertainty over the 2020 crop will remain at an elevated level over the coming weeks.

An increase in tensions between the US and China is not supportive of soybean prices, but the weather could change that in the blink of an eye.


Copper, Metals, and Minerals

The industrial commodities moved mostly higher since last week. Copper on COMEX and the LME were higher. The prices of all of the other base metals moved to the upside since May 26. The Baltic Dry Index and iron ore posted gains but lumber and uranium prices slipped.

Copper rose 4.43% on COMEX over the past week. The red metal was 2.09% higher on the LME since the last report. Open interest in the COMEX futures market moved 3.73% higher since May 26. July copper was trading at $2.4875 per pound level on Wednesday. The price was probing above the $2.50 level. Copper is a leading barometer for the overall health and wellbeing of the Chinese and global economies. Over the past week, LME inventories were lower while COMEX stockpiles grew.

Long-term technical support for the copper market is at the early 2016 low of $1.9355 per pound. From a short-term perspective, the first level on the downside stands at $2.3140 per pound on July futures, and then the $2.2895 and $2.0595 levels. 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. Then rising tensions over coronavirus, Hong Kong, and trade could cause volatility in the sector. 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. By 2011, the copper price rose to a new all-time high at just under $4.65 per pound. Technical resistance is now at $2.6250 per barrel on the July futures contract on COMEX. The markets are not yet out of the woods when it comes to coronavirus. Any outbreaks that cause the economy to shut down again or take a significant step back in social distancing easing could cause selling to return to all markets, and industrial commodities could fall sharply. Therefore, caution is advisable in copper, which can become extremely volatile during risk-off periods. We could see volatility increase as tensions between the US and China rise. However, the recent price action has been constructive.

The LME lead price moved higher by 0.63% since May 26. 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 has weighed on the price of lead because of falling fuel prices. The price of nickel moved 3.26% 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 2.67% since the previous report. Aluminum was 1.06% higher since the last report. The price of zinc posted a 2.71% gain since May 19. Zinc was below the $2030 level on June 2. Nonferrous metals remained within their respective trading ranges.

July lumber futures were at the $348.10 level, 3.28% lower since the previous report. Interest rates in the US will eventually influence the price of lumber. Lumber can be a leading economic indicator, at times. The price of uranium for July delivery fell 2.33% after recent gains and was at $33.50 per pound. The world’s leading producer, Kazakhstan, suspended production nationwide for three months to slow the spread of COVID-19, which helped to lift the price over the past months. The volatile Baltic Dry Index rose 7.91% since May 27 to the 546 level. June iron ore futures were 7.31% higher compared to the price on May 27. Supply shortages of iron ore from Brazil have supported the price over the past year. Open interest in the thinly traded lumber futures market rose by 0.08% since the previous report.

LME copper inventories moved 6.15% lower to 254,275 as of June 2. COMEX copper stocks rose by 12.09% from May 26 to 63,053 tons. Lead stockpiles on the LME were 0.87% higher as of June 2, while aluminum stocks were 1.80% higher. Aluminum stocks rose to the 1,505,550-ton level on June 2. Zinc stocks decreased by 7.93% since May 26. Tin inventories fell 23.98% since May 26 to 2,425 tons. Nickel inventories were 0.59% lower compared to the level on May 26.

We own the January 2021 $15 call on X shares at $3.30 per share, and it was trading at 27 cents on June 3, down 2.0 cents since the previous report. The details for the call option are here:



US Steel shares were at $8.69 per share and moved 1.88% higher since last week.

FXC was trading at $10.14 on Wednesday, $0.85 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.

I remain extremely cautious on the sector and have limited any activity to very short-term risk positions. Brewing tensions between the US and China could cause a return of risk-off conditions to the industrial metals and commodities as can any new outbreaks of Coronavirus over the coming weeks and months. Keep stops tight on all positions in this sector that is highly sensitive to macroeconomic trends. Very little changed in this sector since last week. Last week, I highlighted the breakout in uranium, this week the market edged 0.73% lower to the $34.05 level on July NYMEX futures.

On May 27, I recommended a long position in PICK, the metals and mining ETF product. We bought PICK at the $23.38 per share level, and it was trading at $25.41 on June 3, up 8.68% for the week. I continue to rate this metals and mining ETF that holds shares in the leading producing companies in the world a long-term hold. I would add to the long position on price weakness over the coming weeks and months if another risk-off period occurs.


Animal Proteins

August feeder cattle were a bit higher since May 27, but the prices of live cattle and lead hog futures in August posted losses. The USDA will release its next WASDE report on June 11 and will summarize the supply and demand factors impacting the meat markets now that we are in the 2020 grilling season. While late May through early September is typically the peak season for beef and pork demand, 2020 is anything but an ordinary year. At the same time, new tensions between the US and China could cause price volatility in the animal proteins futures markets over the coming weeks and months.

August live cattle futures were at 97.35 cents per pound level down 3.42% from May 27. Technical resistance is at $1.0190 per pound. Technical support stands at 95.45 cents per pound level. Price momentum and relative strength indicators were below neutral readings on Wednesday. Open interest in the live cattle futures market moved 3.14% higher since the last report. The disconnect between cattle prices in the futures market and consumer prices at the supermarket continued as slowdowns at processing plants have created supply shortages.

August feeder cattle futures continued to outperform live cattle as they rose by 0.15% since last week. August feeder cattle futures were trading at the $1.342250 per pound level with support at $1.28325 and resistance at $1.38450 per pound level. Open interest in feeder cattle futures rose by 4.96% 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. Price momentum and relative strength metrics were also above neutral territory on Wednesday, which is a sign of technical support for the price of beef in the futures market.

Lean hog futures declined since the previous report. The August lean hogs were at 54.900 cents on June 3, which was 4.69% lower from last week’s level. Price momentum and the relative strength index were below neutral readings heading for oversold territory on June 3. Support is at 49.00 cents with technical resistance on the August futures contract at the 61.175 cents per pound level. The same issues impacting beef are present in the hog market with low prices at origination points and bottlenecks at processing plants causing consumer prices to rise and shortages to limit availability for customers.

The forward curve in live cattle is in contango from June 2020 until April 2021. There is a backwardation between April 2021 and August 2021, when contango returns until October 2021. The Feeder cattle forward curve is in slight contango from August through November 2020 before it flattens until April 2021. The forward curves did not move much over the past week.

In the lean hog futures arena, after contango from June through August 2020, there is backwardation from August 2020 until October 2020. Contango exists from October 2020 through June 2021. There is a backwardation from June through October 2021. Futures prices have moved to reflect the potential for shortages for consumers. Some supermarkets continue to limit beef, pork, and chicken purchases to prevent hoarding.

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 marginally higher as the price of live cattle slightly outperformed lean hogs on a percentage basis.

 Source: CQG

Based on settlement prices, the spread was at 1.77320:1 compared to 1.75000:1 in the previous report. The spread rose by 2.32 cents as live cattle fell more than lean hog futures over the past week. The spread fell to a low of 1.2241 in mid-March, which was below the long-term average making pork more expensive than beef. Beef futures moved over the average and kept going and are now more expensive compared to pork on a historical basis on the August futures contracts.

We will get a look at the supply and demand fundamentals for beef and pork in next week’s WASDE report. Meats remain at bargain prices in the futures market as of the beginning of June, but there are few bargains in supermarkets for consumers. The dislocation in markets have been the result of bottlenecks in the supply chain caused by the global pandemic over the past three months.


Soft Commodities

Sugar, cocoa, and cotton prices posted gains since May 27. Coffee and FCOJ prices moved lower. At below $1 per pound, the price of coffee is again approaching the bottom end of its pricing cycle. Sugar was the best performing soft commodity since May 27 as higher oil prices and the rising Brazilian real supported the price of the sweet commodity.

July sugar futures rose by 7.59% since May 27, with the price settling at 11.62 on June 3. 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 now at 12.00- cents with support at 10.05 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 in April weighed on sugar as the primary ingredient in ethanol in Brazil is sugarcane. The recovery in the oil market provided support for the price of sugar. Weakness in the Brazilian currency reduces production costs and had been a bearish factor for the sugar market. Meanwhile, the Brazilian real moved higher over the past week adding to last week’s gain.

The value of the January Brazilian real against the US dollar was at the $0.194150 against the US dollar on the June contract on Wednesday, 2.59% higher over the period after trading to a new low of $0.16730 on May 14. The Brazilian currency had 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. Argentina’s recent default on debt obligations did not put downward pressure on the Brazilian real. Meanwhile, Brazil has become the new epicenter of the global pandemic, which could lead to supply chain problems for sugar, coffee, and oranges, as well as the other commodities produced by South America’s most populous nation and leading economy.

Price momentum and relative strength on the daily sugar chart were above neutral territory as of June 3 after the recent price recovery. The metrics on the monthly chart were below a neutral reading, as was the quarterly chart. Sugar made a new high above its 2019 peak in February before correcting to the downside. The low at 9.05 was the lowest price for sugar since way back in 2007. In 2007, the price of sugar fell to a low of 8.36 cents before the price exploded to over 36 cents per pound in 2011. At that time, a secular rally in commodity prices helped push the sweet commodity to the highest price since 1980. If the central bank and government stimulus result in inflationary pressures, we could see a repeat performance in the price action in the commodities asset class that followed the 2008 financial crisis. Sugar could become a lot sweeter when it comes to the price of the soft commodity in a secular bull market caused by a decrease in the purchasing power of currencies around the world. The price action in sugar over the past weeks reflects the recovery in crude oil and gasoline prices as ethanol moved higher to over the $1 per gallon level. Sugar is highly sensitive to the price of the biofuel. The bounce in the real has been a bonus.

In February, risk-off conditions stopped the rally dead in its tracks. Sugar found at least a temporary bottom at a lower low of 9.05 cents per pound. Open interest in sugar futures was 1.67% higher 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 in late 2019 and early 2020. 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. Without any specific fundamental input, sugar is likely to follow moves in the energy sector as well as the currency market when it comes to the exchange rate between the US dollar and the Brazilian real. Over the longer term, the cure for low prices in a commodity market is low prices as production declines, inventories fall, demand rises, and prices recover. We may have seen the start of a significant recovery in the sugar market after the most recent low. Over the past week, the price made a significant move to the upside.

July coffee futures continued on a downward slope and moved 3.32% to the downside since May 27. July futures were trading at the 99.10 cents per pound level. The technical level on the downside is 94.80 cents on the July futures contract. Below there, support is at around 86.35 cents on the continuous futures contract, the bottom from 2019. Short-term resistance is now at $1.1315 on the active month 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. JO was trading at $31.15 on Wednesday. Open interest in the coffee futures market was 9.75% higher since last week. I continue to hold a small core long position in coffee after taking profits during the rally in March. I stopped out of new purchases and will sit with the long core position and added again below $1. I will leave scales on the downside wide. I believe the price of coffee will find another bottom and recover. From a technical perspective, a bottom above 92.25 cents would be constructive. Coffee could make a similar move to sugar give the recent strength in the Brazilian currency.

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 in deeply oversold readings on Wednesday. On the monthly chart, the price action was below neutral and falling towards an oversold condition. The quarterly picture was also below a neutral condition. 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. I expect volatility in coffee to continue, and I will look to trade on a short-term basis with a bias to the long side. Any new positions should have tight stops and defined profit objectives.

The price of cocoa futures moved higher over the past week. On Wednesday, July cocoa futures were at the $2395 per ton level, 1.35% higher than on May 27. Open interest rose by 3.70%. Relative strength and price momentum were on either side of neutral readings on June 3. 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 on the weekly chart. We are long the NIB ETN product. NIB closed at $28.09 on Wednesday, June 3. As the Ivory Coast and Ghana attempt to institute a minimum $400 per ton premium for their cocoa exports, it should provide support to the cocoa market. The levels to watch on the upside is now at $2509 and at the mid-March high of $2631 per ton on the July contract on the daily chart. On the downside, technical support now stands at $2318 and $2183 per ton. 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.

July cotton futures rose 3.67% over the past week. The recent declines had been on the back of continued concerns about the Chinese and global economies. The increase in tensions between the US and China is not supportive of the price of cotton. However, the weather conditions across growing regions will determine the price direction over the coming weeks and months.  July cotton was trading at 60.48 cents on June 3, after falling to the lowest price since 2009 in early April. On the downside, support is at 53.20, 52.15 cents, and then at 48.35 cents per pound. Resistance stands at the 65.00 cents per pound level. Open interest in the cotton futures market rose by 0.64% since May 26. Daily price momentum and relative strength metrics were trending higher and above neutral territory on Wednesday. The USDA’s WASDE report will provide fundamental data on the cotton March on June 11.

I remain 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. Cotton is inexpensive, but the fundamentals remain problematic. The China-US issues remain a bearish factor for the price of the fiber, but the price level remains at a low level. The move above 60 cents for the first time since March was constructive for the fiber futures. Optimism in the economy could lead to more garment purchases, which supports demand for cotton.

July FCOJ futures corrected a bit lower since the last report. On Wednesday, the price of July futures was trading around $1.2820 per pound, 0.93% below the price on May 27. Support is at the $1.21500 level. Technical resistance is at $1.30500 per pound. Open interest fell by 1.87% since May 26. The Brazilian currency could turn out to be bullish for the FCOJ futures, and bottlenecks at the ports could create volatility. FCOJ broke out to the upside over recent weeks. The price ran out of steam on the upside above the $1.30 level.

Soft commodity prices were mostly higher over the past week. Coffee remains near the bottom end of their respective pricing cycles. Sugar and cotton have recovered after falling to the bottom end of their price cycles. I always prefer the long side of markets when prices fall to levels that become uneconomic for producers. Cocoa could become interesting if shortages develop because of the impact of the pandemic on West African nations. When it comes to the FCOJ market, the least liquid of the soft commodities, the price action has been mostly bullish since March. To remain in bullish mode, July FCOJ futures need to stay above the $1.0460 level. Coffee could follow sugar, if the Brazilian real continues to post gains.


A final note

As the US emerges from the height of the coronavirus epidemic, it is now facing a new challenge. Civil unrest over the past days poses a threat to the economy. Some businesses that have been closed became the victim of looting and other destructive behavior during protests over police brutality in Minnesota. At the end of last year, markets and people worldwide looked forward to the 2020s with optimism. A trade deal between the US and China lifted hopes that business conditions would thrive as the playing field on international trade leveled. However, 2020 has been a tragic year for the US and the world. Businesses are attempting to make a comeback after a self-induced coma in the economy. The last thing the US needs is a period of civil unrest that causes people to remain sheltered in their homes.

Over forty-million people lost their jobs since March. Many will return to work over the coming weeks if there are no wide-scale outbreaks of the virus. However, as companies learn to do more with less, and business does not ramp up to pre-virus levels, many of the unemployed will not return to their previous positions. The stock market gains are a glaring example of the growing division of wealth in the US. The civil unrest triggered by police brutality along racial lines could be a precursor that unleashes anger over the economic divides that exist. Warren Buffett once said that only when the tide goes out, do you find out who has been swimming naked. The pandemic and tragic death at the hands of a policeman in Minnesota have caused the tide to go out, revealing the many problems facing the US. At the same time, the US relationship with China has deteriorated over the past weeks. As the November election draws closer, the potential for more demonstrations, protests, and violent periods is at the highest level in years. Markets reflect economic and political trends. The US central bank has flooded the system with liquidity, which is likely to continue. The Fed’s balance sheet is at $7 trillion and growing. The government rolled out programs to help people and businesses through an unprecedented period in history. The current environment erodes the faith and credit of the US government, and other governments around the world. The dollar has been falling because of the recent events.

I believe the price tag for the current environment will be a decline in the purchasing power of the dollar and all foreign exchange instruments that depend on the full faith and credit of the governments that print the legal tender. Commodities are the essentials that feed, house, and power people worldwide. They are essential for daily life. We witnessed a powerful rally in the commodities asset class from 2008-2011, which was the price tag for government actions to address the 2008 financial crisis. We could see the same results in the raw materials asset class over the coming months and years. Commodity prices at current levels could turn out to be bargains when looking back in the years ahead. I favor allocating a significant percentage of a portfolio to hard assets that will withstand the deterioration of fiat currencies.



As I wrote over the past weeks, I plan to increase the price of The Hecht Commodity Report in the coming months. 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.