Why Was Coffee in the Spotlight Early Tuesday Morning?

• Coffee closed nearly 6% higher to open the week, the backwardation/inverse in its forward curve strengthening along the way.

• Corn followed Monday's solid rally by slipping lower overnight into Tuesday morning. However, Monday's trade volume in Dec26 appeared to be record large for a December corn issue. 

• Both the oilseed and wheat sub-sectors were under pressure to start the day, the outlier being Canola. This market will be fun to watch given the US president's latest trade war. 

Morning Summary: One market I mentioned briefly in Monday’s Afternoon Commentary was coffee, as the December contract (KCZ26) opened the week with a rally of nearly 6%. And while Dec is down about 1.2% early Tuesday, maybe some typical Turnaround activity, the reality is the market’s forward curve continues to show a strong inverse (backwardation for those folks in New York) meaning supply and demand has been, is, and will continue to be bullish. Why am I talking about coffee early Tuesday morning? Well, it’s nice when a market makes sense. In other news, the news is the same. Literally. The US administration, after months of “obliterating” Iran on the battlefield, to no avail, will now “squeeze” Iran economically. (According to the Wall Street Journal, the plan was outlined by Treasury Secretary Bessent, he of the “double-debt buyback” plan previously.) The Energies sector is under pressure once again with WTI (CLV26) down $2.50 (3.0%) to start the day while diesel fuel (distillates) (HOU26) is 2.6 cents (0.6%) in the red. Another market seeing some potential Turnaround activity is gold. The December issue (GCZ26) added as much as $57.20 overnight, extending this week’s gain to $74, before slipping back into the red by as much as $27.30 through pre-dawn Tuesday.  

Corn: The corn market was not as exciting this time around the clock as it was to open the week. Still, the December issue (ZCZ26) posted a 6.5-cent trading range, from up 5.25 cents to down 1.25 cents, on trade volume approaching 50,000 contracts, and was sitting fractionally lower at this writing. As I talked about Monday, from a technical point of view, Dec corn looked to be getting a bit top-heavy. As the day played out, with Dec closing 7.0 cents higher but 8.75 cents off its session high, trade volume exploded to roughly 510,000 contracts while open interest in Dec increased by 18,100 contracts. Though search engines disagree with me, a quick check of history indicates this was record large daily trade volume for a December corn futures contract. From another technical point of view, Dec26 is teasing a potential bearish short-term turn on its daily chart, with the ripple effect being a possible bearish turn on its intermediate-term weekly chart. Fundamentally, the market hasn’t changed much with the Dec-March futures spread covering a neutral 48% calculated full commercial carry at Monday’s close while the May-July spread saw its carry trimmed to 0.75 cent. The National Corn Index came in at $4.6475 last night, up 8.0 cents for the day. 

Soybeans: Given the continued selloff seen in the Energies sector, it’s not overly surprising to see the oilseed sub-sector under pressure, mostly, early Tuesday morning. The outlier is canola, where support for the Canadian crop is likely to come from the rest of the world given its status as the latest country to be targeted for a Trade War by the US president. (Recall Monday’s Afternoon Commentary was titled “Poutine Power”.) December soybean oil was down 1.1 cents at this writing and near its overnight low. Over in soybeans, the November issue (ZSX26) is down 6.75 cents and on its session low while registering trade volume of 25,000 contracts. Monday’s session saw November lose as much as 21.25 cents before settling 15.25 cents lower for the day. Reportedly, Nov lost 5,730 contracts of open interest indicating much of the pressure came from noncommercial long liquidation. Fundamentally, the Nov-January futures spread closed at a carry of 14.0 cents Monday and covered a neutral 49% calculated full commercial carry. The Brazilian crop-led March-May futures spread finished with a carry of 6.5 cents and covered 22%. While this spread is still bullish, last Friday’s close was 4.75 cents carry and 16% meaning commercial interests were selling to start the week. 

Wheat: The wheat sub-sector was not bullish overnight. In other words, for those who have continued to beat the imaginary bullish drum, the three markets could still be considered bearish, particularly SRW. After posting a wide trading range Monday, 18.5 cents if I recall correctly, the December issue (ZWZ26) finished 0.25 cent higher for the day. However, Dec lost 0.75 cent to March, putting the spread at a carry of 18.0 cents, its lowest daily close since 18.25 cents on May 7, and covered 74% calculated full commercial carry. A look at the quote screen early Tuesday morning shows Dec posted an overnight trading range of 16.25 cents, from up 6.25 cents to down 10.0 cents and was within sight of its session low at this writing. Technically, Dec looks to have rolled over into a short-term downtrend on its daily chart at last Friday’s close. If so, this would make Monday’s spike rally and fractionally higher close a classic wheat Head Fake. We’ll see how this plays out. Over in HRW the December issue is down 14.25 cents after closing 5.25 cents lower Monday and dropping as much as 14.75 cents overnight. December HRS is down 8.0 cents to start the day, also within sight of its session low.