Daily Close | Forex, Metals, Oil, Agriculture July 27, 2020


The combination of good export buying in general and the buying inside the US due to the Coronavirus has made the market short old crop Rice. Spring Wheat was developing under good growing conditions but futures prices closed higher. New crop prospects appear solid for increased production in the coming year. It is still dry in France and Russia and now Spring Wheat areas of Russia are being affected. Spring Wheat markets show mixed trends as good conditions are also reported in much of Canada. There are ideas that the mills are well covered into new crop, but little Rice is available from producers. Mr. Scoville is a futures market analyst specializing in grains, softs, rice, oilseeds, and tropical products such as coffee and sugar. Russian Winter Wheat yields have improved over time as harvesters move into areas that had better growing conditions. About half of the Argentine Wheat belt is too dry. General Comments: Winter Wheat markets were higher at the close last week as the Winter Wheat harvest started to get complete.


These MSM idiots attributing gold’s move to the dollar’s decline are either stupid or have their head in the sand. The Fed opening the monetary spigot in the wake of the COVID Crash has weakened the dollar while fueling spikes in precious metals. So now the bottom’s going to drop out of the dollar; I think gold’s going to go through the roof.” “I can take my gold and use it. Gold does not have a traditional inverse relationship with the dollar. Last week’s finishing price just happens to be less than a dollar above the average price target on the street currently. Source: Bloomberg As the dollar was dumped today, so were bonds… Meanwhile, both EUR/USD and AUD/USD are trading higher than they were at 2020 open after watching the entirety of the US Dollar’s bullish move get priced-out. I think the dollar is going to crash.” Peter asked a poignant question: how is the Fed going to stop the dollar from falling? Higher dollar increases the cost of oil imports for other countries namely emerging markets, and with a higher dollar, the “funding squeeze” for emerging market increases, which dampens demand.

People are trying to get out of the dollar. But if the dollar is in freefall and people lose confidence in the dollar, these other fiat currencies need to be backed by something. … If the dollar is going to fall, and people believe it is going to fall, they’re going to dump those bonds. Another example came up today in the as the Wall Street Journal discusses the “traditional relationship” between gold and the dollar in Gold Prices Hit Record as Dollar Drops. So, as the dollar goes down and more people want to get rid of it, So, maybe we would have to start offering 5 or 10% interest on Treasuries. OPEC also stopped supporting the oil market back in 2014, which led to a multi-year downturn, but demand was also being squeezed from the higher dollar. Now, what you will notice from 2016 to 2019 is that there was a divergence between oil and the dollar.

I’ll fill in the actual numbers once we get them, and dollar values are in billions except for per share amounts. But, over the years, the dollar has presented a very troubling headwind for oil. Many senior analysts believe that a dollar crash is coming, and if it does, MSI will have to account for losses on currency fluctuations. Mainstream media is continually wrong about the relationship between gold and the dollar.


Despite this, the premise that the high-grade gold asset will have a levered reaction to the price of gold makes sense. The senior gold producer reported annual gold production of 2.17 million ounces vs. a prior outlook of 2.45 million ounces, an 11% miss despite minimal disruptions from COVID-19. Fortunately, however, the 21% higher realized gold price offset the 11% miss on production guidance. (Source: NovaGold) NovaGold’s high grade, undeveloped domestic gold asset has been recognized for years as a long term contrarian gold investment. Annual gold production came in at 775,000 ounces, and this was well below the guidance mid-point of 800,000 ounces. The culprit for the significantly lower production was lower throughput in FY2020, despite slightly higher grades year-over-year (0.90 grams per tonne gold vs. 0.72 grams per tonne gold). Meanwhile, the company has over 110 million ounces of gold resources and is currently trading below $300.00/oz based on those resources.

Fortunately, the silver lining was that even with two mines massively underperforming, Cadia outperformed, and the 20% jump in the gold price picked up the slack. (Source: Company Website, Company News Release) Moving over to the company’s Telfer Mine, we saw annual gold production of 393,000 ounces at all-in sustaining costs of $1,281/oz. The white metal has since outperformed gold dramatically, causing the gold:silver ratio to fall precipitously. But as we argued at the time, the unprecedented cheapness of silver versus gold represented a once in a lifetime opportunity to buy silver. Governments are going to turn to gold.” “ … The supply of gold, ever since we’ve been mining gold, the supply increases by about 1% per year. Fundamentally, the character of both the silver and gold markets has changed during the course of this year’s rally. NovaGold’s valuation could outperform gold and gold miners that have lower quality assets, or higher costs and/or greater risk.

If the price of gold (GLD) continues to climb, NovaGold should also continue to outperform gold and even most producing miners, which it has for years. This slightly higher throughput and higher gold recovery rates slightly offset the lower grades year-over-year but were not enough to avoid a drop in production from FY2019 levels. (Source: Company Presentation) So, why bother with Newcrest after a year of declining gold production and rising costs? The significant miss was tied to a challenging year at the company’s most significant contributor to gold production, Lihir, which struggled with lower grades for most of the year. This translated to a 17% drop in production year-over-year, driven by significantly lower grades (2.38 grams per tonne gold vs. 2.86 grams per tonne gold). Barrick Gold (GOLD) also owns a 50% interest in the project.


China is expected to export 1.3 million-1.5 million mt of gasoline in August, while gasoil exports could possibly hit 2 million mt. With valuations still completely disconnected with oil market fundamentals, we think investors should be positioned to take advantage of the oil bull market. During the worst of COVID-19, persisting utilization with very low oil prices was a boon to refinery crack spreads, which held strong much longer than the industry at large. Despite the setback, Chinese refineries have been maintaining high run rates in order to digest record-high crude imports, prompting oil product inventory to surge. During COVID-19, despite the nightmare that the oil industry experienced, renewable diesel, which is served into regulated markets where blending requirements are mandated, stood strong, even improving in profitability. You can also combine all the various fundamental elements that kept pushing oil prices higher, but the demand side was materially supported by a falling USD.

With low oil prices and aerospace headwinds, HON’s other units can help mitigate the damage, but the company will still face profit pressure. A pick up in crude demand has seen Dated Brent prices recover from the April lows, but on the sea, this has served to worsen floating storage economics. Tanker freight rates nosedived after experiencing a floating storage bonanza in April which saw rates for VLCCs on a WAF-East voyage near record-highs of over $70/mt in early April. Oil lobbies would prefer renewable diesel over other renewable energy sources, so the adoption of renewable diesel within government mandates may increase. Fast-forwarding to the 2014-2020 oil downturn, and you can see the rise in USD foreshadowed the drop in oil back in 2014. Similarly, oil exploration activity is unlikely to return to pre-COVID-19 levels for some years. If it wasn’t for OPEC+ the last 4 years, oil prices would’ve been materially lower. Performance Materials and Technologies (PMT) has been hit by low oil prices causing companies to cut back on drilling and exploration activity.

This divergence is largely thanks to OPEC+ being created at the end of 2016 providing constant oil supply cuts to the market to prop prices higher. Much of the decline is a consequence of reduced value of oil inventories held by the company, but the rest is due to the pressured crack spread. For example, we can take a look over the last 20 years how USD has influenced oil prices. In comparison, China exported only 676,000 mt of gasoline and 1.45 million mt of gasoil in May, latest data from General Administration of Customs showed. (Source: Q2 2020 Neste Pres) In the face of the substantial decline in oil products, renewable products have been going strong. As any expert will tell you, predicting the price of oil is near impossible.

United States

… it could have been stopped,” Trump said during the 45th G7 summit at the end of last summer held in Biarritz, France. Finally, Reid has conducted a a flash poll, with the question: “Where do you think the Fed balance sheet will be in a decade?” Over the past three years, the Nasdaq provided an annual return of ~21%, compared to ~9.1% and ~6.3%, respectively, for the S&P 500 and Dow. In nominal terms it took 94 years to hit the first trillion of Fed balance sheet. Companies in the US have raised over $13 billion in convertibles in April alone, making it the highest recorded sale since May of 2008. It would not be good for Neste if the US refiners started adding renewable diesel capacity to their facilities, which would flood one of Neste’s chief markets. This decline is a reflection of the market’s concerns about the US economy and their expectations for a dovish Fed. In total, the Fed will continue to purchase roughly $9 billion in Treasurys and MBS almost every day for the next two weeks.

This, as the US 10-Year Treasury yield, rests on a significant level of support around 55 basis points. The headline numbers did miss Wall Street profit expectations, but revenue growth was more than six points stronger than consensus estimates projected. Since then, a total of $2.9 trillion in TSY and MBS have been purchased by the Fed in the open market. Against Wall Street’s consensus revenue expectations for FY21 of $3.96 billion (a conservative +17% y/y forecast), that would indicate Palo Alto Networks generating $1.46 billion in cash flows. The recent bearish bets in the S&P 500 complement a lot of bearish betting that has taken in the Nasdaq 100 ETF (NASDAQ:QQQ) since the beginning of July. European officials have claimed Trump’s insistence on letting Russia back in has “ruined” past meetings among the lead economic powers. Microsoft’s share repurchases represent just 1%-2% of its market cap versus 5%-7% for Apple (NASDAQ:AAPL) and 10% for Goldman Sachs (NYSE:GS) (the last 2 quarters, for Goldman).

In case that wasn’t enough, Congress is still trying to agree on another round of fiscal stimulus as the US fights off the COVID-19 pandemic. For one, thanks to persistently low inflation and the Fed’s unprecedented monetary stimulus, the 10-year Treasury yield has dipped under QQQ’s dividend yield for the first time ever. Fedcoin could also be used to “encourage” individuals to patronize “green” business, thus fulfilling Fed Chair Jerome Powell’s goal of involving the Fed in the fight against climate change. Considering also that the renewable diesel operations are being given negligible value by markets in the US as well, we’d definitely prefer their value proposition too. While the US, Europe, Japan and China had considerable flexibility for unconventional monetary policy, lower rates and liquidity programs – emerging market Central Banks don’t often enjoy such latitude.


A record stimulus package announced by the EU helped fuel global stocks at the start of the week as the recovery in the global economy looked set to continue. Importantly, the storage sites are able to act as a European gas storage “overflow”, given that stocks in the EU are currently 84% full. File image via TellerReport Citing coronavirus fears, Merkel bowed out, followed by others. The decisiveness by EU leaders has fostered a positive sentiment around the Eurozone.