Commodity Wrap - Silver, Coffee, Oil, Wheat

Silver

• Silver has been one of the best performing commodities this quarter (data from futures market)

• Strong demand for silver from ETFs continues and may lead to one of the biggest deficits in history

• Number of open long positions has been rebounding in the previous weeks but an increase can also be spotted in the number of open short positions

• Copper-to-silver ratio is still relatively high. Declining US yields create room for more upside for precious metals

Silver has been one of the best performing commodities this quarter (futures data). Source: Bloomberg

Net speculative positioning on silver start to rebound. ETF demand remains very strong. However, silver price still trades below pre-pandemic and 2019 highs. Source: Bloomberg

Copper-to-silver and copper-to-gold ratios sit on high levels compared to US 10-year yields. Source: Bloomberg

Coffee

• Strong rebound in coffee prices at the end of very weak quarter

• Q2 2020 will probably be a quarter that sees the largest drop in demand since Q1 2015

• Negative positioning may be treated as a contrarian signal

• Coffee stockpiles on global exchange continue to fall

• Around 60% of this year's Brazilian harvest has been sold already

• Covid-19 pandemic did not trigger a demand for destruction on the coffee market. However, demand did adjust to a new Covid-19 reality and triggered price drop

Coffee stockpiles continue to fall (inverted axis). Source: Bloomberg

Speculative position on coffee is clearly negative, below local lows from February. Back then low net speculative positioning preceded a price rebound in March. Source: Bloomberg

Coffee price could experience a similar rebound as it did in March. However, price reacted to the resistance at 78.6% retracement. Source: xStation5

Oil

• Oil prices remain at elevated levels in spite of renewed coronavirus concerns

• The biggest Covid-19 outbreaks in the US are in states that generate high demand for fuels

• Incoming traffic data from the United States will be key. So far there wasn't a noticeable drop in US traffic

• Commercial air flights are resuming very slowly and jet fuel still trades at low levels. Meanwhile, US oil inventories are at record highs

• Oil WTI and Brent trade below crucial resistance levels - $41 and $45 respectively

US car traffic returning to base levels for the year would mean significant slowdown in demand for fuel. Source: Apple

Amount of jet fuel delivered by refineries is a proxy for demand from the US aviation sector. As one can see on the chart above, the amount of delivered fuel remains subdued. Meanwhile, US oil inventories are at record highs. Source: Bloomberg

Wheat

• Wheat price dropped below the support at 485 cents per bushel

• Seasonal patterns hint at continuation of declines

• Quality of US winter wheat remains high and harvest is proceeding as planned. Quality of spring wheat deteriorated but remain above 5-year average

• Export inspections data shows at potential weakening of exports outlook

Seasonal patterns show that decline may continue until the end of August. Source: Bloomberg

The latest data from the United States shows that both crop and harvest looks good. Source: Bloomberg