Commodities wrap - Cocoa, Soybean, Gold, Oil (2020-02-11)

5:39 PM February 11, 2020


  • Cocoa price has increased significantly since the end of December, reaching local highs from 2018

  • The price has increased by over 20% since June 2019 when two West African countries that are the biggest producers of cocoa decided to create a “cartel”

  • Coronavirus fears do not affect cocoa price, in contrast to oil price

  • A survey conducted by Reuters indicates a 6% drop in prices by the end of this year amid higher supply in West Africa

  • Presidential election in Ghana and Ivory Coast may lead to high price volatility

  • Since 2000 there have been two civils wars resulting from political clashes in Ivory Coast

  • Cocoa market is dependent from the pound sterling, which tries to rebound after Brexit turmoil

Measures taken by Ivory Coast and Ghana led to a significant cocoa price rebound and overbought looking from futures market perspective. One can notice that long positions and net positions reached high levels from 2013-2014. Nevertheless, it does not generate a contrarian signal amid lack of short positions rebound. Source: Bloomberg



  • Soybean price remains below 900 cent per bushel amid lack of high demand for American soybean

  • A significant drop in soybeans crop inspections in the US is not a good sign, but at the same time it reflects the current situation concerning coronavirus

  • China’s officials stated that their country will not be able to comply with the trade deal agreement regarding increase of US agricultural products imports

  • Good harvest in Brazil and weather conditions improvement in Argentina along with weak performance of local currencies lead to low competitiveness of American soybean

A significant drop of crop inspections in the US reflects lack of demand for soybeans. Moreover, farmers prefer to keep the soybeans in warehouses rather than sell it at the current prices. Source: Bloomberg


The Brazilian real is strongly oversold in our opinion. Nevertheless, it means that Brazilian soybeans are very competitive on the global market. Given a good harvest in Brazil and weak currency, this may be a potential sign of future sell-off for American soybeans. Source: xStation5



  • Gold price has been in a consolidation move which is connected with high prices of global stocks and the US dollar

  • Options market does not indicate any sharp gold price movements. On the other hand, the options market acts very similar as in November when gold prices surged. 

The options markets do not indicate any sharp movements of gold price, although risk reversal indices behave very similar as in November which resulted in a new upward wave of gold price . Source: Bloomberg

The current price continues to be in a short-term consolidation mode. The nearest support lies at 1,540 handle. Source: xStation5



  • It is calculated that the current impact of coronavirus decreases the demand in China by 3 mbd, which is ⅕ of total consumption.

  • BP calculates that the drop in demand will be noticable for OPEC. The decline in demand for OPEC oil may total 200-600 thousand barrels per day, which requires taking crucial steps by the cartel.

  • The fact that Russia does not intend to participate in additional cuts may lead to a possible breakup of the agreement after Q1. In case the virus keeps spreading, therse factors may result in a sudden price decrease (even below 40 USD per barrel)

  • Low oil prices are disastrous for economies of Russia and OPEC countries. It is also a negative outlook for the shale sector in the US, which is on the edge of profitability at current prices

  • Low prices may also indicate  production decline, bankruptcies and lay-offs, which will not be neutralised by low gasoline prices (negative impact on economic growth in the US)

  • Therefore there is a high probability of taking measures by oi producers, which should lead to price rebound. On the other hand, the worst-case scenario also seems possible.

Shale oil production in the US has been increasing due to maximum utilization of the best wells. However, the number of active oil rigs is falling which may indicate that there is no cash for further development in the sector. Source: Bloomberg

The oil price drop has stopped in the vicinity of 50 USD per barrel. In fact, a further epidemic spreading or possible collapse of OPEC+ agreement could lead to a much deeper decline. On the other hand, most of the negative factors are already priced-in. Source: xStation5


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