Commodity Wrap - Coffee, Corn, Cocoa, Copper

Coffee

• According to FAO, coffee crop yield in Brazil increased 40% over the past decade and stand at around 1.5 tonne per hectare. Yields in Vietnam increase 18% to 2.5 tonnes while Columbian yield increased 12% to 1 tonne. Yields in Central America decreased 3% to 0.6 tonnes per hectare
• Yields depend on the type of terrain (Columbia is much more mountainous) as well as the use of machinery (Brazil outperforms others in this case)
• Coffee crop from large Brazilian plantations continues to be profitable even in spite of current low prices
• The latest ICO report hints at supply surplus of 3.92 million bags in 2018/19 season
• Production in Brazil (through March) increased to 62.5 million bags (18.5% YoY)
• Rabobank expects production in Central America to decline 6% YoY in 2019/20 season
• Rabobank expects a deficit of 4.1 million bags in the next year. Simultaneously, the Bank expects a surplus of 6.8 million bags. Next year’s deficit is to be visible only on Arabica

Significant supply surplus is expected on the coffee market for another straight year. However, deficit may arrive at the market in the next year. Source: ICO

Coffee price is relatively high when we consider the valuation of the Brazillian real. It is a sugar price that better reflects Brazil-related fundamentals now. Source: xStation5

Corn

• Corn price remains near the lower end of this year’s trading range due to the latest WASDE report and trade tensions
• Trade-related uncertainties exert pressure on corn prices. However, China is not a meaningful importer of US corn
• Corn inspections fell significantly below the levels from the previous 5 years. On the other hand, exports are close to the 5-year average. Seasonal pick-up in exports is expected to begin in early-September and peak around the end of October. Low inspections may also hint at limited supply
• Corn and soybean crop quality continues to be relatively poor

Weak inspections data may hint at lacklustre outlook for exports or limited supply of corn. Source: Bloomberg

Number of long positions on corn continues to exceed the number of shorts. However, shorts may began to build already. Source: Bloomberg
Corn prices remains close to YTD lows and the upward sloping trendline. Source: xStation5

Cocoa:

• Almost a 10% price growth took place in Cameroon, well below govt’s expectations
• A production season there has been quite good so far, decent output in Ivory Coast as well, other countries have seen their output falling
• In the whole season, output in Ivory Coast reached 2138 million ton, a notable y/y increase
• Ghana has increased cocoa price for farmers by 5.2% for the 19/20 season
• US senators have recently suggested to boycott cocoa from Ivory Coast
• The chearp GBP and EUR put pressure on cocoa’s weakness
• Net positioning remains low but still off its record lows

Net positioning remains low but still off its record lows. Source: Bloomberg

Cocoa prices have begun rebounding, however, it seems to be at odds with fundamental factors. Source: xStation5

Copper: 

• Copper prices is down 5% compared to the end of 2018, the lowest since June 2017
• The important technical support at 5450 USD
• Copper prices are falling in line with expectations regarding slowing economic growth
• Electric vehicle producers’ demand keeps rising, China is the leader in this field
• A possible trade deal could be supportive of copper prices
• GS points to some hurdles for supply to grow much more at the current low prices

Copper seems to be in a position to continue moving down in the coming weeks unless a turnaround in US-China trade talks takes place. Source: xStation5