Commodity wrap - Corn, coffee, silver, natural gas (12.01.2021)

Corn:

• Price broke above 500 cents a bushel for the first time since 2014
• The current rally is similar to the situations from 2007-2008 and 2010-2011
• Extremely high positioning, seasonality does not suggest a specific direction
• Soy is 30% off its historic highs, while corn is 70% away from its all-time high, which shows a lot of untapped potential
• The key technical resistance is located around 575 cents per bushel and is marked with the 50% retracement of the downward wave that started back in 2012
• Record prices in China (white line, price for a 10-ton contract in dollars), China is expected to increase import of commodities due to significant increases in domestic prices. Expectations are keeping prices high, at least until China's New Year celebrations
• The WASDE report is to show a clear decline in the ending inventories forecasts for the 20/21 season

Record corn prices in China. The country is increasing the prospects of importing corn and soybeans, which is good news for American farmers. Source: Bloomberg

The expectations regarding the WASDE report which will be released on January 12 indicate that the ending inventories of corn will be reduced. The situation is to be similar on the soybean market. Source: Bloomberg

The closest short-term target for corn is located around 575 cents a bushel. Nevertheless, the price is about 70% off the historical highs. Source: xStation5

Coffee:

• The price of the commodity remains relatively high given the weak performance of the Brazilian real
• However concerns regarding next harvest season in Brazil appeared amid the anticipation of drought
• According to some forecasts we could witness 15-40% production decrease compared to 2019
• On the other hand, the coronavirus continues to hurt demand, recent data show that the US coffee shop market shrank by 24% last year
• The key support for coffee is located around 115 cents a pound
• Despite concerns regarding droughts, Brazil has an enormous amount of coffee which could replenish inventories at ICE. ICE's global inventory is expected to increase by 23% this year

ICE coffee inventories have already increased by over 30% compared to the almost 20-year minimum. Thanks to Brazilian coffee, inventories may rebound by up to 23% this year. Source: Bloomberg

The previous major drought in Brazil did not lead to an upward trend in the coffee market, although prices jumped above 200 cents per pound (however, this was only a short-term increase and prices in 2015 fell to around 120 cents per pound). Source: Bloomberg

The currently weak Brazilian real suggests a possible further pullback of coffee prices. Source: xStation5

Silver:

• The behavior of silver is similar to what happened in the middle of the 2008-2011 boom
• Similar behavior would indicate possible upward move towards 350% of the Fibonacci retracement
• Seasonality indicates a continuation of upward trend in the long term, theoretical seasonal low in early March

ETFs are close to last year's high. The economic recovery and the global focus on renewable energy sources may further boost silver's price. Source: Bloomberg

Silver is still very far from its historic peaks. It seems that inflationary fears and expectations of economic recovery will support silver prices. Source: xStation5

Natural gas:

• The price breaks above very important resistance and tests the 3.00 level
• Very high gas and energy prices in Asia due to extremely low temperatures
• Seasonality indicates that we should expect another sale-off from mid-January
• Activity of gas buyers is significantly decreasing
• Record LNG exports from the US in December, gas prices are rising worldwide, while in the US they remain at relatively low level
• US gas inventories follow seasonality

Worldwide gas prices are very high compared to the US spot price. Source: EIA

Nevertheless, there is still a lot of gas in the US, so there is no concern about the lack of gas availability. We are currently seeing buyers retreat. Net positioning drops below 0 (sellers advantage). Source: Bloomberg