Commodity wrap - Oil, Cocoa, Copper, Soybeans (03.11.2020)

• Exports from Libya in the previous month doubled and amounted to over 400,000. barrels per day,
• However, Russia announces that there is a chance to suspend the tapering of production cuts and maintain cuts at the level of 7.7 million barrels per day until the middle of next year
• Kuwait, the United Arab Emirates and, of course, Iraq do not want to maintain higher production cuts. Saudi Arabia does not have a clear opinion yet, but it is likely the Saudis will want to maintain large production cuts
• Oil may still be under pressure as many countries are introducing new restrictions
• Biden's win may trigger a downturn in the oil market, while Trump's win may meet with a brief positive reaction, although the oil price will remain within the consolidation zone

Oil price is trading higher as some countries seek to maintain larger production cuts. Additionally, weaker dollar supports the recent rebound. Source: xStation5

Cocoa:

• The cocoa price has dropped to its lowest level since July
• Seasonality indicates that the price may fall even further until January
• Chocolate products are experiencing lower demand due to the coronavirus
• For example, Hershey's sales related to the American tradition of "trick or treat" (which is becoming more and more popular also in Europe) account for approx. 10% of annual revenues
• On the other hand, demographic changes and changes in food trends in Asia indicate a strong increase in demand in the coming years
• With an additional fee of $400 per ton of cocoa in Ghana and Côte d'Ivoire, processors may delay their purchases in anticipation of lower prices
• Bloomberg points to 200,000 tons of oversupply in the season, while Citigroup points to 300 000 tons of oversupply

One can observe a significant reduction of long positions, as was the case in March, although the scale is currently much smaller. Source: Bloomberg

One can see that the price of cocoa has recently been trading below the 5-year average. Nevertheless, taking into account the seasonality, we should expect the declines to last not only until the end of the year, but also throughout the first quarter of 2021. Source: Bloomberg

Copper:

• The price of copper remains just below $ 7,000 per ton
• Long-term seasonality indicates that the price reached local low
• The high positioning on copper is related to this year's significant increase in long positions
• Short positions remain at an extremely low level since the end of March
• Copper inventories on global exchanges recovered slightly but remain below the 5-year range
• China plans to suspend imports of some commodities from Australia, last year China imported 1.05 million tonnes of copper from Australia, which accounted for approx. 5% of all imports
• Such a move may mean an increase in demand for copper from other countries, mainly from South America
• The earthquake off the coast of Chile did not cause production problems
• Biden's win positive for copper - support for green energy, infrastructure projects
• Shanghai Premium is at its lowest level in months, currently around $ 45 / tonne compared to $ 100-110 / tonne in May-July

The price of copper remains high, overall we are dealing with rather positive news in the market, although there are some warning signs. A potential correction should reach the level of $ 6,300 per ton. Source: xStation5

Soy:

• The price of soybeans remains high at around 1,070 cents a bushel, the area where Trump started a trade war with China
• Very high positioning poses a threat to soybeans - this could indicate potential declines in the near term
• Taking into account the forward curve, we can see a slight backwardation in the short term and very large in the long term, 6 months ago the situation was different
• US soybean exports to China above the 5-year average

Extremely high positioning (extreme divergence between long and short positions). Source: Bloomberg

The very high soybean exports from US to China in recent weeks have supported higher prices. Source: Bloomberg

Backwardation in the soybean market, but only slight differences in the 1 year perspective. Source: Bloomberg